Republic Bancorp, Inc. (NASDAQ: RBCAA), headquartered in Louisville, Kentucky, is the holding company of Republic Bank & Trust Company (the “Bank”).

Republic Bancorp, Inc. (“Republic” or the “Company”) is pleased to report fourth quarter net income of $10.0 million, a $2.6 million, or 35%, increase from the same period in 2015, resulting in Diluted Earnings per Class A Common Share of $0.48. Fiscal year 2016 net income was $45.9 million, a $10.7 million, or 31%, increase from fiscal year 2015, resulting in a return on average assets (“ROA”) and a return on average equity (“ROE”) of 1.02% and 7.68%, respectively, for 2016.

Steve Trager, Republic’s Chairman and Chief Executive Officer, commented: “We are very proud of our solid fourth quarter and the overall strong year we put together in 2016. We made meaningful progress toward many of our long-term goals during the year, including: (1) expanding our footprint in the Tampa-St. Pete market through a strategic acquisition; (2) launching a digital-only banking platform during the fourth quarter; (3) growing the contribution from our non-traditional business lines at the Republic Processing Group (“RPG”); and (4) further improving our ROA, ROE and our Efficiency Ratio. We are also very pleased that over the past year the market has recognized our strong performance and our future prospects as reflected by the 50% increase in our stock price during 2016. While strategic decisions for our Company will always be based on the long-term interests of our shareholders, and not the day-to-day fluctuations in our stock price, we are appreciative of the market’s recognition of the hard work by our 900+ associates and the strong results and future opportunities they have created.”

The following tables highlight Republic’s financial performance for the fourth quarters and years ended December 31, 2016 and 2015:

 
(dollars in thousands, except per-share data)
    Financial Performance Highlights
Three Months Ended   $   %     Years Ended   $   %
Dec. 31, 2016   Dec. 31, 2015 Change ChangeDec. 31, 2016   Dec. 31, 2015 Change Change
 
Income Before Income Taxes $ 14,960 $ 11,262 $ 3,698 33 % $ 68,963 $ 53,244 $ 15,719 30 %
Net Income* 10,000 7,418 2,582 35 % 45,903 35,166 10,737 31 %
Diluted Earnings per Class A Share 0.48 0.36 0.12 33 % 2.22 1.70 0.52 31 %
Return on Average Assets 0.87 % 0.73 % NA 19 % 1.02 % 0.88 % NA 16 %
Return on Average Equity 6.62 % 5.13 % NA 29 % 7.68 % 6.12 % NA 25 %
                                     
(dollars in thousands)
Core Banking Net Income (Loss) by Origination Channel
Three Months Ended $ % Years Ended $ %
Segment*/Origination ChannelDec. 31, 2016 Dec. 31, 2015 Change ChangeDec. 31, 2016 Dec. 31, 2015 Change Change
 
Traditional Banking segment:
Traditional Network $ 6,395 $ 7,295 $ (900 ) -12 % $ 22,150 $ 21,571 $ 579 3 %
Correspondent Lending 150 162 (12 ) -7 % 1,620 384 1,236 322 %
2016-Cornerstone Acquisition 613 (280 ) 893 NM 491 (284 ) 775 NM
2012-FDIC-Acquired Loans 561 288 273 95 % 2,023 2,368 (345 ) -15 %
Digital Bank Initiative   (568)   (118 )   (450 ) NM   (1,325)   (120 )   (1,205 ) NM
Total Traditional Banking segment 7,151 7,347 (196 ) -3 % 24,959 23,919 1,040 4 %
 
Warehouse Lending segment 2,744 1,354 1,390 103 % 8,110 5,964 2,146 36 %
 
Mortgage Banking segment   44     (189 )   233   NM   1,790     (26 )   1,816   NM
Total Core Banking $9,939   $ 8,512   $ 1,427   17 % $34,859   $ 29,857   $ 5,002   17 %
                                     

*See Segment Data at the end of this Earnings Release
NA – Not applicable
NM – Not meaningful

 

Results of Operations for the Fourth Quarter of 2016 Compared to the Fourth Quarter of 2015

Core Bank(1) – Net income from Core Banking was $9.9 million for the fourth quarter of 2016, an increase of $1.4 million, or 17%, over the fourth quarter of 2015. Strong growth in net interest income drove the Bank’s performance for the quarter, which was also further enhanced by continued favorably-low loan loss provisions.

