Q1 2020 Earnings Call

All parties. Please stand by your comments will be good momentarily. Once again, please standby the first quarter 2020 earnings call will begin momentarily. Thank you.

[music].

Good morning, welcome to the first quarter 2020 earnings call. My name is brand and I'll be your operator for today at this time all participants are in listen only mode. Later, we will conduct a question answer session during which you could know star one other question [laughter]. Please note. This conference is being recorded.

Well I'll turn it over to deferred until it gets or.

Good morning, everyone on the call welcome to their Republic by Q1 call, which is different than all coffee pad in the past with me is.

The chairman Chief Executive we published by every Madonna, our Chief Financial Officer.

[noise] Cat cat.

Andy the COO I hope you all have a copy of our Q1 release released this morning.

I went through the hot points, and then we'll answer or whatever you would like weaker this quarterly release in the first quarter.

We're Republic.

Of course were spills over into last month, and I actually has a tale of two world on the first grade we talked about how we public bank performed in the first quarter, where there were really no impact the PPP, yet and you can see on the first page loans grew 27% deposits grew 19%.

I want to highlight that demand demand deposits a low 29%.

Our store growth.

Even during these times, our new stores grew at 24 million a year and when you blend that said what the older stores, we still growing up to 16 million. That's story here are the American media has one to 2 million.

Uh huh.

Income happen.

We had a small loss in quarter, one which is a big improvement from the fourth quarter of last year.

We said before these losses war for temporary amount of time, our cost by like opening our new stores in New York City, and the flattening of the inversion of the yield.

More importantly be go to page to the post world, what we got calling the P.P.P. well, we have some results on that.

Page to the income these numbers will be reflected on the Q2 results. This is what we haven't played and what we expect the topic has taken a really leading well in this P.P.P. loan program right from the beginning we've been out for with it both to our current customers, but we.

One of a few Baxter side, they're offering PPP like the new clients and it's been a tremendous tool.

Look on the Red bars on page two.

So far out of a 4300 PPP apps, we see.

[laughter].

Right.

72% had been up through the rest are going to you and we expect approximately 100% of our apps that go through our average loan size is 213000, we booked already 600 plus million in loan balances on PPP and we expect that in the next month.

To close out around 800 800 million, assuming there's SP a funding what.

The next bullet talks about.

There are you bought our P.P.P. loan production at the 661 number is 35%.

Oh there.

Well walk prior to the PPP based on every shirts report from KBW, yet we're number one in America. So our PBP loan production, we're number one compared to where post loan. We expect that we hope we expect that loan number go up to 43%.

The PBM walls, we produce will be 43% of our current loan portfolio.

As you've seen in the press, we expect the average speed.

To appear to be around 3% of loans amount and those will be represented in the learnings and.

Primarily Q2 Q.

Q3.

Are those that are experts on the P.P.P., playing as I'd become a the federal reserve has concrete created a non recourse line for the banks to pledge. The P. P. P loans funded by the fed it points we bought.

These loans and the borrowings are excluded from our assets for both risk capital and leverage.

These are no capital required loans.

So far 20% to the loans, we've approved golf or new clients. This has been very important to this bank not only from alone that's produced but the way engine proved our brand. It's brought me quite hats.

Oh and of course are earning money here, it's got a dramatically impact our income projections for the balance of the year and with this we expect to double our loan wash.

Leisure or by adding approximately 9 million tend to be sure over the rest of this year.

I think there's a major points I'd like to made I would be happy right, let's say they Harry.

Okay, well open the floor out fire away.

Thank you will now begin the question and answer session. If he has a question. Please press star one did your telephone keypad, if you'd like to be removed from the Q. Please press the pound signed or the Heskey there may be a delay before the first question just announced.

Got to Speakerphone, please pick up your hits at first before dialing.

Once again, if he has a question. Please press star 100 telephone keypad.

And on the line, we have from Piper Sandler French royalties. Please go ahead.

Go ahead right.

Good morning, everyone.

