Q4 2021 Republic First Bancorp Inc Earnings Call
[music].
Welcome to the fourth quarter 2021 earnings Conference call. My name is James and I'll 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.
During the Q&A session. If you have a question. Please press star one on your phone and also note that this conference is being recorded.
I'd now like to turn to Colorado, Frank Caballero, Frank you may begin.
Thank you.
Good morning, and thank you for taking the time to join US. This morning for our fourth quarter earnings call today, I'm joined by Chairman and Chief Executive Officer, Vernon Hill, and President and Chief operating Officer, Andy low before.
Before turning the call over to Mr Hill, I'd like to inform you that Republic first bancorp intends to file a proxy statement and related proxy materials with the SEC for our 2022 annual meeting of shareholders.
In connection with this meeting certain directors and officers will participate in the solicitation of proxies from our shareholders in advance of the annual meeting.
Shareholders are strongly encouraged to carefully read the proxy statement and all other related materials filed with the SEC in their entirety when they become available they will contain important information about the 2022 annual meeting.
As you May know a dissident shareholder has recently stated its intention to launch a proxy contest at this year's annual meeting we will not comment on the proxy contest today or take any suggestions questions regarding the proxy contest on the call.
At this time I'd like to turn the call over to Mr. Hilton to begin the review of our financial results. Good morning to all thank you for spending time to join this call. We're pleased to report, although Republic bank's fourth quarter financial results, which brings to a close a very successful year our power.
Red campaign expansion campaign is going strong, we not only achieved asset loan and deposit growth far above it.
Industry.
Average, but we also saw a dramatic improvement in profitability during the current year earnings improved approximately 400% year over year as a result of our efforts to drive top line growth at a greater growth rate than our expense growth.
We are we look forward to the year ahead, we are excited about the awkward Oh these for growth and we and we see unfolding in 2022 that we can continue our growth plan, we plan to deliver significant enhancements to our tech a lot.
Turning to our technology platforms in 2022, we remain committed as.
As ever to delivering the best experience.
The best experience to our customers across every delivery.
Battle, including in store online mobile.
And by phone.
With that I'll go along with some comments.
About quarter four.
Yeah.
Yeah.
Yes.
As I said earlier fourth quarter fourth quarter and the year was an excellent quarter for us. If you have the press release on the first page. The main items are shown there for the 12 months ending December of this year net income grew 398%.
$25 2 million or 33 cents a share.
Earnings per share for the year grew what's the percentage right.
Earnings per.
For sure for the year approximately.
For 20 years.
Earnings per share grew 371% year over year net income for the fourth quarter with great increased to $6 1 million or eight a share compared to net income of $4 1 million or five cents a share for the fourth quarter of last year. The improvement in earnings was driven by strong growth Todd.
Top line.
While we continued our focus on.
Cost control well.
Revenue grew 26% year over year and non interest expenses grew only four.
We use this effect of the.
Draws effect and where.
We're focused on maintaining this.
The result.
It was another great year for deposits deposits increased for the year $1 2 billion or 29% grew to $5 2 million at the year in the new stores. We opened this year on our power brand campaign, our growing branch deposits at the average rate of 40.
$1 million a year.
The average deposit growth for all of our stores, including the new stores and the current stores averaged $37 million a year in.
Is it growth.
There's a further breakdown of deposit growth.
Further back but the important number is on page six demand deposits grew year over year, 39%.
Yeah.
Well we.
We attained this growth despite driving our overall cost of funds down.
Cost of funds for the year decreased three 5% compared to five 4% in the fourth quarter of 2020.
Excluding the impact of PPP loans.
Loans grew apples to Apple 18% for the year.
$2.400 billion.
Asset quality has always been very strong here.
<unk> tended to be strong our nonperforming assets declined two 4%.
Compared to two.
Two 8% in 2020.
No low customers.
On the loan payment deferral, all customers that were granted deferral during the PPP.
