Q2 2021 Republic First Bancorp Inc Earnings Call
Yeah.
Thank you for holding your conference call will be beginning shortly.
For your patience. So once again, thank you for holding your conference call will be beginning shortly thank you for your patience.
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Welcome to the second quarter 2021 earnings Conference call. My name is Adrian and I'll be your operator for today's call. At this time all participants are in a listen only mode.
We will conduct a question and answer session.
The question answer session. If you have a question. Please press Star then 1 on you touched on phone. Please note. This conference is being recorded.
Now I'll turn the call over to Vernon Hill Vernon Hill, you may begin.
Thank you good morning, so HIV or whats me as CFO Frank.
Hi, Larry Andy Logue.
President of our Republic Bank.
So I'll go through the press for growth.
First then we'll open it total floor power Red had a great quarter in Q2.
Third quarter income.
Was $5.9 million on <unk> up 100, sorry, 136% over the second quarter of last year for the 6 months.
Income was $13 million or 17 cents a share thats, 500% over the first half of last year the revenue.
Growth was strong with control costs as we said in the last quarter.
The.
Deposits on a 12 month basis grew Frank I'll help me here $916 million or 25%.
The growth per store in the core deposit was counting our new stores only.
$34 million store, when you add all of the stores, including the ones we haven't converted yet.
The growth was $29 million per branch.
PPP loans were important.
In the first half of this year Frank go ahead on those yes.
If you exclude the PPP loans from our loan growth loan grew $252 million or 13% to $2.1 billion. We continue to see the paydowns and payoffs of the PPP loans. So we extracted that when we prevent presented these numbers a lot of our new business development still is fed by the PPP.
We made last year, we're seeing a lot of new accounts and clients from the PPP.
Program assets assets.
Quality remains great.
Our non performing declined slightly to 2.6 and we pointed out day, if I had this right Frank only 1 borrowing customer is deferring that's correct.
Okay.
I'm on to the second page of just shows you. The first part of it is growth in assets loans and deposits for the quarter well on a year to year assets grew 21% loans grew.
1%, but a loans actually PB <unk> 13, and deposits grew 25%.
On the income side, which is also on page 2 for the quarter the topline growth, 24% non interest expense only grew 14% and we had the same.
Look for the 6 months, where the top line growth start start production.
Part of the 8%.
Non interest expenses only grew 11% we're focused on this idea of jaws growing the topline.
Substantially more than our non interest expense.
Frank go ahead PPP on Wednesday, but then yes, we just wanted to update on the PPP loans in total after round 2 we did nearly $1 billion on PPP loans, making us 1 of the top lenders in the entire country. If you compare the low on PPP loans to our total portfolio.
Date through the date of this release almost $600 million of those loans have been forgiven by the SBA and paid back so we continue to collect.
The outstanding balances there, we still have $13 million and fees remaining on these loans that we will amortize and recognize in future periods and as we've said in the past more than half of the applications. We got during the first round of PPP. We're from businesses that were not customers that debt.
Time.
And many of them have switched their primary relationship to Republic.
Going down to that.
On page 3 the second part of the book margin improved for the 6 months.
The 16 points to 2.8.
It was primarily a decline on the cost of funds rate right. That's the main driver for 6 months you know our model produces very high growth in core deposits at a very low cost of funds that has always been our model.
2 stores, we opened 1 store this year and we have 1 about the open they are the Deptford, New Jersey and for you it assure ocean city.
Frank mortgage mortgage continues to produce.
On the 12 month period over the last 12 months.
Mortgage team has originated more than $800 million in loans.
And that's a record high for this group.
It's a good mix of new home purchases as well as refinancings, but we continue to see strong volumes out of the mortgage team and.
And our book value per common share grows each quarter. It ended this quarter at $4.
62, <unk> as compared to 434.
Frank anything on the next page on the next page just gets into a more detailed the income statements for the 3 months period.
<unk> already mentioned, we increased net income to $5.9 million per the 3 months period ended June 30th.
Operating Leverages is a big driver in the improvement there.
Net interest income increased to $36 million, we are seeing some fees recognized for PPP, but we're getting growth in interest earning assets as we continue to grow the balance sheet and the margin for the 3 months period compared to last June increased to $2.64 compared to $2.55.
There is some movement or some noise in there related to the PPP amortization.
But that will work itself out in the coming quarters and on the same numbers for a 6 month period.
Yeah for the 6 months similar trends, we continue to improve revenue at a greater rate than the noninterest expense. The overall net interest income after tax was $13 million or <unk> 17, a share that's a.
578% increase if you compare it to the 6 month period ended June 30 of last year, you can see on this 6 month charge the power of Jos topline for 6 months grew star already 8% non interest expense only grew 11% and we only earned $1.9 million in the first 6 months of last year.
And that compares to $13 million.
For this year the power of our momentum is getting stronger and stronger and stronger.
Deposit type on page 6 Frank.
<unk> grew deposits as we said by 25% year over year.
We highlighted 1 of the highest growing percentages as demand noninterest bearing accounts that.
That grew 15% year over year, we saw growth quarter to quarter as well.
