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Republic First Bancorp Inc  (NASDAQ:FRBK)
Q4 2018 Earnings Conference Call
Jan. 28, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Fourth Quarter 2018 Earnings Conference Call. My name is Sheryl 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 call is being recorded.

I will now turn the call over to Vernon Hill, you may begin.

Vernon W. Hill -- Chairman of the Board

Good morning to each of you and welcome to the Republic Bank's Fourth Quarter Call. With me are Harry Madonna, Chief Executive Officer, Andy Logue; Chief Operating Officer and Frank Cavallaro, Chief Financial Officer. We are pleased to report, I believe you all have a copy of our fourth quarter release. I'd like to go through the main points, then we'll open it up. For the year -- for the year before tax income increased 70% to $10.2 million. We're focusing on the pre-tax earnings, instead of the after-tax earnings, because in the fourth quarter of last year we had an unusual charge.

We're pleased to report deposits grew 16% for the year and later on we'll talk about in a chart the mix of growth in deposits. We are proud to report that new stores opened since the beginning of our Power of Red is Back campaign, grew deposits for the year at an average rate of $27 million, each year, while the average deposit growth for all stores over the last 12 months, grew $14 million. Total loans for the year grew 24%, and our loan to deposit ratio for the year grew from 57% to 60%. We are doing very well on loan growth. Interesting, for the year, the top line grew 24%, while our non-interest expenses grew only 11% for the year. So there is quite a bit -- there is quite a big jaws (ph) as we call in Britain, between the top line growth and the expense growth. All of the expense numbers including the expenses to build our new stores, including some of the pre-expenses in our New York expansion and the estimated cost of that, that went through the expense line in 2018, Frank (inaudible).

Frank Cavallaro -- Executive Vice President, Chief Financial Officer

Approximately $2.2 million.

Vernon W. Hill -- Chairman of the Board

On Page 2, again we're showing the num, we're showing the -- chart showing the same numbers. Going down to the second part of Page 2, demand deposits continue to be the highest growth section of our deposits, 90% of our growth was in demand deposits, both non-interest bearing and interest-bearing. We did open four new stores in the year and we expect to open seven plus in 2019. Those seven include our first new stores in Manhattan, which we intend to open in the second quarter, god willing. And we're pleased to announce that the stores opening, our first two stores in Manhattan, are 14th and fifth, some of you will remember that was our original comic store. And fifth, at the first and third, we hope to open those two stores on the same day, and we look forward to seeing you all there.

One thing it did happen in 2018, we converted $10.6 million of trust preferred by using 1.6 million shares of common stock, reduced our interest expense for the year by $900,000. On the bottom of Page 3, we're showing you the growth in top line, expenses and net income. Remember on the -- on the net income line, we suggested to look at the pre-tax number to compare 2017 to 2018.

On Page 5, at the bottom of Page 5, you can see the breakdown in the growth in the deposits across the money in the fourth quarter was 0.83%. On Page 6, our asset quality continues to perform, our non-performing assets to total assets dropped to 0.6% and our loan loss reserve coverage to non-performing assets grew to 83%. That's our points, I think, Harry would you like to say anything?

Harry D. Madonna -- Chief Executive Officer

No, just growing (inaudible) plans and busy talking about staffing up in New York, we're very positive about that. I guess, that it will go very well.

Vernon W. Hill -- Chairman of the Board

And we've recruited as you can see in the press release early on, where we're improving commerce team members at a very rapid pace. I think we can now open up.

Frank Schiraldi -- Sandler O'Neill & Partners LP -- Analyst

Please open up for questions.

Questions and Answers:

Operator

Thank you, everyone. Now we're going to question-and-answer session. (Operator Instructions) And our first question comes from Frank Schiraldi from Sandler O'Neill. Your line is open, Frank.

Frank Schiraldi -- Sandler O'Neill & Partners LP -- Analyst

Good morning.

Vernon W. Hill -- Chairman of the Board

Good morning, Frank.

Frank Schiraldi -- Sandler O'Neill & Partners LP -- Analyst

Just -- Vernon on the number, one of the numbers you cited was the $14 million per store growth, over the last 12 months. So just kind of curious as you look at that number, obviously very strong number compared to what we see elsewhere in the industry. As you see that number, what do you think about in terms of goals for that number or expectations for that number over the next, call it 12 months?

Vernon W. Hill -- Chairman of the Board

Right. We should look at the break in the growth, in stores. The new stores are growing at a much higher level and the old stores had not been converted to the new model yet. So commerce grew in the $18 million range, that's certainly a safe number for us now, but these numbers between new and the old stores as the new stores become a higher percentage of the total and the New York stores become important part, it seems pretty obviously to us -- that the trend is up. I think, Frank, the important part of business growth in deposits that was almost all in very low -- low-cost deposits. As you know our model, this is a not a rate driven model.

Frank Schiraldi -- Sandler O'Neill & Partners LP -- Analyst

Great, thanks. And then as you see, and you mentioned, you alluded this too, that the loan growth has been quite strong, it has been stronger than the deposit growth actually over the last 12 months. I'm just kind of curious, do you think that can hold out? I mean is there enough opportunity out there that you see the loan to deposit ratio flattish or could it continue to trend up as it has been?

Vernon W. Hill -- Chairman of the Board

If New York wasn't coming up, I would say, would trend up but wouldn't have a great jump. But we have been very strong at making loans but Manhattan for us in the old days of Commerce was a tremendous producer of loans. And we're not predicting but I'm hopeful once our New York teams get going, you could see this loan to deposit ratio grow.

