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Republic First Bancorp Inc (NASDAQ:FRBK)
Q4 2019 Earnings Call
Jan 28, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Fourth Quarter 2019 Earnings Conference Call. My name is John and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

And I will now turn the call over to Vernon Hill.

Vernon W. Hill II -- Chairman of the Board

Good afternoon, good morning to everybody. We have with us today on the fourth quarter call for Republic Bank, Frank, can you address everybody [Phonetic] please?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Yes, Frank Cavallaro, Chief Financial Officer; we have, Andy Logue, our President and Chief Operating Officer; Harry Madonna, President and CEO; and finally, Vernon Hill, Chairman of the Board.

Vernon W. Hill II -- Chairman of the Board

Okay, thank you all for dialing into the call. The press release is out, highlight the items in the release and then we'll talk about whatever you would like. We had another great quarter of growth. Deposit year-over-year have gone up $600 million. Our new stores are growing at $30 million a year and all of our stores accounting a few almost [Phonetic] are growing at $22 million. We have two stores in New York open, they're doing very well. And the third one is about to start.

Loans also grew very good, well, they grew 22% and they're growing in every market. This was a third quarter I believe, the second quarter, where we have a small loss. As I think I just mentioned at the last quarter, we had an unusual set of facts, where we had the expenses, particularly in New York, with the flat to inverted yield curve compressing our margin. We're going to talk about the things we are about to do or I started to do until the margin improves.

Again, the margins, the problem we have a flat or inverted curve. One of the ways we are improving our margin is our loan to deposit ratio will be going up. On Page 2, everybody asked about Tech, I'm pleased that we have brought on Board Jack Allison, who works for me at Commerce as the Chief Tech Officer from 1991 to 2010, and he helped me in the Tech transformation -- transformation of commoners doing all of those years. And he has already improved not only our back office, but the delivery experience to our clients.

Republic is about the integrated delivery experience of in-store, mobile, online and as you know our theories about building expands. You can see the growth in assets, loans and deposits. Frank, the deposit growth in the fourth quarter was [Indecipherable] I missed the quarter [Phonetic] $200 million or some.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Yes, approximately $200 million for the third quarter alone.

Vernon W. Hill II -- Chairman of the Board

For the fourth quarter.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

I'm sorry fourth quarter.

Vernon W. Hill II -- Chairman of the Board

Non-performing assets went down, declined to 0.42%, our largest [Indecipherable] asset was sold off in the fourth quarter. Our residential mortgage business is doing fine for the year and SBA is [Technical Issues]. Capital is still fine, but as these growth rates grow at these rates, we said we expect to raise capital in some form later this year we don't have a date. So we've also announced that in response to the margin, we've introduced, which has begun already dramatic reduction in advances and expense growing. Frank, why don't you go through this.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Yes, so the first item on our list is to slow the store openings. We've announced previously that we expect to do four stores this year. Most of them were already under construction are far along in development, where we found a need to continue with them. But that will certainly help us control the expense growth. We're looking at to control new hires as well as other variable cost, things like marketing, maintenance and professional fees.

Vernon W. Hill II -- Chairman of the Board

One of the things we've done in this new world of Tech, we've actually reduced the hours of the stores, which I've never in my life, I don't think, it's still very long hours, the best in the market. But we've reduced some of the week -- in the night -- the week day night hours and some other hours, we've got some real cost saves there. Go ahead, Frank.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

We've taken a very close look at all high cost deposit relationships to -- in an attempt to drive down the cost of funds. As Vernon mentioned, we hired Jack Allison as our Chief Technology Officer. We will use Jack to optimize the usable technology resources. We are assessing the size of future stores, we'll try and optimize and limit any cost or expenditures there.

In addition, we've taken a close look at management salaries as well as board fees and the bonus pool that we accrued for 2019. So all those initiatives together, most will take effect in the first quarter of 2020. But if you look at the earnings release, you can also already see the stabilization of non-interest expenses. Non-interest expense actually declined slightly during the fourth quarter of 2020.

Vernon W. Hill II -- Chairman of the Board

I think everything else is covered in the printed release and the online release. We would be happy to open the floor now to what you would like to ask.

Questions and Answers:

Operator

Thank you and I will begin the question-and-answer session. [Operator Instructions]

Vernon W. Hill II -- Chairman of the Board

Anybody there?

Operator

And our first question is from Frank Schiraldi from Piper Sandler.