Net interest income at the Core Bank increased to $37.6 million during the fourth quarter of 2016, a $6.8 million, or 22%, increase over the fourth quarter of 2015. The increase in net interest income was primarily the result of a $518 million, or 16%, year-over-year increase in the Core Bank’s quarterly average loans from the fourth quarter of 2015 to the fourth quarter of 2016. The strong growth in average loans outstanding was further supplemented by an increase of 25 basis points in the Core Bank’s net interest margin over the fourth quarter of 2015.

The overall change in the Core Bank’s net interest income, as well as, average and period-end loan balances by origination channel is presented below:

 
    Net Interest     Net Interest        
Income Income
(dollars in thousands) 4th Qtr. 4th Qtr. $ %
Origination Channel     2016     2015     Change     Change
 
Traditional Network $ 29,531 $ 26,909 $ 2,622 10 %
Warehouse Lending 5,160 2,855 2,305 81 %
Correspondent Lending 336 422 (86 ) -20 %
2016-Cornerstone Acquisition 2,073 - 2,073 NM
2012-FDIC Acquired Loans   525   642   (117 ) -18 %
Total Core Bank $37,625 $ 30,828 $ 6,797   22 %
 
 
    Average   Average         Period End   Period End    
Loans Loans Loans Loans
(dollars in thousands) 4th Qtr. 4th Qtr. $ % 4th Qtr. 4th Qtr. $ %
Origination Channel     2016   2015   Change   Change     2016   2015   Change   Change
 
Traditional Network $ 2,803,712 $ 2,650,942 $ 152,770 6 % $ 2,822,220 $ 2,658,711 $ 163,509 6 %
Warehouse Lending 590,196 319,829 270,367 85 % 585,439 386,729 198,710 51 %
Correspondent Lending 152,481 247,775 (95,294 ) -38 % 149,028 249,344 (100,316 ) -40 %
2016-Cornerstone Acquisition 199,841 - 199,841 NM 200,085 - 200,085 NM
2012-FDIC Acquired Loans   15,672   25,574   (9,902 ) -39 %   15,059   24,520   (9,461 ) -39 %
Total Core Bank $3,761,902 $ 3,244,120 $ 517,782   16 % $3,771,831 $ 3,319,304 $ 452,527   14 %
 

NM – Not meaningful

 

The following factors were the primary drivers of the changes in the Core Bank’s average loan balances and net interest income by origination channel for the fourth quarter of 2016 as compared to the fourth quarter of 2015:

  • The Core Bank’s Traditional Network experienced solid overall loan growth, with particularly strong growth in the quarterly average balance from the fourth quarter of 2015 to the fourth quarter of 2016 in the following portfolios: $74 million in Commercial Real Estate; $44 million in Indirect Auto; $37 million in Home Equity Lines of Credit (“HELOCs”); and $19 million in Construction & Development. Growth in the commercial-related categories was primarily driven by the Core Bank’s Commercial and Corporate Banking Department, which grew its balances nearly $100 million during its second full year of operation. Year-over-year growth in HELOCs was driven primarily by a successful first-year-introductory-rate promotion, while growth in Indirect Auto loans was driven by re-introduction of the product in late 2015.
  • Within the Warehouse segment, net interest income grew 81% from the fourth quarter of 2015, as client usage of the Bank’s Warehouse lines of credit increased from 50% for the fourth quarter of 2015 to 57% for the fourth quarter of 2016. In addition, the Bank also increased its committed Warehouse lines of credit from $670 million at December 31, 2015 to $1.0 billion at December 31, 2016. As a result of these factors, average outstanding Warehouse line-of-credit balances for the fourth quarter of 2016 were $590 million, a $270 million increase from a strong fourth quarter in 2015. The yield for Warehouse lines of credit during the fourth quarter of 2016 increased four basis points from the same period in 2015.
  • The fourth quarter of 2016 represented the second full quarter of earnings impact from the Company’s May 2016 Cornerstone acquisition. As expected, the acquired Cornerstone franchise provided a solid contribution to the Company’s overall earnings for the fourth quarter of 2016, with $2.1 million of net interest income for the quarter driven by average loans of $200 million.

