Republic First Bancorp, Inc.
Q4 2018 Earnings Call Transcript

Published:

  • Operator:
    Welcome to the Fourth Quarter 2018 Earnings Conference Call. My name is Sherrill 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 would now turn the call over to Vernon Hill, you may begin.
  • Vernon Hill:
    Good morning to each of you and welcome to the Republic Bank’s fourth quarter call. With me are Harry Madonna; Chief Executive Officer, Andy Logue, Chief Operating Officer and Frank Cavallaro, Chief Financial Officer. We are pleased to report, I believe you all have a copy of our fourth quarter release. I’d like to go through the main points and then we will open it up. For the year, income – for the year before tax income increased 70% to $10.2 million. We are focusing on the pre-tax earnings instead of the after-tax earnings because in the fourth quarter of last year, we had an unusual lower charge. We are pleased to report deposits grew 16% for the year and later on we will talk about in short the mix of growth in deposits. We are proud to report that new stores opened since the beginning of our “Power of Red is Back” campaign grew deposits for the year at an average rate of $27 million each year, while the average deposit growth for all stores over the last twelve months grew $14 million. Total loans for the year grew 24% and our loan-to-deposit ratio for the year grew from 57% to 60%. We are doing very well on loan growth. Interesting for the year, the top-line grew 24% while our non-interest expenses grew only 11% for the year. So, there is quite a big draws as we call have written between the top-line growth and the expense growth. All of the expense numbers including the expenses to build our new stores including some of the pre-expenses in our New York expansion and the estimated cost of that that went through the expense line in 2018 Frank were?
  • Frank Cavallaro:
    Approximately $2.2 million.
  • Vernon Hill:
    In Page 2, again we are showing the – we are showing a chart showing the same numbers. Going down to the second part of Page 2, demand deposits continue to be the highest growth section of our deposits. 90% of our growth was in demand deposits both non-interest-bearing and interest-bearing. We did opened four new stores in the year and we expect to open seven plus in 2019. Those seven include our first new stores in Manhattan which we intend to open in the second quarter if god willing and we are pleased to announce that these stores opening, our first two stores at Manhattan are fourteenth and fifth some of you will remember that was an original [Indiscernible] store, 31st and 3rd and we hope to open those two stores on the same day and we look forward to seeing you all there. One thing did happened in 2018 we converted $10.6 million of trust preferred by issuing 1.6 million shares of common stock, reduced our average expense for the year $900,000. On the final page, three, we are showing you the growth in top-line expenses and net income. Remember, on the net income line, we suggest that you look at the pre-tax number to compare 2017 to 2018. On Page 5, of the bottom of Page 5, you can see the break down in the growth of deposits. Our cost to money in the fourth quarter was 0.83. On Page 6, our asset quality continues to perform our non-performing assets to total assets dropped to 0.6 and our loan loss reserve coverage to non-performing assets grew to 83%. That’s our points. I think Harry, would you like to say if anything?
  • Harry Madonna:
    We just see we are growing in just the way we had planned and we are busy talking about staffing at New York. We are very positive about that. It’s going very well.
  • Vernon Hill:
    And we’ve included, as you can see an impressive list early on where we are improving tough converse, team members and if vary, we will have in a page. I think we can now open the – please open up for questions.
  • Operator:
    [Operator Instructions] And our first question comes from Frank Schiraldi from Sandler O'Neill. Your line is open, Frank.
  • Frank Schiraldi:
    Good morning.
  • Vernon Hill:
    Good morning, Frank.
  • Frank Schiraldi:
    Just, Vernon on the number, one of the numbers you cited was the $14 million per store growth over the last twelve. Just kind of curious as you look at that number, obviously very strong number compared to what we see elsewhere in the industry. As you see that number, what do you think it about in terms of goals for that number or expectations for that number over the next, call it, twelve months?
  • Vernon Hill:
    Frank, we should look at the break in the growth in stores. The new stores where we only had a much higher level and the old stores have not been converted to the new model yet. So, conversely, on the $18 million range that’s certainly a safe number for us now that. These numbers between new and the old stores as the new stores become a higher percentage of the total and the New York stores become an important part, it seems pretty obvious to watch that the trend is up. I think, Frank, the important part of this growth in deposits and it was almost all in the very low, low cost deposit. As you know our model, this is not a rate-driven model.
  • Frank Schiraldi:
    Great. Thanks. And then, as you see, and you mentioned, you alluded to this too that the loan growth has been quite strong, has been stronger than the deposit growth actually over the last twelve months. I am just kind of curious, do you think that can hold on? I mean, is there enough opportunity out there that you see the loan-to-deposit ratio flattish or could it continue to trend up as it has been?
  • Vernon Hill:
