Q3 2020 Republic First Bancorp Inc Earnings Call

Thank you for holding the conference will begin momentarily. Thank you for your patience.

[music].

Welcome to the third quarter 2020 earnings Conference call. My name is been us and I'll be your operator for today's call. At this time all participants are in a listen only knowledge.

We will conduct a question and answer session.

Question answer session I get a question. Please press Star then one on your Touchtone phone. Please note that this conference is being recorded I will now like to turn the call back to Frank Hello, Chief Financial Officer, Frank You May begin.

Hello, and welcome to the Republic first Bancorp third quarter earnings call here with me in the room I had burn in Hell Chairman of the company, Harry Madonna, President and CEO of the company and Andy load Chief operating officer at this time I'll turn the call over to Mr. Huh.

Thank you all for the call. We're pleased to report on our third quarter results and the press release.

Ben scribes the momentum of the week.

Bank gets stronger and stronger there was a one time charge in the third quarter, a goodwill write off charge of five.

Daily and.

It had no impact on the year.

Capital capital of the bank and our goodwill there is no. There is no further goodwill left on the books off the bat.

Excluding the effect of that we're pleased to report we had a strong third quarter and a strong nine.

Nine months of the year during the quarter.

Right. Once you go the second BOP in the bottom right of the footwear, yes during the during the second quarter excuse.

Excluding the goodwill charge, we reported core earnings of $4.7 million for the nine months that compared to a net loss last year of a million we continue to see improvement in the revenue red.

Revenue percentage compared to expense growth for your third quarter revenues grew 27% compared to just 3% of expense growth for the quarter.

Yes, Frank.

Keep going please.

From a balance sheet perspective deposits grew by $1.2 billion year over year to.

To $3.9 billion.

A lot of that was driven by the growth and customer accounts Weve had some significant enhancements from the PPP program.

Total loans grew $1.1 billion or 68% to 2.6 billion as of September Thirtyth.

Again.

The growth driven by the enhanced PPP branding as well as continued momentum the bar of our.

Our per branch expansion.

Second book in the bond that they have the press release, we had great improvement not only top line, but cost control with great from the.

First nine months of the year.

Correct, we think the topline grew 19% while costs.

Cost cost growth was contained the 7% annual and was even better than that.

Quarter asset quality remains very strong here nonperforming assets.

Declined to <unk> 0.27.

Only 2% of our loyal customers are experiencing deferred loan.

Hey, Eric.

Hey, Mike not only represents 6% of our outstanding loan balance back to Frank on the personal both the top right Yeah, we originated.

As we reported previously $684 million in loans under the Paycheck protection program.

We provided crucial funding for small businesses during a time of need most of those loans are still on our books today.

Approximately $16 million in fees will be recognized in the future as those loans are repaid or forgiven.

Thanks, Mike mentioned, I think al important as whole.

TPP problem well watch stores are in stores.

The numbers of new clients regarding oncology promoting the growth ahead, yes, thats correct and during that time.

When when our stores were closed at period for the year as well as limited interaction with customers, we experienced significant significant growth throughout the third quarter, mainly driven by the new relationships that we were able to obtain through the PDP well program. So this has been a big bonus for us and.

We continue to enhance our brand and drive new customer relationships through this program.

As Martin mentioned earlier, we continue to evaluate the loan portfolio.

We've seen deferrals declined from 24% in the in the second quarter as of June Thirtyth down to 6% of loan balances.

So we continue to see positive trends as far as Charles go.

And the interaction with customers continues.

In addition to that in the third quarter, we completed a $50 million capital raise support our growth and expansion, we issued $50 million worth of convertible preferred stock during the quarter, which.

Which will host our capital ratios and providers.

The capital required continued with the expansion.

Assets grew by almost $2 billion to 5 billion as of September 30, and some of that is is partially artificially inflated as a result of the PBP program, we had about $600 million in borrowing.

The PPP liquidity facility, which which was just a short term borrowing.

Overall continued growth in assets supported by the loan and deposit growth mentioned earlier.

Frank Why don't you did talk about the artificial drop in our net interest margin for the quarter because of the PPP yeah. The margin decline. If you look at the quarter 930 compared to the quarter last year nine sorry, the margin dropped 47 basis points to 32.35.