Stage have we do have resumed.
Actual loan payment correct.
Correct.
Going on to page two and just shows you another chart and growth in assets loans deposits and so forth. It shows your growth fourth quarter compared to third quarter and the 12 month growth.
On the top of page three it just shows you. Another chart that shows you the top line for the last three months a year compared to the same period last year grew 17% where expenses grew 10%, but for the full 12 months in fact was much more dramatic top line grew.
26% and noninterest expenses only grew six.
Our net interest margin on page three grew 17 bps. This year to 2.68 as our cost of funds declined.
We presently have 33 stores open.
Including our brand new store in Ocean City, which just opened and we expect to open in.
The area of two to four for the balance of this year.
Residential mortgage arrow mortgage residential mortgage division had strong income.
Producer for Us and they always were originated almost $600 million in new more mortgage loans in the last 12 months of this year.
<unk> capital and <unk>.
Our regulatory capital Frank wanted to go through the capital now.
At the end of the year. The total risk based capital was 11 76 and the the leverage ratio was at 606.
Both both numbers still above the well capitalized threshold.
We continue to monitor those to book value per common share increased to $4 67, and $4 67.
Compared to $4 41, a year ago at this time.
Brian I got cold.
Having more trouble than normal.
On an.
On page four you can see.
Financial results page four as for quarter four is there anything we haven't addressed differently.
You've commented already on the tremendous growth year over year in.
In both the quarter and the year in bottom line net income growth, we would like to mention that during the fourth quarter. There were some elevated expenses, we're incurring some direct cost as we prepare for our technology transformation that we mentioned earlier, that's coming up in the mid part of 2022.
Some.
Nonrecurring legal and professional fees that impacted the fourth quarter as well.
So we continue to manage expenses as closely as possible, but sometimes there are onetime effects that impact us.
Thank you on page five these R&D.
Harrison income results present.
<unk> months go ahead, Brian you had a 12 month year over year as mentioned at the beginning.
Net income grew 398% earnings per share grew to 33, a share compared to seven seven cents a year before we love to talk about this jaws effect the impact of growing revenue at a much faster rate than we're growing noninterest expenses as a recurrent theme and had been one since.
Since 2019.
On page six as I said earlier, we break it down.
Deposit base baseline.
Slide <unk>.
Demand deposits again was our highest growing.
Segment of deposits as I said earlier they grew 39%.
Our lending on page seven.
As I said earlier loans grew 18% year over year.
Shows you the growth by type.
This is excluding the PPP loan effect.
Asset quality on page eight we talk.
Earlier.
Asset quality remains excellent as it has had has been the bottom of page eight capital go ahead, Brian going back to the this is just more detail on our capital ratios.
We mentioned the leverage and the total risk based capital already.
Tangible common equity, yes, it did.
Did fall below 5% if you factor in the conversion of preferred shares that could occur in the future that increase is almost 100 basis points up to $5 75.
I think it's worth mentioning at this point.
During our last earnings call, we did mention the possibility of completing our capital rates in the fourth quarter.
Would be to support our growth and expansion strategy.
The quarter progressed, we made the decision that it would be in the best interest of not only the bank, but our shareholders.
<unk>.
Do that raise at a time that would be most optimal from a stock price perspective. So we will continue to monitor market conditions and assess alternative strategy as we get into 'twenty two.
But at this time, we are comfortable with our capital levels at the levels they're at today.
Thank you that's all we have from us we'd like to open the floor now please.
Could you give us your name and firm when you start please.
Thank you we can now begin the question and answer session. If you have a question. Please press star one on your phone.
We wish to be removed from the question queue. You May press the pound sign of the hash key.
And if you're using a speakerphone you may need to pick up pick up the handset first before pressing the numbers. So once again if you have a question. Please press star one.
Our first question comes from Frank Schiraldi of Piper Sandler.
Good morning, Brian .
On the.
Expenses.