Frank Schiraldi -- Piper Sandler -- Analyst

Good morning.

Vernon W. Hill II -- Chairman of the Board

Frank, we are confused -- Frank, we are confused with your new name.

Frank Schiraldi -- Piper Sandler -- Analyst

I know, It is confusing. I know, it's different. But not much else has changed besides the name, so that's good. But I wanted to start Vernon with -- actually Frank, I think you might have just mentioned, I might have just missed it. I thought you guys have talked about the number of branches next year you were looking to open was four. And then I'm not sure, if you updated that on the call here this morning?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

No. We said at this time four is the target for this year. One already opened in January, there is another one under construction that will open late second quarter and two more that are far -- not long enough in the development process that it doesn't make sense to slow them down at this time.

Vernon W. Hill II -- Chairman of the Board

But Frank, that is slower than we had in our plan last year. We tend to build more new stores and buds more of it, we deliberately slowed down these store openings. Go ahead.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. Right, no, I understand. Okay. So, four for 2020. And then Vernon, you mentioned the loan-to-deposit ratio should be going up. Frank, you talked about taking a hard look at some higher cost deposits. So, is this something that we should expect just stronger loan growth throughout the year than deposit growth, or is there something in the first quarter where we could see some attrition in the deposit levels. Just right off the back to kind of reduce some of those higher, I guess, cost deposits?

Vernon W. Hill II -- Chairman of the Board

Our loan-to-deposit ratio is definitely going up, the New York Expansion has really helped. As I found, when we went Commerce to New York as more commercial loan demand and the rates are higher in New York, it's surprising. So we grew -- we had a big fourth quarter, what was the loan growth in the fourth quarter, Frank?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Loan growth in the fourth quarter was $175 million, and a lot of that was in the back end of the quarter.

Vernon W. Hill II -- Chairman of the Board

And how is that compared to the third quarter?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

For the first nine months altogether it was only $130 million.

Vernon W. Hill II -- Chairman of the Board

So we grew more than the fourth quarter in loans and we did all in three of the first quarters. It's coming from every market. But as I said, Frank, I was really surprised that Commerce went to New York. There is more loans in our segment, and the price is higher. So pretty confident that loan to deposit number is going to keep going up, which the margin will get helped, of course.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. So it sounds like it's more a case of just tremendous loan growth as opposed to trying to call part of the deposit franchise.

Vernon W. Hill II -- Chairman of the Board

I wouldn't say we're trying to call the deposit franchise. There is always outliers you can dial back, the deposit growth is so strong now that we can be less aggressive on certain types of products and rates. We have the deposit growth slowing this year, Frank?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

No, but we have loan growth accelerating further than we had in past years.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. All right got you. And then just on the capital front. You mentioned, Vernon, I think you'd have to address some form of capital, just given the way you're growing at some point later this year, I believe. So I just -- if that's the case then it doesn't sound like you're looking to do something immediate. But just kind of curious if you could give us a little bit of detail on your thinking on common levels, because to me it seems like you're going to just given this growth rate you'll have to raise common at some point. Just curious if you could tell us what you -- what sort of levels on a TCE ratio you guys target? And how low do you think you can go on a TCE ratio at the holdco before, I need more comment.

Vernon W. Hill II -- Chairman of the Board

All right. We're thinking about doing something in second and third quarter, we are not committed to that. We do need common in some form, you've heard me talk before Frank, I've done converts several times and it's possibility to do some kind of convert, whether it's a preferred or debt. Generally, my experience on what we've had in Republic is we raise capital and we sort of work it down as the growth and then we raised some more. We're not ready to say what the amount is, but it's not a giant number of that we need.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. I mean do you think you go back, I mean, any sort of color or guidance you can give us on just where you think you guys need to get on a TCE ratio in order to -- once you raise some money that you don't need to raise again for another 18, 24 months, something like that. Where do you think you need to get to on a TCE ratio?

Vernon W. Hill II -- Chairman of the Board

Yes, we're certainly going to keep it above 7%, but we're not specific about how much we want to get above that number in the next race. So as we see how the first quarter does and we will get back to the market and talk about the range that we expect later this year.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. All right, great. Thanks.

Vernon W. Hill II -- Chairman of the Board

Thank you, Frank.

Operator

Our next question is from Michael Perito from KBW.

Vernon W. Hill II -- Chairman of the Board

Hi, Michael.

Michael Perito -- KBW -- Analyst

Hey, good morning Vernon. How are you?

