Republic First Bancorp : Q4 2020 Earnings Call Transcript

Final Transcript

Customer: Republic First Bancorp Inc.

Call Title: Fourth Quarter 2020 Earnings Call

Date: January 25, 2021

Time/Time Zone: 11:00am EDT

SPEAKERS

Frank Cavallaro

Vernon Hill

Andrew Logue

PRESENTATION

Operator: Welcome to the fourth quarter, 2020 earnings conference call. My name is Jenny. I'll be your operator for today's call. At this time all participants are in listen only mode. Later we will conduct the question-and-answer session. During the question-and-answer session if you have any questions, please press star then one on your touch tone phone. Please note that this conference is being recorded. I will now turn the call over to Vernon Hill. Mr. Hill, you may begin.

Vernon Hill: Good morning and thank you all for joining the call. Welcome to the fourth quarter earnings. For FRBK this was a great quarter for us and a great year despite the COVID problem. We had a great year with growth in income, deposits and loans and I'll turn it over to our CFO, Frank Cavallaro who will now describe the actual results. Pardon my cold.

Frank Cavallaro: So, in the room here, in addition to Vernon, I'm joined by Harry Madonna, our CEO and President, and Andrew Logue, Chief Operating Officer. As Vernon said, we are very pleased with the quarter. We'd like to start the discussion by talking about our earnings. As a reminder, in the third quarter of this year, we booked a one-time goodwill impairment charge that was a non-recurring charge. So, when we talk about earnings' comparisons quarter to quarter, year to year through the discussion, we'll do the core earnings excluding that impairment charge. For

the fourth quarter, we recorded earnings before tax of $5.7 million. That compares to earnings before tax of $3.5 million in the third quarter of 2020 and a loss of $3.5 million in the fourth quarter of 2019. Year to date also showed tremendous improvement.

The core earnings before tax for this year were $11.5 million compared to a loss of $4.9 million in the 12 months ended 2019. The significant improvement in earnings per share for the fourth quarter was 5 cents per share, for the third quarter of 2020, 4 cents a share and a net loss of 4 cents a share in the fourth quarter of '19. For the year we earned 12 cents a share, excluding the goodwill charge, compared to a loss of 6 cents a share for the twelve months of 2019.

Vernon Hill: Pardon my cold. Frank, why don't you talk about why this happened and talk about the effect of the jaws?

Frank Cavallaro: So, the improvement in earnings, both quarter to quarter and year over year, was driven by what we focus on as the jaws effect. This is the improvement in revenue, percentage revenue growth, compared to the expense growth. So, for the fourth quarter of 2020, we saw revenue grow by 48% compared to the fourth quarter of 2019 while expenses grew just 10%. For the 12 months we saw a similar trend, revenue grew 26% for the 12 months while expenses grew just 8% compared year over year. So, we call this the jaws effect and it reflects our concentration and our focus on expense control throughout the year. At the end of last year, we announced several initiatives that we would focus on this year to control expenses, to improve earnings. And as of the end of the year we're pleased to report these significant improvements.

Vernon Hill: Okay. Back to me. Frank thank you. We had a great year in growth. Deposits grew, year over year, 34% or $1 billion. Demand deposits grew 50% percent for the year. Part of that was the PPP effect. Loans also had a good year. Frank, why don't you go ahead with the numbers, I'm going hoarse.

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Frank Cavallaro: So total loans grew by $897 million, or 51%, to nearly $2.6 billion at the end of the year. Some of that growth or a significant portion of that growth was driven by the PPP loans that we still carry on the books. There's about $600 million in PPP loans. But excluding that, we still grew loans $273 billion at 16% year over year in a year which we consider challenged by the governmental restrictions and the limited availability of customers as a result of the COVID pandemic.

Vernon Hill: And our focus on growing our $700 million in PPP loans.

Frank Cavallaro: In addition to the loan growth, we're pleased to report that asset quality remains strong. Our total non-performing assets to total assets declined to just 0.28% as of December 31st. And as for deferrals, we only had 21 customers deferring loan payments at the end of the year, which represents $16 million or less than 1%. This is well down from the peak of $444 million that we saw earlier in the year. So, we're very pleased with the trend in asset quality. In addition to the earnings, we'd also like to mention that the improvement in earnings in each quarter throughout the year. In our release we put a chart in there that shows the trend in the first quarter all the way through the fourth quarter. So, it was consistent improvement in core earnings, demonstrating the momentum that we feel as we head into 2021.

Vernon Hill: That's on page three of the printed press release for those of you who have it. Go

ahead.

Frank Cavallaro: We have a section here as well regarding the PPP loan program. We reiterate the statistics that we did earlier in the year, nearly $680 million in total PPP loans. That was for nearly 5,000 business customers. And the important thing that we like to stress here is more than 50% of the applications that we received approval on were from businesses that were not previously customers of Republic Bank. Many of these customers have since switched their

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business over to Republic and opened deposit accounts as well as bringing regular commercial loans.

Vernon Hill: We are in the process of rolling out and have begun making loans on the PPP round two, which the portal opened last week.

Frank Cavallaro: We've also previously reported that we received gross fees of nearly $22 million as a result of this program. And as we stated before, these fees are recognized over the life of the loans. So, we have nearly $13 million that we carry into next year as deferred revenue that will continue to be recognized as these loans are paid off or paid down.

Vernon Hill: Why don't you keep going here, Frank? I'm going hoarse.

Frank Cavallaro: We've got a section here that talks about the total banking experience. Our goal is to deliver a unified customer experience, not only through our store locations that we talk about so much, but we have tremendous online and mobile options as well. And as a result of this, we were named as America's number one bank for service during 2020 by Forbes in a survey conducted according to their customers. We opened our 31st store in the third quarter of this year, Bensalem opened in third quarter. We're pleased to announce that we've broken ground on stores in Deptford as well as Ocean City that we expect to open in 2021.

The additional highlights include growth per store, the average growth rate per store. The new stores that we opened, the glass building, average growth in deposits was $38 million. And if you look at all the stores combined, we're still growing deposits at an average of $33 million a store, which is tremendous growth. We did see a decline in the cost of funds, which led to the next bullet point where we talk about the improvement in our margin during the fourth quarter. If you compare Q4 to Q3, we saw the margin improve to 2.43% compared to 2.35%. The improvement was driven by a decrease in the cost of funds which drove that as well as the fact that the

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