Republic First Bancorp : Q4 2021 Earnings Call Transcript

Final Transcript

Republic First Bancorp, Inc.

Fourth Quarter 2021 Earnings Call

January 20, 2022

11:00am EDT

SPEAKERS

Frank Cavallaro

Vernon Hill

Andrew Logue

PRESENTATION

Operator: 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 now would like to turn the call over to Frank Cavallaro. Frank, you may begin.

Frank Cavallaro: 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 Logue. 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. It 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. Hill to begin the review of our financial results.

Vernon Hill: Good morning, to all. Thank you for spending time to join this call. We are pleased to report on Republic Bank's fourth quarter financial results, which brings to a close a very successful year. Our power of red campaign, expansion campaign is going strong. We not only achieved asset loan and deposit growth far above the industry average, but we also saw dramatic improvement in profitability during the current year. Earnings improved approximately 400% year over year as a result of our efforts to drive topline growth at a greater growth rate than our expense growth. We are - we look forward to the year ahead. We are excited about the opportunities for growth we see unfolding in 2022 that we can continue our growth plan. We plan to deliver significant enhancements to our technology platforms in 2022. We remain committed as ever to delivering the best experience to our customers across every delivery channel, including in-store, online, mobile and by phone. With that, I'll go on with some comments about quarter four.

As I said earlier, fourth quarter in the year 2021 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% to $25.2 million or $0.33 cents a share. Earnings per share for the year grew, what's the percentage Frank?

Frank Cavallaro: Earnings per share grew 371% year over year.

Vernon Hill: Net income for the fourth quarter was great, increased to $6.1 million or $0.08 cents a share compared to net income of $4.1 million or $0.05 cents a share for the fourth quarter of last year. The improvement in earnings was driven by strong growth in the topline while we continued our focus on cost control. Revenue grew 26% year over year, and non-interest expenses grew only 4%. We use this effect of the jaws effect and we're focused on maintaining this result. Deposits. It was another great year for deposits. Deposits increased for the year, $1.2 billion or 29%, grew

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to $5.2 million at year end. The new stores we opened this year during our Power of Red campaign are growing branch deposits at the average rate of $41 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 deposit 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%. We obtained this growth despite driving our overall cost of funds down. Our cost of funds for the year decreased to 0.35% compared to 0.54% in the fourth quarter of 2020. Excluding the impact of PPP loans, loans grew apples to apples 18% for the year to $2 billion $400 million. Asset quality has always been very strong here and continues to be strong. Our nonperforming assets declined to 0.24% compared to 0.28% in 2020. No loan customers are on loan payment deferral. All customers that were granted deferral during the PPP stage have resumed contractual loan, right Frank?

Frank Cavallaro: That's correct.

Vernon Hill: Going on to page two, which just shows you another chart in growth in assets loan deposits and so forth. It shows you 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 topline for the last three months of the year, compared to the same period last year, grew 17% where expenses grew 10%, but for the full 12 months, the effect was much more dramatic. Topline grew 26% and non-interest expenses only grew 4%. 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. Our residential mortgage division has been a strong income producer for us, and they originated almost $600 million in new mortgage loans in the last 12 months of this year. Our risk capital and our regulatory capital, Frank, why don't you just do the capital?

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Frank Cavallaro: At the end of the year, the total risk-based capital was 11.76%, and the leverage ratio was at 6.06%, both numbers still above the well capitalized threshold and we continue to monitor those. The book value per common share increased to $4.67 cents compared to $4.41 cents a year ago at this time.

Vernon Hill: Go ahead, Frank. I've got a cold. I am having more trouble than normal talking. On page four, you can see the financial results. Page four is for quarter four. Is there anything we haven't addressed there Frank?

Frank Cavallaro: You've commented already on the tremendous growth year over year in both the quarter and the year, in net income growth. We would like to mention that during the fourth quarter, there were some elevated expenses. We're incurring some direct costs as we prepare for our technology transformation that we mentioned earlier, that's coming up in the mid-part of 2022. Some non-recurring legal and professional fees that impacted the fourth quarter as well. So, we continue to manage expenses as closely as possible, but sometime there are one-time effects that impact us.

Vernon Hill: Thank you. On page five, these are the comparison income results for the 12 months. Go ahead, Frank.

Frank Cavallaro: Yes, the 12-month year over year as mentioned in the beginning. Net income grew 398%, earnings per share grew to $0.33 cents a share compared to $0.07 cents the year before. We love to talk about this jaws effect, the impact of growing revenue at a much faster rate than we're growing non-interest expenses, that's - it's a reoccurring theme, has been one since 2019.

Vernon Hill: On page six as said earlier, we break it down as the deposit base type. Demand deposits again was our highest growing segment of deposits. As I said earlier, they grew 39%. Lending on page seven. As I said earlier, loans grew 18% year over year, and it shows you the

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growth by type. This is excluding the PPP loan effect. Asset quality on page eight, we talked earlier, asset quality remains excellent as it has been. The bottom of page eight, capital. Go ahead, Frank. Talk about capital.

Frank Cavallaro: Yes, this is just more detail on our capital ratios. We mentioned the leverage and the total risk- based capital already. The tangible common equity did fall below 5%. If you factor in the conversion of preferred shares that could occur in the future, that increases almost a hundred basis points up to 5.75%. I think it's worth mentioning at this point that during our last earnings call, we did mention the possibility of completing a capital raise in the fourth quarter which would be to support our growth and expansion strategy. As the quarter progressed, we made the decision that it would be in the best interest of not only the bank, but our shareholders to do that raise at a time that would be most optimal from a stock price perspective. So, we'll continue to monitor market conditions and assess alternative strategies as we get into 2022. But at this time, we are comfortable with our capital levels at the levels they're at today.

Vernon Hill: 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?

Operator: Thank you. We can now begin the question and answer session. If you have a question, please press star one on your phone. If you wish to be removed from the question queue, you may press the pound sign or the hash key. And if you are using a speaker phone, you may need to 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.

Frank Schiraldi: Good morning. On the expenses, you mentioned, Vernon, the investment in technology. Just wondering if you guys can provide any color on either expense growth in 2022 or obviously, you guys talk a lot about the jaws effect, perhaps frame it that way in terms of should that continue to accelerate the increase of revenues minus the increased expense.

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