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Republic First Bancorp Inc (FRBK -56.67%)
Q2 2019 Earnings Call
Jul 29, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the second quarter 2019 earnings conference call. My name is Sylvia, and I'll your operator for today's call. [Operator Instructions] Later, we will conduct a question-and-answer session. [Operator Instructions]. I will now turn the call over to Harry Madonna, Chief Executive Officer. Mr. Madonna, you may begin.
Harry D. Madonna -- Chief Executive Officer
Good morning and thank you for joining us. I'm here with Andrew Logue, the chief operating officer and Frank Cavallaro, the chief financial officer
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
Okay. Thanks, Harry. Thank you for taking the time to join us this morning. I'm pleased to report to you the results for the second quarter of Republic First Bancorp, Inc. We'll start off with total deposits, which grew $394 million year-over-year at 18% to $2.5 billion. Our new stores that we've opened since the beginning of our Power of Red is Back expansion campaign. Our growing deposits at an average of $25 million a year. All our stores together are growing at an average of $14 million a year. Our total loans year-over-year grew $191 million or 15% to $1.5 billion and total assets are up to $2.9 billion, which represents growth of 15% year-over-year.
We're pleased to announce the opening of our first store recently which just occurred two weeks ago in New York City. We had a grand opening for our location at 14th and 5th, which got off to a tremendous start. That's our 28th [Phonetic] store all together. We expect to have 31 stores open by the end of this year. Net income for the second quarter was $381,000 or $0.01 a share, that's compared to $426,000 in the first quarter of this year and $2.4 million in the second quarter of last year. We continue to feel the suppression of earnings due to margin compression and the cost associated with the build out of our New York market. The net interest margin in the second quarter shrunk to 2.94%, which compares to 3% in the first quarter of this year and 3.19% in the second quarter of last year. So during the second quarter, we're not only experiencing the flat margin, but at times we're seeing -- I'm sorry flat yield curve but [Phonetic] inverted yield curve. This has created continued compression as we still continue to feel the effects on our revenue line.
Non-performing assets continue to decrease, our non-performing assets, total assets shrunk to 53 basis points. That's compared to 81 basis points a year ago at this time. We're pleased to report a strong quarter in our non-interest income line. Non-interest income was driven by SBA gains of over $1 million and the mortgage division contributed $3 million to the non-interest income line. Capital ratios continue to be strong at June 30th, our leverage ratio was 8.97% and our total cap -- capital ratio, which fell over 14%. We're pleased to report that we see consistent growth in non-interest bearing demand deposit balances and an account opening. They are the highlights for the quarter.
At this point. I open it up for any questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Michael Perito from KBW.
Michael Perito -- Keefe, Bruyette & Woods
Hey, good morning.
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
Hi Mike.
Harry D. Madonna -- Chief Executive Officer
How're you doing?
Michael Perito -- Keefe, Bruyette & Woods
I had a few questions I want to hit on. First, Frank I was wondering if you could give us maybe just a little bit more specifics. Got the first month in the books and I know it really is only been a little over two weeks. But just what are the early indications from the New York City expansion from -- an actual growth perspective?
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
So, as you pointed out Mike, it's been just two weeks. We can tell you that the grand opening weekend that occurred at the weekend of July 11th was a tremendous -- success. We had hundreds of customers coming in opening accounts, we've had in just two weeks, $5 million in deposits. So, that's a really strong start for us. And we're really pleased to see how that store has gotten off the ground.
Michael Perito -- Keefe, Bruyette & Woods
Helpful. And then I guess just kind of a broader question based off that. So I mean, obviously the kind of the undervalue of the brand here has a lot of momentum, right? And there's still a lot of customer interaction and brand awareness and that's -- is driving deposit growth, which I imagine will be stronger in the back half of the year with some of these new stores. But I guess, can you talk a little bit more about the profit model that you guys are using to analyze this growth at this point? I guess my question really is -- is with the curve where it is and prospects now for maybe the Fed to start cutting short term rates is -- I mean, is there any talk or discussion about altering that growth rate to a level that can be more supported by the profit that you can make in the current yield environment?
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
So I start off by saying that the first half of this year we've been incurring expenses to launch a new market and that's been obviously a drag on our earnings. Now that we're open in New York, we're now generating deposits and loans. So the revenue will start to come -- with that. But in addition, we continue to evaluate what happens and what the margin environment will bring us. There's talk of a potential reduction by the Fed in rates, and we think that would provide some great relief to -- or margin expansion, we've seen over the last year, year and a half when the Fed has raised rates over 7 times. We're seeing that the increase on the short end of the curve effect our cause -- our deposit cost of funds. So anything that the Fed does can help us there. But, you know, at a high level, we continue to evaluate and more [Phonetic] moderately to project what would happen in different scenarios and if this were to continue, if margins were to continue to compress, obviously we would make the right decision to accommodate and account for that, to make sure that we can maintain a profitable bank.