The Core Bank’s credit quality metrics remained favorable, as indicated by the table below:

 
    As of and for the:
Quarters Ending:     Years Ending:
Dec. 31     Sep. 30     Jun. 30     Mar. 31 Dec. 31     Dec. 31     Dec. 31
Core Banking Credit Quality Ratios2016 2016 2016 20162016 2015 2014
 
Nonperforming loans to total loans 0.42% 0.47% 0.54% 0.60% 0.42% 0.66% 0.78%
 
Nonperforming assets to total loans (including OREO) 0.46% 0.53% 0.58% 0.63% 0.46% 0.70% 1.15%
 
Delinquent loans to total loans 0.18% 0.21% 0.28% 0.25% 0.18% 0.35% 0.52%
 
Net charge-offs to average loans 0.09% 0.03% 0.05% 0.04% 0.05% 0.05% 0.08%
(Quarterly rates annualized)
                                           
OREO = Other Real Estate Owned                                          
 

Noninterest income for the Core Bank was $7.8 million during the fourth quarter of 2016 compared to $7.3 million for the fourth quarter of 2015. Impacting the Core Bank’s noninterest income comparisons between the fourth quarters of 2016 and 2015 were the following:

  • Interchange fees increased $122,000 primarily due to the following factors:
    • The Company experienced a 7% year-over-year growth in checking accounts, which helped to drive an 11% increase in the Company’s active debit cards and a 12% increase in total purchase activity.
    • Credit card interchange income benefited from a 10% increase in purchase volume.
  • Mortgage banking income increased $118,000 from the fourth quarter of 2015, as secondary market originations increased over the fourth quarter of 2015. The additional revenue from the higher volume during the quarter was partially offset by a decrease in the Company’s margin on its loans originated for sale, as a significant fourth quarter increase in long-term interest rates negatively impacted overall pricing.

Core Bank noninterest expenses increased $4.6 million, or 19%, from the fourth quarter of 2015 to the same period in 2016. Comparability of noninterest expense between the two quarters was impacted by adjustments to the Core Bank’s incentive compensation accruals, which were made during both periods to bring accrual balances in line with projected payouts for the year. As a result of these adjustments, net incentive compensation expense was a net credit of $393,000 for the fourth quarter of 2016 compared to a net credit of $998,000 for the fourth quarter of 2015. Excluding the impact of the change in incentive compensation expense, noninterest expense increased $4.0 million, or 15%, for the fourth quarter of 2016, as compared to the fourth quarter of 2015 and was primarily driven by the following:

  • Salaries and benefits expense, excluding incentive compensation adjustments, increased $2.6 million, primarily due to an increase of 143 full-time-equivalent (“FTE”) employees from December 31, 2015 to December 31, 2016. Thirty-six of these additions were directly attributable to the Company’s Cornerstone acquisition. The remaining increase was driven by additional staffing needed to implement the Company’s strategic initiatives.
  • Occupancy and equipment expense increased $505,000 from the fourth quarter of 2015 to $5.4 million. Approximately $207,000 of this increase was directly attributable the facilities acquired in the Cornerstone acquisition. The remaining increase primarily reflects recent renovations to the Core Bank’s premises and equipment in the previous 12 months, which drove a 12% increase in depreciation expense.

RPG

The overall profitability of the RPG segment has historically been driven by its largest division, Tax Refund Solutions (“TRS”). TRS derives substantially all of its revenues during the first and second quarters of the year and historically operates at a net loss during the second half of the year, as the Company prepares for the next tax season. During the second half of 2015, the Company began to more meaningfully grow the Republic Credit Solutions (“RCS”) small-dollar loan division of RPG. As a result of strong growth in profitability within the RCS division, the overall profitability of the RPG segment has continued to improve during 2016.

During the fourth quarter of 2016, RPG recorded net income of $61,000 compared to a net loss of $1.1 million during the fourth quarter of 2015. Within the RCS division of RPG, RCS contributed net income of $1.6 million during the fourth quarter of 2016 compared to net income of $231,000 during the fourth quarter of 2015. The increased profitability within the RCS division resulted primarily from continued strong performance of its line-of-credit product and from the recognition of $1.2 million of income related to a first-year volume guarantee from the program sponsor for its installment credit product.