Right and wonder just to stay on the PPP loans for a second I mean, obviously tremendous the numbers there or if you could just talk a little bit more about the process. I mean wasn't really just the fact that you guys were going after new clients do you think that that enabled you.

I have such a strong showing there and could you talk about some of the opportunities you see a have you started to see deposit wins a other.

Lending.

Relationships a as a part of this it's still too soon she just talk a little bit right thing I got all those make sure I give you the answer for all.

We were out first with this we were aware of this law I got involved in it we were really ahead.

So we knew this was coming and we had a pretty good understanding of the rules, we public had been an accurate SP a ladder for years.

So we knew what the S.P.A. words. So we were out first we were offering PPP to our current clients, but we also saw as a tool to attract new clients. So part of its because of us.

We've been held by the large banks, which had not been very good at it and many of them to have only done PPP loans for the current clients. We've opened it for both existing customers and new customers and that's because they they take advantage wells is a big player in our core.

Our market and they've done the worst John and I would say.

Walking the PPP clients myself, they've got some mighty on happy folks there. So I think all those things to work together with the right place at the right time with the writing.

And as I said, we expect our PPP production to be 43% of our existing loan book, We believe number one in America.

Great.

Right right right right like I'm, sorry, I forgot forgot the main point.

The new clients are not only doing P. P to P less at bringing their regular commercial business, they're opening accounts witness a column minutes, we get our I'm sick in my bank a part of being abused if you can help me on this loan I'm going to bring my whole banking relationship with it and that's what we're happy.

Leasing and happen and that's where my personal view of the growth is buying has gone up because we're seeing that kinda reaction every day.

Okay, Great and then you know in terms of well I think you answered my second question, there too because it sounds like in terms of growth trends from here.

I would imagine that you know it seems like Theres no change to your expectations and significant growth part of that is these PPP wins, but if you could talk about the branch side of things just in terms of I'm sure construction, having slowed stocks for some time.

What your plans are going forward over the next couple of years now for branch expansion.

Okay, great. Thank you I branch expansion has been slow this year because in that stops ability we have once been sitting there ready to go.

Have done so I think we're gonna get how maybe definition fracs rate, we expect our initial plans for but we'll we'll get shoot.

<unk>.

Well some under construction.

And so we'll next year I will do somewhere in the two to four a new York is going to get new stores were happy with how do you work expansion often slowed by the fact that nobody can leave their house, but you'll see us doing some new stores are in both markets or what's been happening is the stores in that.

Newer markets for Republic at performed better than I expected, so you're going to see us probably on that three to four.

Half in both markets.

Total.

And.

It sounds like you mentioned the a the fed facility facility on the P. P. P should we expect us in terms of modeling.

The balance sheet, you you mentioned doesn't hit Reg capital at all I guess, so why not do.

We expect to see.

The fed.

You know the 35 basis points basically fund the entire program or should we also expect to see some mix shift.

Away from securities into loans, just given the loan deposit ratio white.

Frank the habit excluded from your capital it has to be funded by Bob I had said.

So we would be happy to keep these loans on their books, but if we do they are included in your asset toll free cash back capital. So, yes, we're going to fund everything with the fed line.

Think about doing that right.

Right, but think about they set this up as an S.P. The that's what you should really think of that because the fed loan is a non recourse loan to the bank.

Right.

Oh no understood and then just finally from me just given where the you know that the.

The expected growth going forward and where capital stands, but we certainly thought that and then we've talked about and certainly the there there could be some external capital raise in the near term certainly the PPP program is going to throw off a lot of fee income over them.

Yes, it will run through and I, but going across a lot of fee income over the next couple of quarters, which will help but just could you update us on your thoughts burn and any sort of you know timing.

Instrument in terms of any sort of external capital. Thanks.

First of all our plans for timing all went to hell with it can over a virus that were little uncertain about the timing, but you're right Frank the income from the PPP program.

Satisfies half of that.

Capital needs, we see.

