U.S. Markets close in 3 hrs 13 mins

Edited Transcript of FRBK earnings conference call or presentation 25-Apr-19 2:00pm GMT

Q1 2019 Republic First Bancorp Inc Earnings Call

PHILADELPHIA Apr 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Republic First Bancorp Inc earnings conference call or presentation Thursday, April 25, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Frank A. Cavallaro

Republic First Bancorp, Inc. - Executive VP & CFO

* Harry D. Madonna

Republic First Bancorp, Inc. - President, CEO & Director

* Vernon W. Hill

Republic First Bancorp, Inc. - Chairman of the Board

================================================================================

Conference Call Participants

================================================================================

* Adela Dashian

Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst

* Frank Joseph Schiraldi

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Welcome to the First Quarter 2019 Earnings Conference Call. My name is Jackie, and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I would now like to turn the call over to Mr. Vernon Hill. Mr. Hill, you may begin.

--------------------------------------------------------------------------------

Vernon W. Hill, Republic First Bancorp, Inc. - Chairman of the Board [2]

--------------------------------------------------------------------------------

Good morning in America to all of you on the first quarterly call for Republic Bank, FRBK. I think you all have a copy of the release with the financials.

With me today are the Chief Executive, Harry Madonna; the Chief Operating Officer, Andrew Logue; and Frank Cavallaro, the CFO.

I'd like to just mention a couple of the major points on the press release, and then we'll open them up for comments or questions.

The first quarter was an -- even though the first quarter was usually the slowest growth quarter in the retail banking business, we had a good first quarter. Deposits grew in the last 12 months $356 million. Our store growth is still averaging $27 million per store on our new stores, $14 million when you average the old stores. Loans continued a very strong growth and for the year grew 18%.

Our expansion into New York that we've discussed has finally started. Our first store at 14th and 5th is being built right now, and it opens in the summer of this year. 51st and 3rd, we're pleased to announce, is our second location, and that will probably open in the early fall.

The abnormal results for the quarter was our income declined to $400,000 or $0.03 a share -- I'm sorry, or $0.01 a share from prior $0.03 a share and I'll let Frank and the management team explain to you what was unusual about this quarter. I might point out we've had a long number of quarters with consistent and increasing earnings.

As I said, loans grew right on plan. Deposits had another growth on a year-on-year. The quarter -- the first quarter is always a funny quarter for growth in deposits. You have tax payments to make. And we suggest to you, as I have over all the years, that translating the first quarter into the run rate for the year has usually not worked out.

Demand deposits continue to be our highest-growing area, and noninterest demand deposits grew 13%. I should say our assets for the quarter were approximately, if I find my page here, at $2.8 billion, another record for Republic.

Finally, nonperforming assets continued to improve, and for the quarter just ended, nonperforming assets was reduced to 7% of capital, and nonperforming assets are down at 0.6.

With those comments, I'll turn it over to Harry Madonna, the Chief Executive. So Harry?

--------------------------------------------------------------------------------

Harry D. Madonna, Republic First Bancorp, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

I'll take some questions that you might have.

--------------------------------------------------------------------------------

Vernon W. Hill, Republic First Bancorp, Inc. - Chairman of the Board [4]

--------------------------------------------------------------------------------

Well, let me ask the first question then. Frank, why don't you start off the questions by explaining to the callers what happened in the first quarter and what was abnormal about that quarter.

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [5]

--------------------------------------------------------------------------------

So as Vernon indicated, our first quarter results of $400,000 or $0.01 a share is a trend down, which is something we haven't seen for several quarters. We were impacted by margin compression as a result of a flattening yield curve.

In addition, we're starting to incur cost related to our New York expansion, not only rent for the spaces that we're building out, but we're building team, blending teams and a management team in New York. So we're taking on those costs in the first quarter. We also had opened 3 new stores over the last 3 months so we're absorbing the run rate of those 3 stores all in 1 quarter. Historically, our stores have been spread out a little bit further, so the impact of expense lined up better with the revenue growth that those stores generate.

We've also had a little bit of seasonality in our noninterest income line. The SBA and the mortgage revenues, the gain on the sales of those loans are typically lower in the first quarter, so that adds to the lower results in Q1. Despite this, our capital levels remain adequate. We've got a leverage ratio of 9.18 and a total risk-based capital of 14.4%.

So I'll leave it at that and turn it back to Vernon.

--------------------------------------------------------------------------------

Vernon W. Hill, Republic First Bancorp, Inc. - Chairman of the Board [6]

--------------------------------------------------------------------------------

Okay. Do we have any questions on the call?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question comes from Frank Schiraldi with Sandler O'Neill.

--------------------------------------------------------------------------------

Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [2]

--------------------------------------------------------------------------------

Just on the -- Frank, on the quarterly expense, can you just speak to what portion is specific at this point to New York City expansion? And assuming you opened 2 branches this year, what you think that run rate sort of looks like by year-end?

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [3]

--------------------------------------------------------------------------------

Yes. In the first quarter, the impact to expense related to the New York expansion is about $0.5 million. We will continue to build that as we build the teams and ramp up the cost for the additional sites. However, remember, we're not generating any revenue. We're not growing deposits. We're not putting loans on the books just yet, so the run rate will also be impacted by the revenue growth that comes with these sites.