Regarding the overall operations of the division, RCS experienced an $86 million increase in small-dollar loans originated for sale over the same quarter as 2015, generating a strong increase in fee income. Furthermore, the balance for the RCS loans retained on balance sheet by the Company increased from $7 million at December 31, 2015 to $32 million at December 31, 2016, contributing to a solid increase in net interest income for the quarter.

Conclusion

“The year 2016 proved to be an exciting one at Republic, and we look forward to 2017 with guarded optimism. We are extremely proud of what we accomplished during 2016 and remain committed to creating future success within appropriate risk parameters.

While we are less optimistic about the availability of accretive acquisitions during the coming year, our team will continue to evaluate opportunities, both whole-bank and non-bank, that may arise and present the best overall synergies for Republic. In the meantime, we will continue to focus our resources inward, as we remain dedicated to growing and enhancing our current strategic initiatives, including our pilot programs at RPG, our dealer floorplan lending, our mortgage banking operations and our new digital banking platform, MemoryBank, to name a few. In order to achieve our strategic objectives, we recognize that Republic must be a great place to work for our associates, a great place to bank for our clients and a solid long-term investment for our shareholders,” concluded Steve Trager.

Republic Bancorp, Inc. (the “Company”) is the parent company of Republic Bank & Trust Company (the “Bank”). The Bank currently has 44 banking centers: 32 banking centers in 12 Kentucky communities - Covington, Crestwood, Elizabethtown, Florence, Frankfort, Georgetown, Independence, Lexington, Louisville, Owensboro, Shelbyville and Shepherdsville; three banking centers in southern Indiana – Floyds Knobs, Jeffersonville and New Albany; six banking centers in five Florida communities – Largo, Port Richey, St. Petersburg, Seminole, Temple Terrace; two banking centers in Tennessee – Cool Springs (Franklin) and Green Hills (Nashville); and one banking center in Norwood (Cincinnati), Ohio. The Bank offers internet banking at www.republicbank.com. The Bank also offers separately-branded, nation-wide digital banking at www.mymemorybank.com. The Company has $4.8 billion in assets and is headquartered in Louisville, Kentucky. The Company’s Class A Common Stock is listed under the symbol “RBCAA” on the NASDAQ Global Select Market.

Republic Bank. It’s just easier here.®

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in the preceding paragraphs are based on our current expectations and assumptions regarding our business, the future impact to our balance sheet and income statement resulting from changes in interest rates, the ability to develop products and strategies in order to meet the Company’s long-term strategic goals, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Actual results could differ materially based upon factors disclosed from time to time in the Company’s filings with the U.S. Securities and Exchange Commission, including those factors set forth as “Risk Factors” in the Company’s Annual Report on Form 10-K for the period ended December 31, 2015. The Company undertakes no obligation to update any forward-looking statements. These forward-looking statements are made only as of the date of this release, and the Company undertakes no obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this release.

       

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release

(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Balance Sheet Data
Dec. 31, 2016 Dec. 31, 2015
Assets:
Cash and cash equivalents $ 289,309 $ 210,082
Investment securities 534,139 555,785
Loans held for sale 15,170 4,597
Loans 3,810,778 3,326,610
Allowance for loan and lease losses   (32,920 )   (27,491 )
Loans, net 3,777,858 3,299,119
Federal Home Loan Bank stock, at cost 28,208 28,208
Premises and equipment, net 42,869 31,106
Goodwill 16,300 10,168
Other real estate owned ("OREO") 1,391 1,220
Bank owned life insurance ("BOLI") 61,794 52,817
Other assets and accrued interest receivable   49,271     37,187  
Total assets $ 4,816,309   $ 4,230,289  
 
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 971,937 $ 634,863
Interest-bearing   2,188,755     1,852,614  
Total deposits 3,160,692 2,487,477
 
Securities sold under agreements to repurchase and other short-term borrowings 173,473 395,433
Federal Home Loan Bank advances 802,500 699,500
Subordinated note 41,240 41,240
Other liabilities and accrued interest payable   33,998     30,092  
Total liabilities 4,211,903 3,653,742
 
Stockholders' equity   604,406     576,547  
Total liabilities and Stockholders' equity $ 4,816,309   $ 4,230,289  
 