Frank Schiraldi -- Sandler O'Neill & Partners LP -- Analyst

Okay, great. And then just if I could, just a quick modeling question maybe for Frank. Just the -- Frank, the SBA business, is there any catch-up that we could see in 1Q, just in terms of stuff that maybe didn't close late in 4Q given the government shutdown or is that, do you not see that as the case going forward here?

Frank Cavallaro -- Executive Vice President, Chief Financial Officer

So the approval process start during the first quarter. But we tend to see -- we do tend to see some of (inaudible) in the first quarter. But the SBA Group is pretty much kind of run there at normalized rate, generating just under $1 billion a quarter in gain. You know Frank, we do get launched in this SBA Group, so it's hard for us to predict a nice smooth pair.

Frank Schiraldi -- Sandler O'Neill & Partners LP -- Analyst

Sure. Understood. Okay, thank you guys.

Vernon W. Hill -- Chairman of the Board

Thank you, Frank.

Operator

(Operator Instruction) And our next question comes from Michael Perito from KBW. Michael, your line is open.

Michael Perito -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Thank you. Good morning.

Vernon W. Hill -- Chairman of the Board

Good morning, Mike.

Michael Perito -- Keefe, Bruyette, & Woods, Inc. -- Analyst

A couple of questions from me. I wanted to start on the -- I was curious Vernon if you could give us a little bit more detail about the two new stores in the fourth quarter in Evesboro and Somers Point, about how the deposit growth and production was from those stores from the open?

Vernon W. Hill -- Chairman of the Board

Well, we don't really have a number yet, Mike, they opened in the last week or two of the year.

Michael Perito -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay.

Vernon W. Hill -- Chairman of the Board

So they opened in the year last, that's really a new store for 2019. Right, Frank?

Frank Cavallaro -- Executive Vice President, Chief Financial Officer

Correct.

Michael Perito -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. So I mean, is it safe to say then that some of that deposit bump that from those stores that you guys have seen in some of your other ones, it probably got pushed into the early part of this year?

Vernon W. Hill -- Chairman of the Board

Yes.

Michael Perito -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. And then a margin question for you, Frank. Just the loan growth was strong. Obviously, the average balances, it would seem like maybe some of that was a little heavier in the back end of the quarter. But I'm just curious, I mean, what is your expectation for the margin near-term here? I mean it seems like, obviously, when the New York stores come on, there will be a lot of liquidity coming on the balance sheet for the next quarter or two, it seems like a loan production has some good momentum. So I mean, is there some hope that can result in a little relief on the margin side at this point? Or do you think the challenge to kind of hold it steady, just given the amount of liquidity that's coming on, and the plan is the yield curve?

Vernon W. Hill -- Chairman of the Board

Before Frank answers that, Mike, our experience, we went to New York, the loans came on before the deposits, that's now what we see in most markets. But when we put a lending team in place up there, even before the stores open, I wouldn't be surprised if our loan growth proceeds the growth in deposits.

Frank Cavallaro -- Executive Vice President, Chief Financial Officer

Mike, the margin as you can see ended the year at right around 3.16%. And we expect it to, we project it to be in that range for this coming year. Although it's impossible to predict what that's going to do. Last year the pressure that we felt was from the increases in the Fed funds rate. As we talked about before, a segment of our deposit base is tied to that index, so it moves automatically with Fed fund rate increases. But with one or two or fewer, that would be a benefit to us, maybe, if we get some relief in the latter part of the year.

Michael Perito -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. And Vernon have you guys started kind of prospecting for some of the lending talent in the New York City area? I mean, I imagine, you have at this point, you maybe just give us an update about where those conversations are? And what the talent pool looks like as you guys kind of begin your move into that market?

Vernon W. Hill -- Chairman of the Board

Yeah, we're putting the teams together, right now. And we'll have -- we'll be ready to announce the first team in the first quarter of this year.

Michael Perito -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Helpful. Thank you, guys. Appreciate it.

Vernon W. Hill -- Chairman of the Board

Thank you, Mike.

Operator

And our next question comes from Mike Telep (ph), Private Investor. Mike, your line is open.

Mike Telep -- Private Investor -- Analyst

Yes, hi, good morning, Vernon.

Vernon W. Hill -- Chairman of the Board

Good morning.

Mike Telep -- Private Investor -- Analyst

I was wondering if you might just make some comments about what you think the long-term plan is in terms of how growth might look 3 to 5 years out. Just what geographies and lines of business that we might expect to see?

Vernon W. Hill -- Chairman of the Board

Mike, we're not really capable of giving a long-term goals and we're not going to predict it. But if you want to look what happened to me in the past, look at the Commerce Bank numbers, when we launched in 2001 in Manhattan, and see what happened there. And I'm not saying the same thing is going to happen here and we're not predicting any numbers, but you get a good idea of what the shape of the curve could be.

Mike Telep -- Private Investor -- Analyst

Okay. Thank you.

Operator

(Operator Instructions)

Vernon W. Hill -- Chairman of the Board

I guess, that it's. Thank you all.

Operator

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

Vernon W. Hill -- Chairman of the Board

Thank you.

Operator

Thank you, sir.

Duration: 15 minutes

Call participants:

Vernon W. Hill -- Chairman of the Board

Frank Cavallaro -- Executive Vice President, Chief Financial Officer

Harry D. Madonna -- Chief Executive Officer

Frank Schiraldi -- Sandler O'Neill & Partners LP -- Analyst

Michael Perito -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Mike Telep -- Private Investor -- Analyst

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