You mentioned.
And the investment in technology I'm, just wondering if you can guys can provide any color on either expense growth in 2022 or.
Obviously, you guys talked a lot about the jaws effect.
Perhaps frame it that way in terms of should that continue to accelerate.
The increase in revenues.
You know.
Minus the increased guidance.
Just summarize what we are doing and then Frank can talk about the effect on the expenses.
Go ahead, we're talking about a major Pfizer.
The technology change and it brings us a new core system, new Fintech and gives us a tremendous.
Ted.
Platform to keep up with all the new things that are coming Frank likes to talk about the income effect yet so.
The deal that we entered into an enhancement of technology, obviously provides expense benefits in the future, but as we do this implementation and conversion there are some upfront expenses that we need to absorb as we go through the conversion process. So you see some of that effect in this in the fourth quarter.
That will continue in the first quarter as we continue to do the conversion, but again when we put these systems in place the technology will provide us benefits and we expect to see a decline or.
A leveling off of our technology called we believe this will have a tremendous positive effect on the bank not only in the way we deliver an attack but over time, we believe it's going to produce a tremendous.
Cost savings.
Okay.
So the jaws effect to accelerate into 2020 to come from for you.
Yeah.
We can we draw a hell of a job yes.
We can control the expense side, Frank and we expect.
To continue to monitor that we're hoping to see more like the year to date.
Effect as we go forward.
The top the top line or the revenue is as you know so much impacted by the not just interest rate environment, but really the shape of the yield curve and the steepness of it so.
If we get help from the yield curve, yes.
Enhanced if it flattens or inverts, we're not we keep reading the same things that you do about what the fed is going to do this year.
That will unfold as we get into the latter part of this year. So it is true frankly, you're willing to say as long as the yields on the long bonds.
Move up that is definitely a plus steepness of the curve in that and that effect will definitely help us yes.
Okay.
And then.
I Wonder if you could frame how much flexibility you have.
Terms of the timing of.
Any capital raise and.
Would you be you know.
<unk> slowing our balance sheet growth here in 2022.
If the pricing isn't to your liking.
Yeah.
Well, that's something we have to consider there is lots of things about raising capital the growth rates that price what it does to the to the book value we have to balance all of those things out I would say, while we're growing at these rates frankly have actually slowed our growth rate down if you notice our new store count is down.
Last few years as we're slowing it down it's being offset by the growth per store, but it's a balance of those things.
Oh.
We're just going to have to look at all the facts at the time and make a decision.
We will keep everybody up to date.
Okay and in terms of branches. This year you said you got the one opened in January and then you said two to two to four more is that right.
It's in the two to four range.
Two to four range.
Two under construction.
Potentially others that are different stages, so right.
Got you, Okay, and just finally you talked about.
Some of the you talked about alternative Stroud.
Strategies, you talked about in the.
The release as well I was just wondering if that could include.
Our capital raised other than comment I mean are you still looking at potentially more preferred is that something a possibility for her 20 point, though.
I don't think we were down.
Adding more preferred in the near future one of the things that.
We don't know some of the preferred we will start to convert to common.
<unk> prices three bucks a share in the price stock price in the market is approaching four so thats. Another factor we have our common needs maybe manage some of the preferreds convert the common.
But I don't see any plan to do any more preferred shortly in the next year or two.
Okay.
And then just lastly for me.
What are the alternative could be a consideration of partnering up with another bank or you know are the models just so different.
That's less likely here.
Yeah.
Well, we have to look at all of the.
The past we might take.
We're focused on shareholder value over the long term not just in one quarter or one year as you know our model is very good.
That is different and distinct and we have no plans to do anything in that area, but it's something we have to watch for.
Okay.
Right fair enough. Thank you guys.
Thank you Brian .
Our next question from Michael Perito of K B W.
Michael.
Good afternoon guys.
Frank obviously touch on a couple of my questions, but I do have a couple more I wanted to hit on first just on the.
