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Republic First Bancorp Inc (FRBK) Q1 2019 Earnings Call Transcript

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Republic First Bancorp Inc  (NASDAQ: FRBK)
Q1 2019 Earnings Call
April 25, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the First Quarter 2019 Earnings Conference Call. My name is Jackie 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 is being recorded.

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

Vernon W. Hill -- Chairman of the Board

Good morning in America to all you on the first quarter 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, Andy 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 to comments or questions.

The first quarter was an -- even though the first quarter is usually the slowest growth quarter in the retail banking business, we had a good first quarter. Deposits grew in the last twelve 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 very strong growth and for the year grew 18%. Our expansion into New York that we've discussed has finally started. Our first store 14th and 5th is being built right now and opens in the summer of this year. 51st and 3rd, we're pleased to announce as 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, $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 the consistent and increasing earnings. As I said, loans grew right on plan, deposits had another growth on a year on year. The first quarter is always a funny quarter for growth in deposits. You had tax payments to make and we suggest you as I have over all the years that translating the first quarter into a run rate for the year is usually not work out.

Demand deposits continue to be our highest growing area and non-interest bearing demand deposits grew 13%. I should say our assets for the quarter were approximately $2.8 billion, another record for Republic. Finally, non-performing assets continue to improve and for the quarter just ended non-performing assets was reduced to (inaudible) and our non-performing assets are down at 0.6%.

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

Harry D. Madonna -- President & Chief Executive Officer

Okay. I'll take some questions a bit later.

Unidentified Speaker --

Well, let me ask the first question then. Well, Frank I want you to start off the questions by explaining to the callers, what happened in the first quarter and what was abnormal about that quarter?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

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 costs related to our New York expansion, not only rents, but the spaces that we're building out. But we're building team, lending teams and a management team in New York. So we were taking on those costs in the first quarter.

We also have opened three new stores over the last three months, so we're building the run rate of those three stores all in one 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 non-interest income line. The SBA and the mortgage revenues, the gains on the sale 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 -- Chairman of the Board

Okay. Do we have any questions on the call?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Frank Schiraldi with Sandler O'Neill. Please go ahead.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Good morning. Just on the -- Frank, on the quarterly expense, can you speak to what portion is specific at this point in New York City expansion and assuming you open two branches this year, what you think that, run rate sort of looks like by year end?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Yeah. 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 their costs 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 -- Chairman of the Board

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

Frank Schiraldi -- Sandler O'Neill -- Analyst

Sure. 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?

Vernon W. Hill -- Chairman of the Board

The lending team has been up and running for I'll say a month or so and you should start seeing some increase in loan growth as those loans hit the books. We also have 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 (inaudible) Bank. So we've staffed up pretty good right from the beginning.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay and then I want to pick out a share. Remember you had two branches open late in very late in 2018. Do you have those numbers for what those specific branches contributed in terms of deposit growth in 1Q? Frank?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Yes. So this summer, so the two branches that open the deposit growth for those two stores was approximately $15 million for each store in the first quarter.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay. Okay. And then just finally just thought on the (Multiple speakers) Yeah. I'm sorry Frank. Go ahead. So that's for the first quarter right. Frank the $15 million for each? And then just finally on the NIM. You know obviously yeah we've gotten the flattening yield curve and that seems like it's gonna 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 Cavallaro -- Executive Vice President & Chief Financial Officer

So for us the big impact was the Fed funds increase 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 are hoping that our rate across the fund stabilizes, while in the meantime our asset -- interest earning assets will continue to grow, so new loans on the books, some security purchases in first quarter. That'll help drive and provide some relief in the margin.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Got it. Okay. Thank you.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Thank you, Frank.

Operator

Our next question comes from Michael Perito with KBW. Please go ahead.

Adeola -- KBW -- Analyst

Hey, everyone. This is actually Adeola (inaudible) 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?

Harry D. Madonna -- President & Chief Executive Officer

Alright go ahead.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

So at this time, as we mentioned our capital levels remain adequate. The leverage ratio and total growth (ph) space are significantly above the well capitalized threshold. As we look down the road, if the expansion and the growth drives the need for capital, we will evaluate it, when we get to that point. We've done two equity raises over the last four years that were very successful. But we also consider other means, if necessary we will take what the market bears at the time, subordinated debt is an option, preferred stock as an option. So we'll evaluate it as we get closer to the need.

Adeola -- KBW -- Analyst

Okay.

Harry D. Madonna -- President & Chief Executive Officer

Frank, do you need any capital in 2019? That's what she's asking you.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

That's not our expectation.

Adeola -- KBW -- Analyst

Okay. And then, if I could also ask, what drove the elevated charge offs in the quarter?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

The elevated charge offs were related to a loan that we had previously reserved for in past years. This is ones of the loans that we call legacy loan that was originated before the remake of the public bank. We finally came to a resolution and we determined that the reserve that was up there was to be charged off and we've completely removed that non-performing asset from our books.

Harry D. Madonna -- President & Chief Executive Officer

So, it didn't have any income effect? We already had a reserve for it.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Correct.

Adeola -- KBW -- Analyst

Okay. Thank you very much.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

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

Vernon W. Hill -- Chairman of the Board

Thank you all. Bye, bye.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation, you may now disconnect.

Duration: 12 minutes

Call participants:

Vernon W. Hill -- Chairman of the Board

Harry D. Madonna -- President & Chief Executive Officer

Unidentified Speaker --

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Frank Schiraldi -- Sandler O'Neill -- Analyst

Adeola -- KBW -- Analyst

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