       
Average Balance Sheet Data
Three Months Ended Dec. 31, Years Ended Dec. 31,
2016 2015 2016 2015
Assets:
Investment securities, including FHLB stock $ 571,158 $ 595,739 $ 572,599 $ 546,655
Federal funds sold and other interest-earning deposits 57,950 71,480 130,889 68,847
Loans and fees, including loans held for sale 3,792,902 3,249,595 3,568,383 3,174,234
Total interest-earning assets 4,422,010 3,916,814 4,271,871 3,789,736
Total assets 4,622,760 4,088,016 4,485,829 3,982,841
 
Liabilities and Stockholders' Equity:
Noninterest-bearing deposits $ 950,020 $ 675,500 $ 894,049 $ 651,275
Interest-bearing deposits 2,197,411 1,774,526 2,058,592 1,714,214

Securities sold under agreements to repurchase and other short-term borrowings

231,817 426,833 280,296 379,477
Federal Home Loan Bank advances 570,135 567,163 583,591 599,630
Subordinated note 41,240 41,240 42,502 41,240
Total interest-bearing liabilities 3,040,603 2,809,762 2,964,981 2,734,561
Stockholders' equity 604,095 578,573 597,463 574,766
 

               

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Income Statement Data
Three Months Ended Dec. 31, Years Ended Dec. 31,
2016 2015 2016 2015
 
Total interest income(2) $ 45,903 $ 36,842 $ 173,992 $ 142,432
Total interest expense   4,258   4,376     17,938   18,462  
 
Net interest income 41,645 32,466 156,054 123,970
 
Provision for loan and lease losses 5,004 2,074 14,493 5,396
 
Noninterest income:
Service charges on deposit accounts 3,338 3,330 13,176 13,015
Net refund transfer fees 121 49 19,240 17,388
Mortgage banking income 980 862 6,882 4,411
Interchange fee income 2,254 2,148 9,009 8,353
Program fees 1,102 362 3,044 1,233
Increase in cash surrender value of BOLI 402 353 1,516 1,402
Gain on call of security available for sale - - - 88
Net gains (losses) on OREO 53 (19 ) 244 (301 )
Other   2,235   632     4,398   2,405  
Total noninterest income   10,485   7,717     57,509   47,994  
 
Noninterest expenses:
Salaries and employee benefits 16,917 13,194 69,882 58,091
Occupancy and equipment, net 5,618 5,129 21,777 20,689
Communication and transportation 1,282 984 4,256 3,752
Marketing and development 1,005 843 3,778 3,161
FDIC insurance expense 297 462 1,780 2,084
Bank franchise tax expense 813 640 4,757 4,734
Data processing 1,586 1,323 6,121 4,340
Interchange related expense 1,071 1,026 4,140 3,873
Supplies 437 292 1,406 1,101
OREO expense 148 250 503 735
Legal and professional fees 591 510 2,556 3,306
FHLB advance prepayment penalty - - 846 -
Other   2,401   2,194     8,305   7,458  
Total noninterest expenses   32,166   26,847     130,107   113,324  
 
Income before income tax expense 14,960 11,262 68,963 53,244
Income tax expense   4,960   3,844     23,060   18,078  
 
Net income $ 10,000 $ 7,418   $ 45,903 $ 35,166  
 

               

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Selected Data and Ratios
As of and for the As of and for the
Three Months Ended Dec. 31, Years Ended Dec. 31,
2016 2015 2016 2015
Per Share Data:
 
Basic weighted average shares outstanding 20,926 20,876 20,942 20,861
Diluted weighted average shares outstanding 20,941 20,953 20,954 20,942
 
End of period shares outstanding:
Class A Common Stock 18,615 18,652 18,615 18,652
Class B Common Stock 2,245 2,245 2,245 2,245
 
Book value per share(3) $ 28.97 $ 27.59 $ 28.97 $ 27.59
Tangible book value per share(3) 27.89 26.87 27.89 26.87
 
Earnings per share:
Basic earnings per Class A Common Stock $ 0.48 $ 0.36 $ 2.22 $ 1.70
Basic earnings per Class B Common Stock 0.44 0.33 2.02 1.55
Diluted earnings per Class A Common Stock 0.48 0.36 2.22 1.70
Diluted earnings per Class B Common Stock 0.44 0.33 2.01 1.54
 