We continue to see new count relationships open and we continue to get business from the effects of the PPP loan program.
And on the loan breakdown is on page 7 Frank Yes.
Go on horse here.
And the loan table, we put a subtotal on the loan table to show your growth year over year, excluding PPP loans loans grew 13%. If you compare June 30 of this year to June 30 of last year.
That's.
Consecutive quarters for us with double digit loan growth, which is a real testament to this loan environment. We continue to see the wind down of the PPP loans.
June <unk> of last year, we had over $650 million, that's down to $380 million as of June 32021.
Okay asset quality pardon me I got a call go ahead, yes.
Asset quality remains strong we continue to monitor it closely as we come out of the effects of the Covid environment nonperforming assets to total assets has shrunk did point 26 basis points to 6%.
Had no charge offs at all during the quarter and the allowance the allowance for loan losses to total loans. Excluding PPP is <unk> 70.575 basis points.
The allowance for the nonperforming loans, 134%, yes, okay. The capital ratios are on page 8.
Its newest day by day of the leverage remains at 728.
We continue to keep an eye on that overall total capital 13, 30, that's a strong level the year over year growth in capital was driven by the capital raise that we did last August the preferred stock offering that we did.
Anything else that's the those are the highlights for the quarter Andy News then.
Alright, well open the floor for fire way guys.
Okay.
Thank you I will now begin the question and answer session.
Have a question. Please press Star then 1 on your Touchtone phone.
And our first question comes from Frank.
Shroudie from Piper Sandler Your line is open.
Thanks, Good morning.
Morning, Frank.
You know you mentioned Vernon you mentioned the growth rates.
The new stores in terms of deposits and.
You know growth is pretty strong in the existing branches as well, yeah, Youre right Youre right.
You've talked about.
New branches is in part being <unk>.
Advertisements you know required per growth.
Just wondering how you determine what in terms of grants density.
In a COVID-19 geography versus what you're going to need a 10 or 20 years ago on and if you could talk about you know that filled out, particularly interested in kind of the New York City geography, Yeah. Okay. That's a good question and we're going to build out in the markets. We had a congress at the end Commerce had 440 offices.
180 today, you probably need half as many as that because the online the digital but you definitely need stores and you can see our stores are producing asset.
As in the New York market Commerce had $2.50 day in the Metro New York market Long Island, Westchester Northern New Jersey, we could we're probably happy in Metro New York with half of that may be somewhat less but I can't quite tell but generally where I'm looking to put in.
Roughly half of what we had in Congress, but it is amazing how these new stores are growing and as you pointed out there.
They are bringing the older Republic branch growth with them as the brand gets stronger in the market.
And when do you think in terms of getting back you opened in a couple of New Jersey.
This year when do you think you'd get back to growing or putting up branches in New York City, and what's sort of the.
The kind of the annual rate you're foreseeing write offs.
We have 2 in New York City in Manhattan now.
Our branch growth rate is not as much as I would like you all know I love to build stores, but we're growing so much per branch.
<unk>.
Capital has trouble keeping up with it but I think next year youre going to see US do this is a guess guy said on Hanmi to it we will do somewhere on a 4 to 5 new stores next year and 2 or 3 of those will be in the Metro New York market.
Okay, great. Thanks for the color and then but.
Frank but Frank just maybe put that in perspective Congress was building 1 store weeks.
We would like to build more but with the margin being income.
Im Brett we have to get the expenses under control, but you pointed out our gross per store. This is a giant number I never had gross per store even at the peak of commerce.
Like Lynn.
And then in terms of the.
The loan growth.
You've talked about New York City, providing a really good opportunity for growth just wondering if you could talk about the size of those loan balances at this point in New York and how much of the core growth is being driven.
In terms of loans by that geography.
Yeah.
Sure.
What's the outstanding on loans in New York, 1.6 day or something like that about 116 and I think once this in New York is probably <unk>.
Even though we have a smaller branch presence we have a strong group on long Island and man Manhattan. So it's driving a disproportionate share maybe half of our loan growth for the bank I think I'm going to see just what we saw at Commerce, New York Metro will drive the growth of this loan bank debt.
Loan growth on this bank for a long time and over time, you'll see it being a disproportionately high.
Not only did we get at commerce on at Republic, more loan demand up there, but the pricing is better in Metro New York is in Metro L. A.
We will start breaking that out maybe at the end of the year, but I expect to see our loan.
Growth being driven out of the metro.
Europe market.
Gotcha, and then just a couple of quick if I could a modeling question.
Frank service fees on deposits.
Were down linked quarter I guess it was you know it was a very strong first quarter, but I.
I Wonder if you can just talk about what a good run rate might be obviously as deposits grow I would expect that line item to growth got it. This is grid 17 billion. We haven't we got it right. So what youre seeing in the second quarter I think is a more normalized run rate in the first quarter we had.
We told we announced last year that we signed a deal with visa to convert all of our ATM and debit cards and there were some upfront money that we received that went into that first quarter. So now in the second quarter were fully converted and we're operating on what we think is more of a normal on second quarter as a normal run.