    If New York wasn’t coming up, I would say it would trend up, but wouldn’t have a great jump. But we have been very strong at 19. Manhattan, for us in the old days that commerce was a tremendous producer of loans and we are not predicting, but I am hopeful that once our New York team gets going and it could switch loans and deposit ratios growing.
  • Frank Schiraldi:
    Okay, great. And then, just if I could, just a quick modeling question maybe for Frank, just the – Frank the SBA business, is there any catch-up that we could see in 1Q just in terms of stuff that maybe didn’t close late in 4Q given the government shutdown or is that – do you not see that as the case going forward here?
  • Frank Cavallaro:
    So the approval – the approved process starts during the first quarter. But we tend to see – we do tend to see some deals we think in the first quarter as the SBA group has pretty much time to normalize rates generating just under $1 million a quarter in gains. Frank, you do get lots in SBA, it’s hard for us to get the [Indiscernible]
  • Frank Schiraldi:
    Sure, understood. Okay, thank you guys.
  • Frank Cavallaro:
    Thank you, Frank.
  • Operator:
    [Operator Instructions] And our next question comes from Michael Perito from KBW. Michael, your line is open.
  • Michael Perito:
    Thank you. Good morning.
  • Vernon Hill:
    Good morning, Mike.
  • Michael Perito:
    Couple questions for me. I want to start on the – I was curious, Vernon, if you could give us a little bit more detail about the two new stores in the fourth quarter in Evesboro, and Somers Point about how the deposit growth and production was from those stores from the open?
  • Vernon Hill:
    Well, we don’t really have the numbers yet, Mike. They opened in the last week or two of this year.
  • Michael Perito:
    Okay.
  • Vernon Hill:
    So, they opened in the year left that’s really a new store for 2019, right Frank?
  • Frank Cavallaro:
    Correct.
  • Michael Perito:
    Okay. So, I mean, is it safe to say then that some of that deposit bump that from those stores that you guys have seen in some of your other ones that probably got pushed into the early part of this year?
  • Vernon Hill:
    Yes.
  • Michael Perito:
    Okay. And then, a margin question for you, Frank, just, the loan growth was strong. Obviously, the average balances, it would seem like maybe some of that was a little heavier in the back-end of the year. But I am just curious, I mean, what is your expectation for the margin near-term here? I mean, it seems like, obviously, when the New York stores come on there will be lot of liquidity coming on the balance sheet, but for the next quarter or two, it seems like loan production had some good momentum. So, I mean, is there some hope that that can result in a little relief on the margin side at this point? Or do you think you look the challenge to kind of hold steady just given the amount of liquidity that’s coming on and the flatness of the yield curve?
  • Vernon Hill:
    Before Frank, answered that Mike, average we went to New York the loan came on before the deposits that’s not what we see in most markets, but when we put a lending team in place up there even before the store is opened, I wouldn’t be surprised if our loan growth proceeds the growth in those deposits.
  • Frank Cavallaro:
    Mike, the margin, as you can see, ended the year at right around 316 and we expect it to – we project it to be in that range for the coming year, although it’s impossible to predict what percent is going to do. Last year the pressure that we felt was from the increases in the Fed Fund’s rates. As we talked about before, a segment of our deposit base would tie to that index. So we use our – with Fed Fund rate increases, but with one or two or fewer salary benefits us and maybe we get some relief in the latter part of the year.
  • Michael Perito:
    Okay. And Vernon, have you guys started kind of prospecting for some of the lending talent in the New York City area? I mean, you imagine you have at this point you maybe just give us an update about where those conversations are and what the talent pool looks like as you guys kind of begin your move into that market?
  • Vernon Hill:
    Yes we have putting our teams together right now and we will have – we will be ready to announce the first team in the first quarter of this year.
  • Michael Perito:
    Okay. Thank you guys. Appreciate it.
  • Vernon Hill:
    Thank you, Mike.
  • Operator:
    And our next question comes from Mike Caniff. Private Investor, or I am sorry private investor. Mike, your line is open.
  • Unidentified Analyst:
    Yes, hi, good morning, Vernon.
  • Vernon Hill:
    Good morning.
  • Unidentified Analyst:
    I was wondering if you might, since you made some comments about what do you think the long-term planning in terms of how growth might look through the five years out, just what geographies and lines of business that you might expect to see?
  • Vernon Hill:
    Mike, we are not really capable of giving you long-term goals and we are not going to predict it. But if you want to look what happened to me in the past, [Indiscernible] numbers when we launched in 2001 in Manhattan and see what happened there and I am not saying the same thing is going to happen here and we are not projecting any numbers but you get a good idea of what the shape of the curve could be.
  • Unidentified Analyst:
    Okay. Thank you.
  • Operator:
    [Operator Instructions]
  • Vernon Hill:
    I guess, that’s it. Thank you all.
  • Operator:
    And thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.
  • Vernon Hill:
    Thank you.
  • Operator:
    Thank you, sir.

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