--------------------------------------------------------------------------------

Vernon W. Hill, Republic First Bancorp, Inc. - Chairman of the Board [4]

--------------------------------------------------------------------------------

Frank, this is Vernon again. Frank, I think it's not just the store expense. It's the lending teams and the cash management teams, and you have a lag effect where their expense have started takes time for the business to develop.

--------------------------------------------------------------------------------

Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [5]

--------------------------------------------------------------------------------

Sure. How -- are you generally already staffed up for the store and got the lending team in place in New York? And when do you anticipate we start seeing them -- the lending team off and running in terms of growing loans onto the books?

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [6]

--------------------------------------------------------------------------------

The lending team has been up and running for, I'd say, a month or so, and you should start seeing some increase in loan growth as those loans hit the books. We also had a cash management team in place. And our Head of Retail for New York City is in place. Luckily, it's a gentleman who ran retail for Commerce Bank. So we've staffed up pretty good right from the beginning.

--------------------------------------------------------------------------------

Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [7]

--------------------------------------------------------------------------------

Okay. And then I wonder if you could share, I remember you had 2 branches opened late in -- very late in 2018. Can we have those numbers for what those specific branches contributed in terms of deposit growth in 1Q, Frank?

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [8]

--------------------------------------------------------------------------------

Yes. So the 2 branches that opened, the deposit growth for those 2 stores was approximately $15 million for each store in the first quarter.

--------------------------------------------------------------------------------

Vernon W. Hill, Republic First Bancorp, Inc. - Chairman of the Board [9]

--------------------------------------------------------------------------------

So in the first quarter -- yes, I'm sorry, Frank, go ahead.

--------------------------------------------------------------------------------

Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [10]

--------------------------------------------------------------------------------

So that's for the first quarter, right, Frank, the $15 million for each?

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [11]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Frank Joseph Schiraldi, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [12]

--------------------------------------------------------------------------------

And then just finally on the NIM, obviously, we've gotten flatten yield curve, and that seems like it's going to be the operating environment for a bit of time here. So what are your thoughts on the NIM going forward here given the compression in the quarter?

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [13]

--------------------------------------------------------------------------------

So for us, the big impact was the Fed fund increased late in the fourth quarter, which, obviously, had a full impact in the second quarter. From what we're reading and projecting, we don't anticipate additional movements in the Fed funds rate. So we're hoping that our rate of -- our cost of funds stabilizes, while, in the meantime, our asset -- interest-earning assets will continue to grow. So new loans on the books, some security purchases in the first quarter, that will help drive and provide some relief in the margin.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Our next question comes from Michael Perito with KBW.

--------------------------------------------------------------------------------

Adela Dashian, Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst [15]

--------------------------------------------------------------------------------

This is actually Adela Dashian on for Mike. My first question is on capital deployment and raising capital in the future. What's your current outlook given your growth and the capital base?

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [16]

--------------------------------------------------------------------------------

All right, all right. So at this time, as we've mentioned, our capital levels remain adequate. The leverage ratio and total risk base are significantly above the well-capitalized thresholds. As we look down the road, if the expansion and the growth drives the need for capital, we'll evaluate it when we get to that point. We've done 2 equity raises over the last 4 years that have been very successful. But we'll also consider other means, if necessary. We'll take what the market bears at that time. Subordinated debt is an option. Preferred stock is an option. So we'll evaluate as we get closer to the need.

--------------------------------------------------------------------------------

Adela Dashian, Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst [17]

--------------------------------------------------------------------------------

Okay.

--------------------------------------------------------------------------------

Vernon W. Hill, Republic First Bancorp, Inc. - Chairman of the Board [18]

--------------------------------------------------------------------------------

If you need any capital in 2019, that's what she's asking.

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [19]

--------------------------------------------------------------------------------

That's not our expectation.

--------------------------------------------------------------------------------

Adela Dashian, Keefe, Bruyette, & Woods, Inc., Research Division - Assistant Analyst [20]

--------------------------------------------------------------------------------

Okay. And then if I could also ask what drove that elevated charge-off in the quarter.

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [21]

--------------------------------------------------------------------------------

The elevated charge-offs were related to a loan that we have previously reserved for in past years. This is one of the loans that we call legacy loan that was originated before the remake of Republic Bank. We've finally came to a resolution, and we determined that the reserve that was up there was to be charged off. And we completely removed that nonperforming asset from our books.

--------------------------------------------------------------------------------

Vernon W. Hill, Republic First Bancorp, Inc. - Chairman of the Board [22]

--------------------------------------------------------------------------------

So it didn't have any income effect. We already have the reserve for it.

--------------------------------------------------------------------------------

Frank A. Cavallaro, Republic First Bancorp, Inc. - Executive VP & CFO [23]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

(Operator Instructions) At this time, we have no further questions.

--------------------------------------------------------------------------------

Vernon W. Hill, Republic First Bancorp, Inc. - Chairman of the Board [25]

--------------------------------------------------------------------------------

Thank you all. Buh-bye.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.