As you're aware, we put the PBT loans on the books.

Interest rate on the loans are 1%.

And the acceleration of the fees that go with that that will run through interest income is really being deferred until the latter part of the fourth and more likely the first and second quarters of next year. So there's there's some compression in the margin driven by the TPP program.

As well as the overall environment as a result of the fed from the federal reserve dropping the fed funds rate earlier this year.

Okay.

He's going to recap we.

As mentioned previously we signed an agreement with visa to convert our.

Is it an ATM card over to visa cards.

So we are we have initiated a a branding agreement as well as a processing agreement. The convergence of Easter is in process, but this program will provide us with a number of opportunities to not only generate additional revenue, but to reduce expenses related to the debit card and ATM program in the future.

Okay mortgages, our residential mortgage group right, yes, the mortgage volume has originated more than $600 million in loans over the last 12 months that said record originations for that team.

Similarly, driven by their fanatical experience with customers there's.

There is a significant level of refinancings that they've done, but also many new home purchases.

Have gone through the production volume per day of mortgage team.

Some of the other things we want to.

Bring up the.

Margins year over year grew 43% demand deposits year over year grew 76% market describe that a little bit right yep. So the deposit growth as we mentioned earlier.

Not only growth driven by our growth and expect our expansion program, but the PPD program has brought many new business customers to Republic.

Commercial deposits now represent 47% of our total deposits, which is tremendous growth in a year again, where where there's been limited activity and interaction with customers.

Commercial deposits in total or 47% of our total thats correct as of September Thirtyth.

What else will be Mr. Ben.

Lending remains strong across all categories.

If you remove the PPD program, we still grew loans, 25% year over year.

And again hampered by limited activity in the second quarter, but one growth remained strong our pipelines remain strong. So we're excited about the future of loan growth and before we open up the floor.

I want to give you my thoughts about being very proud of this quarter and this year we the.

The bank is really progressed and rather than created many new bands during this period.

The mystic about the next quarter and the next year and the public baggage yes.

And in addition in a great spot with that we will open it up.

Yes.

Thank you we will now begin the question answer session you get a question. Please press Star then one on your Touchtone phone and wish to move from the queue. Please press the pound sign on behalf scheme. There will be delighted for the first question is announce and using a speakerphone you may need to pick up a hypo first super pressed numbers once again and the other question.

Ken Please press Star then one on your Touchtone phone.

Our first question comes from Michael Some key BW.

Yeah.

Yes, thanks, good afternoon guys.

Michael.

I have a couple of questions I first wanted to ask you know I mean, obviously the underlying growth momentum in the quarter were strong and you know really has been around for quite some time, obviously there were some environmental things that impacted the numbers were that way, but I guess, you know you talked about kind of the operating leverage.

I know we've talked about it on prior calls, but as we kind of put the capital raise behind you and as we approach 2021 here I'm curious if maybe you are going to kind of put some more.

Parameters around what type of profitability improvement, we could kind of look for next year are you guys, you'll prioritize that alongside your continued growth efforts.

Yes, So Mike you know what we've talked about previously the one thing that we can't control the rate environment, but we have had a laser focus on expenses. This year and as you can and fee income growth as well the income growth, but expense growth is something we can control and that I think the numbers.

Both at three months and a nine month basis, demonstrating that that we've done our best to control expenses, we talked about previously slowing down the branch opening but we've also looked at our expenses across the board and I think they're starting to show a consistent trend how how significant is here is more about managing.

Mike I want to reiterate this coming Monday merciful.

Often basis.

87% of our total deposits you know that's a very high number for a bank that side, there's lots of growth left in there. That's also very good on bill fees.

As we think about I mean, it seems like the PPP participation.

Really kind of at the center of the saw right because I mean, I think we've said in the past that it will provide us with an opportunity to.

Really grow the customer base materially without opening new branches at all and you know I guess as we try to think about that.

I guess, one any update on.

How the the process I know you guys mentioned it briefly I think in your prepared remarks, but any additional color you can provide on how the process is going up of getting these customers over to the banking and <unk> and do you still think it holds true today that these customers and their potential growth longer term should be theoretically achieved higher profit margin that that the customers that you were growing historically to branch out.

Earnings or store openings, right Im sorry, well, it's not one versus the other it's a mix of them but.