Vernon W. Hill II -- Chairman of the Board

Good, thank you.

Michael Perito -- KBW -- Analyst

A couple of follow up questions. So as we think about -- just on Frank's capital question. But as we think about the overall kind of asset growth for 2020, with the four stores, do you guys have any initial thoughts on kind of what your expectations are there, especially with kind of the revised up loan growth expectations that you discussed earlier on the call?

Vernon W. Hill II -- Chairman of the Board

Do we have any expectations about what?

Michael Perito -- KBW -- Analyst

Overall asset growth, if we're trying to think about the size of the balance sheet, just as we're trying to think about capital and then levering capital.

Vernon W. Hill II -- Chairman of the Board

Yes, well you could look at our deposit growth per store for 2019. And we're pretty optimistic continue in that area. But when you talk about new store openings, you have to count the months that are open not the year, so I just can't add four of the stores and multiply that number. But generally it will be in this area per store.

Michael Perito -- KBW -- Analyst

Okay. And then on the expense kind of actions that you guys are -- or how it sounds like you already started to take. Frank, I was wondering if you could give us a little bit more details about how you kind of expect that to impact the near-term expense run rate? And I guess just more specifically, do you think by the second quarter of next year with the actions you're taking that you guys should be able to kind of return to a positive earnings run rate here? Or do you think you'll take shorter or longer than that?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

So that's our expectation. A lot of these initiatives were set up to start with the beginning of the New Year. You can already see the stabilization, so you've got some impacts that are taking effect in the fourth quarter. But that's clearly our -- it's a priority for us right now.

Vernon W. Hill II -- Chairman of the Board

Remember, Mike, that the new store openings are a decreasing percentage of the total store base. So the new stores have a less negative impact, because there are lower percentage, but we definitely expect to get on -- back on course soon.

Michael Perito -- KBW -- Analyst

And, so does the expense -- does it actually step down? Or do you think it's more of a stabilization with the loan growth and the NII benefit on top of that?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

It's a combination of two. So the initiatives are a combination of both, some of them are reductions and some of them are controlling with the future growth. Obviously, we continue to grow the balance sheet at the same rate, managing expenses to be limited is really a priority and should show the benefits in...

Vernon W. Hill II -- Chairman of the Board

You also get some top line improvement as the margin improved and we're very optimistic about the loan growth, which is going to increase the margin in the top line. So that's sort of both working together, we hope.

Michael Perito -- KBW -- Analyst

Okay. And then I don't know if you guys could answer this, but just as we think about the margin, it was 2.67% in the fourth quarter. Obviously, the New York market is a small relative piece at this point, but growing rapidly, but it sounds like the margin in the New York business is stronger than the rest of the business at this point. I was wondering, if you could maybe just disclose where kind of the margins arranging on the New York business, just as we try to think about how the NIM could improve as that becomes a bigger piece of the overall company?

Vernon W. Hill II -- Chairman of the Board

Historically, that was my experience at Commerce, the margins were better in New York, because the loan yields were higher and the cost of money was no higher. It's too soon to tell on that Mike, because stores open they have opening deals and you're working with a small number. I think at long run we think the margins are going to be about the same there. But as you've heard me talk for 100 years, it's all about deposits per store. And if you're going to get much higher deposits per store than you would have in the Metro Philadelphia market and any suburban markets. So over time, the earnings impact in the New York is much better, because the average deposits per store will be much higher.

Michael Perito -- KBW -- Analyst

Got it. And then just one last quick one, if I could sneak it in, but just Vernon, you mentioned that, your current store hours, I was just curious, has that been communicated yet? And has there been any kind of client feedback on that, as you sit here today? Thank you.

Vernon W. Hill II -- Chairman of the Board

Andy?

Andrew J. Logue -- President & Chief Operating Officer

Yes, it's been communicated out and there's no -- real no feedback. It's been installed -- It's been installed [Indecipherable].

Vernon W. Hill II -- Chairman of the Board

Just being slight [Phonetic] Mike, you know me, I like these long hours and we haven't cut the hours about seven days a week. It's more the fringe hours, we couldn't cut out seven days a week. But it's obvious to everybody, that people don't use the stores as much as they did, because of online and FinTech. So we've made -- we've made the savings and we haven't heard -- I haven't heard a thing back. Have you heard, Andy?

Andrew J. Logue -- President & Chief Operating Officer

No, I heard -- no responses.