Cash dividends declared per share:
Class A Common Stock $ 0.209 $ 0.198 $ 0.825 $ 0.781
Class B Common Stock 0.190 0.180 0.750 0.710
 
Performance Ratios:
 
Return on average assets 0.87 % 0.73 % 1.02 % 0.88 %
Return on average equity 6.62 5.13 7.68 6.12
Efficiency ratio(4) 62 67 61 66
Yield on average interest-earning assets 4.15 3.76 4.07 3.76
Cost of average interest-bearing liabilities 0.56 0.62 0.60 0.68
Cost of average deposits(5) 0.22 0.19 0.21 0.19
Net interest spread 3.59 3.14 3.47 3.08
Net interest margin - Total Company 3.77 3.32 3.65 3.27
Net interest margin - Core Bank(1) 3.42 3.17 3.30 3.24
 
Other Information:
 
End of period FTEs(6) - Total Company 938 785 938 785
End of period FTEs(6) - Core Bank(1) 869 726 869 726
Number of banking centers 44 40 44 40
 

       

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Credit Quality Data and Ratios As of and for the As of and for the
Three Months Ended Dec. 31, Years Ended Dec. 31,
2016     2015 2016     2015
Credit Quality Asset Balances:
 
Loans on nonaccrual status $ 15,892 $ 21,712 $ 15,892 $ 21,712
Loans past due 90-days-or-more and still on accrual   167     224     167     224  
Total nonperforming loans 16,059 21,936 16,059 21,936
OREO   1,391     1,220     1,391     1,220  
Total nonperforming assets $ 17,450   $ 23,156   $ 17,450   $ 23,156  
Total delinquent loans $ 8,958 $ 11,731 $ 8,958 $ 11,731
 
 
Credit Quality Ratios - Total Company:
 
Nonperforming loans to total loans 0.42 % 0.66 % 0.42 % 0.66 %
Nonperforming assets to total loans (including OREO) 0.46 0.70 0.46 0.70
Nonperforming assets to total assets 0.36 0.55 0.36 0.55
Allowance for loan and lease losses to total loans 0.86 0.83 0.86 0.83
Allowance for loan and lease losses to nonperforming loans 205 125 205 125
Delinquent loans to total loans(7) 0.24 0.35 0.24 0.35
Net charge-offs to average loans (annualized) 0.27 0.19 0.25 0.07
 
Credit Quality Ratios - Core Bank(1):
 
Nonperforming loans to total loans 0.42 % 0.66 % 0.42 % 0.66 %
Nonperforming assets to total loans (including OREO) 0.46 0.70 0.46 0.70
Nonperforming assets to total assets 0.36 0.55 0.36 0.55
Allowance for loan and lease losses to total loans 0.74 0.78 0.74 0.78
Allowance for loan and lease losses to nonperforming loans 175 118 175 118
Delinquent loans to total loans(7) 0.18 0.35 0.18 0.35
Net charge-offs to average loans (annualized) 0.09 0.10 0.05 0.05
 

                   

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Balance Sheet Data
Quarterly Comparison
Dec. 31, 2016 Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015
Assets:
Cash and cash equivalents $ 289,309 $ 302,167 $ 142,979 $ 198,172 $ 210,082
Investment securities 534,139 524,444 551,027 556,605 555,785
Loans held for sale 15,170 11,226 94,658 8,129 4,597
Loans 3,810,778 3,823,031 3,691,323 3,351,969 3,326,610
Allowance for loan and lease losses   (32,920 )   (30,436 )   (29,308 )   (31,475 )   (27,491 )
Loans, net 3,777,858 3,792,595 3,662,015 3,320,494 3,299,119
Federal Home Loan Bank stock, at cost 28,208 28,208 28,208 28,208 28,208
Premises and equipment, net 42,869 43,385 42,956 30,277 31,106
Goodwill 16,300 16,300 16,313 10,168 10,168
Other real estate owned 1,391 2,435 1,503 1,280 1,220
Bank owned life insurance 61,794 61,392 60,986 53,156 2,817
Other assets and accrued interest receivable   49,271     45,125     46,277     40,276     37,187  
Total assets $ 4,816,309   $ 4,827,277   $ 4,646,922   $ 4,246,765   $ 4,230,289  
 