Correct.
First as New York grows you get more bigger.
My mom on the actual accounts and you get cash management fees, New York will drive everything up higher of course, that's offset by the higher expense side that we have to balance those things out.
Got you, Okay, and then just lastly on the Triple P.
Frank I know you have $13 million on fees left to be taken in what was the what were the fees that.
Brought in through income through NII in the second quarter.
About $4.4.7 million in the second quarter.
Is that low yeah remember the SBA was backed up so it got really slowed therefore, we're starting to see the wind down of the first round and what we're waiting for are the forgiveness applications for the second round to start to come through so then we will see more acceleration and maybe the latter part of this year early next year.
Okay.
Alright, thanks for all the color.
Thank you.
And just as a reminder day into the queue. Please press Star then 1 on your Touchtone phone. Andrew next question comes from Michael Perito from <unk>. Your line is open.
Hey, guys. Good morning, good morning, Michael.
I wanted to ask a question just piggybacking on something you said before.
Earlier Vernon too on the first question just I guess, what's the updated or unchanged, maybe but maybe you could just refresh us on.
How do you guys kind of think about the math of that dynamic I mean, obviously the balance sheet growth is really strong.
But on our capital ratios are under a little pressure because of that but I know there is there is definitely momentum to open more stores and drive more growth on the brands being really really well received I was wondering maybe if you can just kind of flush out or just.
Think about that math behind that and how to kind of continue this growth engine, while not making sure that the capital doesn't become a burden.
12, 12 plus months ago.
Yes, you have to balance all of those things out Mike and you know it better than I do as well as I do so first of all you start with your deposit growth in the store stores you have have now without factoring into the new store growth.
And we're going to need over the time, we're not saying NAV of gross capital, we're going to have to raise growth capital. We keep up these rates as we did at commerce.
And then you decide which markets go and you need you need some new stores in.
Suburban markets, indeed need need new suburban markets with stores in New York is the real question, obviously the different up there is rent.
The breakeven at the branch level is higher in Manhattan, because the rents are so high but just like we found a converse the breakeven time is lower in Manhattan, because as deposits grow. So fast. So you have to balance all of those things out.
That's what they pay me the big Bucks for Mike.
Got it.
And so I guess just.
To follow up on that I mean would your expectation be that theres no external capital need for the remainder of this year.
I'm not willing to say, we do or do not need capital, we're balancing that out but in the next 12 months for sure we're going to need some more growth capital.
And part of the problem is.
On the flat curve, even though we're making more money or not making much as we should with a normal yield curve so capital requirements.
If we didn't open any new stores.
Growth in this last quarter would be almost the same wouldn't it be Frank correct. The 1 store that we did open didn't open until very late in the quarter. So the growth is still being driven by the existing stores and Mike when I looked at the old days of Congress and we did the models. Obviously, we were much more advanced it's the growth in deposits per store that really.
Drives it.
Yeah, and that was going to be my next question right I mean, not the loan growth has been really solid I mean, I think it's been before.
We just out PPP, it's been double digits for 4 quarters now.
Since that first quarter is the onset of the pandemic.
But you guys are still having to park a decent amount of of <unk>.
<unk> right and cash and then in the bond book and so I guess, just more succinct way of asking Frank I mean, what what do you think we can expect from the NIM here. It sounds like loan pipelines are solid I mean are you hopeful to maybe get that loan to deposit ratio inflicting or is there just too much deposit growth momentum for that to happen really anytime soon.
It's difficult to say it depends on the shape of the yield curve.
We're expecting it to stay at least where it is right now if you take out the impact of the PPP.
Fees and interest on those loans as they pay down.
But we're not expecting in margin in the second quarter went up right.
Compared to second quarter of this year to the second quarter of last year did go up.
Alright.
It is interesting I can't handicap.
I'm sorry go ahead Vern.
What we found on New York E. Commerce is the lending book over funds itself. So the more loans you make in that market the more deposit growth.
And that was somewhat of a surprise to us and we're seeing that same thing here.
We can't when you talk when we talk about growth per store.
We tend to think about small business middle size, and the consumer business, but when you're making bigger commercial loans, particularly in the Manhattan market you get its not a smooth path, but you will see that they generally over fund themselves.
Go ahead on it.
Yes, I was just going to clarify something with Frank just the NIM ex PPP is is it running.
Mid $2 <unk> today is that ballpark, where you have it just want to make sure I'm thinking about it the right way.
I would say if you pull those numbers out I would say, it's a little bit higher than that.
Okay, and so do you plan on I am or to remain relatively you've taken might take it out we will tell you it should be around 2526.
Without being repaid.
Got it okay.
Right well I appreciate all the color. Thanks for taking my question.
And just a reminder, if you'd like to enter the queue. Please press star 1 Andrew.
Any more questions.
And we have no further questions I'll turn the call back over final remarks.
Alright, Thank you I'll call may or Frank if you need something after the call. Thank you all chairs bye bye.
Thank you ladies and gentlemen, this concludes today's conference call.
Thank you for participating and you may now disconnect.
Okay.
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Yes.