Michael Perito -- KBW -- Analyst

[Speech Overlap] Yes. I think it make sense. So that's good to hear that the feedback has been different.

Vernon W. Hill II -- Chairman of the Board

Our stores are -- we spend very little on marketing. Our stores around marketing, and it's a -- in the new world, it's about the right balance between stores and online and FinTech. And these growth numbers for these stores that as you all know that American Bank branches grow $1 million to $2 million, our branches, our new ones are growing $30 million a year guys.

Michael Perito -- KBW -- Analyst

Got it. Well, thank you for taking my questions. I appreciate it as always.

Vernon W. Hill II -- Chairman of the Board

Thank you. Anybody else?

Operator

Our next question is from Brian Meisner, a Private Investor.

Brian Meisner -- Private Investor -- Analyst

Hi, yes. Thanks for taking my question. I was just looking at the non-interest expense category and specifically the other operating expenses. I was just wondering if you could maybe break out the growth related expenses in that category. Is that something that you guys can do. I'm trying to get down to kind of like the profitability of outside of the growth, I am trying to get like a run rate basically.

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

There will be more detail in the 10-K that we file in a few weeks. Other operating expenses is really a catch orders, T&E and marketing advertising, it's a large bucket that we summarize for purposes of the earnings release. But we will provide more detail in the Annual Report.

Vernon W. Hill II -- Chairman of the Board

When we are out on the road next time and when we do know of course we'll break out to sort of profitability model and then the back office expense model we'll show you how it all works together. You might -- I don't know you, Brian, but the old days at Commerce, we did profitability models by store in back office and we're prepared to do that again soon.

Brian Meisner -- Private Investor -- Analyst

Okay. That would be great. Thank you.

Operator

And we have another question from Frank Schiraldi from Piper Sandler.

Vernon W. Hill II -- Chairman of the Board

Frank, are you back again?

Frank Schiraldi -- Piper Sandler -- Analyst

Just one follow-up if I could. First, I just wanted to say, yeah, definitely that would really be great if you guys would provide that again sometime soon, that would be really helpful. So look forward to that.

Vernon W. Hill II -- Chairman of the Board

In next release, we will put out and not soon, we will come out with some breakdowns of stores and we used to report at Commerce the breakeven level generally and the flow through the profits. So we will report some of that at the next report. Republic never had enough size and experience for the numbers to have a lot of meetings, but we're getting to that scale now.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. And then just wanted to try and zero in on expense a little bit more just big picture for 2020. Frank, you talked about the fact that expenses stabilized in the fourth quarter which they did, they were down linked quarter. With the growth you're looking for in 2020, with the four branch openings, I'm assuming you're still going to see some expense growth here. If you could just characterize for us is that some sort of normalized growth more in line with what we saw in 2018, 10% sort of growth from these levels? Or any sort of color you can give on just sort of when you talk about cost control measures, how much is stabilization? And how much is just controlling growth from here?

Vernon W. Hill II -- Chairman of the Board

Frank, that will be helpful to everyone, if we gave you some numbers about expense growth excluding the new stores and break the new stores out. See if that helps and we'll come out that will share with the market that will give you some more numbers to work with.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. So at this point you're not prepared for to talk about, I guess, growth in expenses for 2020 year-over-year.

Vernon W. Hill II -- Chairman of the Board

Anything [Phonetic] Frank?

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

We can only disclose so much frankly. Adding four new stores is obviously going to drive more cost. The other initiatives like managing raises and merit increases and advertising that will offset some of that growth. So you saw the percentage in the growth year-over-year in 2019, we're clearly not going to reach those levels. Hopefully, we'll be back close to that 2018 level that you referenced, but somewhere in between is probably a reasonable assumption.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. Great, that's helpful. Thank you.

Vernon W. Hill II -- Chairman of the Board

Anybody else?

Operator

At this time, I have no further questions.

Vernon W. Hill II -- Chairman of the Board

Thank you all on our call, Harry, Frank and Andy. Goodbye everybody.

Operator

[Operator Closing Remarks]

Duration: 21 minutes

Call participants:

Vernon W. Hill II -- Chairman of the Board

Frank Cavallaro -- Executive Vice President & Chief Financial Officer

Andrew J. Logue -- President & Chief Operating Officer

Frank Schiraldi -- Piper Sandler -- Analyst

Michael Perito -- KBW -- Analyst

Brian Meisner -- Private Investor -- Analyst

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