The increasing conviction around higher short term rates near term I was wondering if you guys. Obviously, if we look back at commerce historically the deposit betas that are very strong I know when you guys kind of first rebooted with with Republic.
If I recall there was a lot of public funds type deposits that really came over quite quickly, but my guess is you guys have diversified quite a bit over the last two years with deposits growing up towards 5 billion. Now I was just wondering if you could maybe walk through the portfolio a little bit in and what your deposit beta expectations are if we do get multiple hikes this year.
Yeah. My guess is they're fairly low, but we'd love to just hear from you and how are you guys dissect the portfolio.
Yes.
So Mike you're right when we first started this transformation.
It wasn't just public funds it was brokered Cds and Internet and.
Wholesale sources of funding and we have removed all of that from our deposit base.
We have now is a great mix of consumer commercial actually commercial is our largest class of deposits right 40, 40, Mike I'm, sorry, and that's unusual for our model that's not what we had a comp versus bank has grown primarily on commercial deposits in the release, we state that the commercial deposits of 44% of the total.
Posit base.
The thing that we love and Bernie mentioned, it once or twice on the call was that the fastest growing one of the fastest growing segment percentage wise is non interest demand deposits. So obviously, they're the ones that we like but we do we do factor in low betas, we do have some public funds in our in our base, but we see those public fund relationship.
<unk> core relationships, it's not just hot money that comes in stages right.
The full operating relationship of those entities and just let me make that point again, Mike you've heard this before it's not big money, it's not hot Hot money. These are very similar to corporate cash management accounts.
It's always been an important part of our model, we want to be the bank or for the local town School board et cetera in our markets and it's one of the reasons our growth rates are so high because if you are the bank with a local school board in town you are de facto the bank for that town.
Got it and then are you guys. You know if we assume that the court the quarter end balance sheet holds fairly steady here and we do indeed get.
25 basis point hike in March.
Or how are you guys able to provide some context around what you think the immediate impact of that would be particularly given the cash balances, which presumably you're going to be a little heavy for the foreseeable future here.
Well I'll, let Brian answer, but let me give you the general answer they've helped us already Mike because as you know the long rates have gone up I think about 180 to 110.
Very helpful to us as you know.
Our loan to deposit.
Right right right right now is lower than we would like then we invested in mortgage backs, primarily and frankly are seeing higher yields in the mortgage backed we definitely are and to go back to Mike's original question.
One move a 25 basis points on the end of the shortage of yen 25 basis points on the short end by the fed to fed funds we.
We don't think has a significant effect to one or two or maybe even three limited.
You could go back Mike.
When you saw in 2018 and 19 when it when the fed started adding 25 to 50 in the fed funds rate got up over two two and a quarter $2 50.
That's when the yield curve.
Flattened in inverted at times, and that's a problem for not just us but for almost every bank in the industry.
Yeah.
Alright.
I mean.
Sorry, if I misinterpreted that but so if we get a couple of short end hikes in the next six months you don't think it will have a significantly positive impact on the margin.
Positive as the short end goes up go ahead, Brian .
We don't believe that there will be a significant impact on.
On the margin, but again, it's all based on the steepness of the curve shape of the curve. There is a long and you can see there you can see the reaction when the long end gets higher and that's what we're seeing.
Good day now if those bumps move the Tan and longer yields. Then then yes, we're thrilled and that will help us significantly.
It just depends on the speed the pace and the way that the economy and the market reacts.
Okay anything else Michael.
Nope.
That's it thank you guys.
Thank you Mike.
And once again, if you have a question please press star one.
Question from Abbott.
Oh I'm sorry.
And we have no more questions.
Okay.
We have no more questions.
Alright. Thank you all for your support it was a great year and the past year for this bank and we are optimistic.
As we move ahead in many ways. Thank you will.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Yeah.
CECO has an undrawn.
Yeah.