We still want to do some kind of cap rate and quarter to quarter, three and we haven't decided whether it's gonna be debt or equity or some convert.

I personally think our growth rate is going to go up based on what I've seen as a result is PBP. So I'm still hopeful that we can get some form of capital raise on top of the unpack we get from the PBB.

Okay I appreciate it thank you.

Right.

From KBW, Yes, Michael Perito. Please go ahead.

Michael.

Hey, good morning, guys glad to hear everyone well thanks for taking my question.

Sure.

I wanted to ask on the <unk> expense side, you know, obviously you guys had a second straight quarter here about some.

Some expense discipline that kind of bridge the gap lid on profitability standpoint, but it seems like maybe with the P.P. program that there's quite a few things going on I was wondering if if you had any near term thoughts about kind of the expense initiatives that better updated that that you guys laid out in and if you think the new customer secondarily on the P.P.T. side I mean.

I would think that would be pretty scalable from or a profit standpoint, because there's not really any new stores or anything you guys put up to kind of bring those clients in is that is that a fair way to think about it.

It's a fair way to think about it one of the things were all these PPP loans, we incurred almost no direct expense we use of our current team.

To handle all these apps and get the process through so there isn't really had direct expense. Although our sympathies you have to pay was a soft software to use a we are focused on keeping our expenses under control Frank I'll give you a little detail and then at all.

I think the growth side is going to be on the middle market commercial loan side.

And the commercial cash management, so new branches don't have that much effect, but as you've heard me say many many times the brand the branches are out brand and we need and to expand but.

Right, but we really think is gonna be much of an operating expense increased somebody so many expense control initiatives, we talked about earlier leases were slowing store growth managing hires and looking at some of our maintenance and utility cost and those will be impacted by the growth <unk> and some of your costs.

Can you talk about at the last call are just going through now get important back then that right in January 1st quarters, where we really started to see the effects of those those initiatives.

Hi, Thanks, and then.

I did also wanted just ask on the traditional 70 side within the S. VIP program do you guys kind of expect that to to be pretty limited in the next quarter to with all the focused on the P. P. P is that a fair assumption or or should we be thinking about it differently.

So Michael and that the answer is yes, and no. There is a flaw in the P.P.P. Bill that denies the traditional seven eight funding for the month of May and June they didn't know they had to share and don't they're trying to get a fixed.

Let's take that out of the equation for a minute, but I think we think our general seven a production going to be about the same don't be thank goodness.

So I think other than this gap, we might have in May and June.

We don't see any really slowing down there.

Got it and then just from a from a credit perspective, you know how how are you I appreciate the remarks and about the reserve builds expectation, but can you maybe just.

Q, it's in a little bit about some of the qualitative economic assumptions you guys are making around maybe GDP unemployment. Just so we can kind of try to have some consistency relative to our own internal forecast.

Yeah, we haven't gone to whats called Frank C.C.. So we have not gone to seasonal were not required. So we're not really required to make these economic assumptions. So we can look at our actual loan portfolio and make decisions based on on on that.

So we're looking primarily credit credit metric driven you know as charge offs are or more loans are deferred <unk> or <unk> or migrate you would expect the reserve increase as a result.

No women.

Well first of all we want to increase the reserve because we want to get up to 1% from where it is is now.

Sorry, you're going to ask me about the lunch we suffered.

The.

You look at all along with the Forum, which is not very many was only 5% of our commercial loan portfolio <unk>.

I like to watch the loans as most of you know I really haven't seen anything that that they had one of things you might have they ask us restaurants in hotels are only 7% I've got a loan balances.

It's funny.

Other than wants state stuff health Care's number too. So we only have any big Ics closure and the hotel and the foodservice business.

Okay that was actually be my next question. So thanks for that and I appreciate all the extra color and stay well that's.

Thank you bye thank you Mike.

Once you get if he has a question. Please press star one we're standing by for anything further.

We're here.

All right looks like no further questions at the moment.

Hi, I'm all answered thank you all.

Okay. Thank you.

Ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.

Huh.

Yes.