Michael Perito -- Keefe, Bruyette & Woods
And just lastly, just a quick one, just that the tax rate to the step up in the quarter, any thoughts, Frank, on just where they'll trend for the rest of the year?
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
The tax rate in the quarter was such a small pre-tax income. There is some deductible items. Obviously, the biggest impact on our run rate is going to be the federal tax rate of 21%. However, when we're down in the low profitability, the deductible items that we see have some impact. So, I would say that what we're seeing is consistent as we go, as we increase profitability in the future, you'll see a more normalized tax rate and effective rate in the high teens to the low 20s.
Michael Perito -- Keefe, Bruyette & Woods
Helpful. Thank you.
Operator
Our next question comes from Frank Schiraldi from Sandler O'Neill.
Frank Schiraldi -- Sandler O'Neill -- Analyst
Good morning. Just wanted to start with the New York store opening again and just to ask what is your -- if you could just remind us what you're targeting in terms of break even there and then just your thoughts on growth? I mean, if I look at your new stores open, generate $25 million in deposits. What is the anticipation for this flagship branch in New York?
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
So on the last call, I believe we identified a break even target of $55 million to $60 million, and we believe that's the case. Now that we're still seeing the actual expenses come through. Obviously that target shift is the margin environment changes, but right now that's what we see. And then your question about the average $25 million in deposits per year per store. That's the glass prototype that we see down here. That's the growth that we see in our prototype building in the Metro Philadelphia market. We -- said earlier on the call that already in just two weeks, we've seen $5 million in the deposits in this new store in New York. So we're expecting that, this is why we moved to New York. We're expecting a higher growth and a higher deposit availability in that market.
Andrew J. Logue -- President and Chief Operating Officer
And Frank, this is Andy. Let me add this to the -- we also -- we talked about the store but we also have a lending team in place now between and they really just got started in late May-June period of hiring [Phonetic]. So they're just on the ground now out there. And so we're starting to see volume on the loan side, on the commercial loan side.
Frank Schiraldi -- Sandler O'Neill -- Analyst
Gotcha. Okay. And then I would imagine as you look at the environment and think about growth and profitability. Frank, you mentioned, it's something that you're always clearly looking at. But I would imagine in the near term you have branches coming online that are in process and are basically going to be -- regardless of what the profitability picture looks like over the next 12 months or already sort of far enough along that they're going to open. So I just wondered like, where are you in terms of as you look out over the next 12 months and you think about, if you could just kind of remind us the expectations for store openings and then, when can you not pull the plug, but when can you, sort of take a step back and think about maybe slowing branch growth down? Does that take, is that an 18-month lead time or what is that? Thanks.
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
So that's about the lead time, Frank. I think we've talked about that before. We mentioned earlier on this call. We've got 28 stores open. We expect to get to 31 by the end of the year. So obviously that means we have three under construction and we're confident, on their status. As we think into next year, we have the ability as the development cycle moves forward. We can be aggressive or we can slow it down. The approvals that are necessary, the permits and the land acquisition. There's a tremendous amount that goes in. So, if you're asking can we slow this down sooner rather than later, I think the answer is yes, because, we're not committed to a deal until we get all the approvals. That means regulatory approval, that means local zoning, the permits necessary to do construction. So we're not locked into something until we actually reach that [Indecipherable].
Frank Schiraldi -- Sandler O'Neill -- Analyst
Okay, and then on margin, just thinking about your interest rate risk profile that you guys offer up in your queues as we expect a cut here. You've talked about the deposit pricing on the muni [Phonetic] side, repricing immediately and maybe getting some benefit to the NIM [Phonetic] in the near term, is that still sort of the thinking?
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
That's our expectation and we've seen the opposite of that over the last year and a half is that -- it's gone the other way. So, in this environment, expecting no change in the long into the curve. Yes, I think that's a fair assessment.
Frank Schiraldi -- Sandler O'Neill -- Analyst
Okay, all right. Great. Thanks.
Operator
We have no further questions at this time.
Unidentified Speaker
Thank you very much.
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
Yeah, thank you for joining us. We appreciate your time.
Operator
[Operator Closing Remarks]
Duration: 14 minutes
Call participants:
Harry D. Madonna -- Chief Executive Officer
Frank Cavallaro -- Executive Vice President and Chief Financial Officer
Andrew J. Logue -- President and Chief Operating Officer
Unidentified Speaker
Michael Perito -- Keefe, Bruyette & Woods
Frank Schiraldi -- Sandler O'Neill -- Analyst