The NBP change the brand of this company, we build a niche we all we service new clients and we've created a whole new branding and a whole new group of clients. We see it every day and I think the commercial mix will increase.

Because we build image that the big banks couldn't no.

Or wouldn't know.

Okay.

Just lastly for me then I'll step back just on the on the provision and reserve you know the metrics look good here, but obviously still a few things are known out there just I think you had said in the past call very and what percent reserve by you know by the end of the year early part of next year I guess, depending on you know a few things is that.

Bill kind of largely how.

How you are thinking about.

Yes.

We believe we will head in that direction and you are aware that the care that allowed us to defer the adoption of Cecil until the end of the year or until the national State of emergency was lifted so at this point it looks like the end of the year is going to occur first and we will adopt Cecil that will drive an increase in our.

Provision, but as we go forward, we see that that that that level, probably being achieved in future quarters.

Okay. Thank you guys for taking my questions. Appreciate thank you like.

Our next question comes from.

Thank you.

From Piper standard your line is open.

Go ahead warning.

Just wanted to follow up on on the the no really significant deposit growth, obviously and the strong transaction account growth.

I asked Pvp has been part of the story I just wondered if you could talk a little bit about.

You know your thoughts on.

The environment and the different delivery channels that these deposits and come in through and you know the fact that the.

The maybe the the digital delivery channel has delivered a greater level of deposit gathering in the near term is that at all change your thoughts.

On.

Level or speed or amount of branches, you look to grow per year.

Yes, you know, we like stores, but the world is different than it was in the days when you're growing loans store each week will will slow down our store growth, but we need to go into new markets and expand that brand we have to build stores. So you're going to see which can now find good world with the less stores Marshall as we installed in the commercial more than.

Consumers driving the growth so what's really going to slow the store go down but the go into new markets.

Schools are important part of building a brand.

Marshall client care as much or more about the stores and the pool.

Absorbers, so it's a mix.

We have not sure upgrade Angelo right, even though they are also.

Yes.

It's a mix of the mall Frank.

And then just on the you know the Pvp again, obviously, it's been a it's been quite a boon for you guys.

I'm, just wondering where do you think that narrative is in terms of bringing in significant new deposit relationships is that story is still strong or is it start you know have we seen a lot of it already take place in the third quarter.

It's modeling thing indeed positive, but it's a great.

All sorts of new credit.

People are we supported that already banquet is our standing witnessing growing but lots of new clients.

That came to us when we met their needs are in the process always a moving their basic core business to us and I see a growth in that almost every day.

So it doesn't seem like the story that nor the narrative.

Has played out you are still seeing mounting budgets about building a brand Frank it's about building a new branch of this bank that can handle the types of credit lets call middle market.

Lastly, we review our loans out there.

We're looking at.

Good for that or do those loan request from the customers.

So oh.

Greece, our lending capacity as you probably know people on the call. We were one of the few banks of any size that opened up.

The pennies there.

A beep beep blending program not only the current clients, but the new clients and that's been an important part of the Bank school.

Right. Okay, and then just finally just to follow up on the the seasonal adjustment that I guess will take place early next year.

Frank is it is it fair to assume that most of the growth in the reserve. If there is growth in the reserve to loan ratio that will just be taken on that day one mark.

And has there been any.

You know estimate they can share in terms of what that they might one market look like.

You know Frank we don't we cant were prohibited from really giving forward looking guidance, but you know if you look at other banks in the industry as a whole the c., so adoption or any adjustments have been significant even pure banks of our size. So there.

There will be what we assume is a onetime adjustment when we adopt and then as we go forward most of seasonal is driven by future economic factors, what does the future looks like and.

That will have an impact so you know and in this environment with the uncertainty I think you would expect that to continue to build in the coming quarters is it fair to say you don't expect a big job. That's why is that there will be an adjustment.

Just not ready our Liberty report.

What we have been building their business.

During the quarter. The current reserve has been built based on factors that we see change in economy. The incurred loss methodology drives also to look at that seasonal just takes a much more forward looking approach when you do that and brings in much more economic factors in data historically booked them.

Okay, all right great. Thank you.

Thank you Mike.

There are no further questions at this time.

Thank you all see you next time.

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

No.

Two levels.