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 971,937 $ 947,602 $ 867,095 $ 800,946 $ 634,863
Interest-bearing   2,188,755     2,188,291     1,988,952     1,935,700     1,852,614  
Total deposits 3,160,692 3,135,893 2,856,047 2,736,646 2,487,477
 

Securities sold under agreements to repurchase and other short-term borrowings

173,473 152,458 126,124 319,893 395,433
Federal Home Loan Bank advances 802,500 862,500 987,500 517,500 699,500
Subordinated note 41,240 41,240 45,364 41,240 41,240
Other liabilities and accrued interest payable   33,998     34,626     36,864     39,929     30,092  
Total liabilities 4,211,903 4,226,717 4,051,899 3,655,208 3,653,742
 
Stockholders' equity   604,406     600,560     595,023     591,557     576,547  
Total liabilities and Stockholders' equity $ 4,816,309   $ 4,827,277   $ 4,646,922   $ 4,246,765   $ 4,230,289  
 
 
 
Average Balance Sheet Data
Quarterly Comparison
Dec. 31, 2016 Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015
Assets:
Investment securities, including FHLB stock $ 571,158 $ 554,508 $ 579,027 $ 581,869 $ 595,739
Federal funds sold and other interest-earning deposits 57,950 58,910 95,204 298,250 71,480
Loans and fees, including loans held for sale 3,792,902 3,702,093 3,479,397 3,292,689 3,249,595
Total interest-earning assets 4,422,010 4,315,511 4,153,628 4,172,808 3,916,814
Total assets 4,622,760 4,531,958 4,351,843 4,436,843 4,088,016
 
Liabilities and Stockholders' Equity:
Noninterest-bearing deposits $ 950,020 $ 900,432 $ 805,718 $ 916,691 $ 675,500
Interest-bearing deposits 2,197,411 2,155,289 1,980,310 1,903,721 1,774,526

Securities sold under agreements to repurchase and other short-term borrowings

231,817 215,343 267,574 407,698 426,833
Federal Home Loan Bank advances 570,135 584,946 627,335 552,082 567,163
Subordinated note 41,240 44,288 43,234 41,240 41,240
Total interest-bearing liabilities 3,040,603 2,999,866 2,918,453 2,904,741 2,809,762
Stockholders' equity 604,095 601,043 596,795 587,593 578,573
 

                   

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Income Statement Data
Three Months Ended
Dec. 31, 2016 Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015
 
Total interest income(2) $ 45,903 $ 43,934 $ 40,140 $ 44,015 $ 36,842
Total interest expense   4,258   4,536     4,563   4,581   4,376  
Net interest income 41,645 39,398 35,577 39,434 32,466
 
Provision for loan and lease losses 5,004 2,489 1,814 5,186 2,074
 
Noninterest income:
Service charges on deposit accounts 3,338 3,416 3,282 3,140 3,330
Net refund transfer fees 121 132 1,909 17,078 49
Mortgage banking income 980 3,081 1,560 1,261 862
Interchange fee income 2,254 2,415 2,217 2,123 2,148
Program fees 1,102 979 664 319 362
Increase in cash surrender value of BOLI 402 406 369 339 353
Net gains (losses) on OREO 53 (137 ) 80 248 (19 )
Other   2,235   1,009     721   413   632  
Total noninterest income   10,485   11,301     10,802   24,921   7,717  
 
Noninterest expenses:
Salaries and employee benefits 16,917 18,068 17,814 17,083 13,194
Occupancy and equipment, net 5,618 5,631 5,109 5,419 5,129
Communication and transportation 1,282 1,029 872 1,073 984
Marketing and development 1,005 1,076 1,190 507 843
FDIC insurance expense 297 345 480 658 462
Bank franchise tax expense 813 846 647 2,451 640
Data processing 1,586 1,659 1,543 1,333 1,323
Interchange related expense 1,071 1,118 1,047 904 1,026
Supplies 437 280 240 449 292
OREO expense 148 159 116 80 250
Legal and professional fees 591 539 604 823 510
FHLB advance prepayment penalty - 846 - - -
Other   2,401   1,938     2,204   1,761   2,194  
Total noninterest expenses   32,166   33,534     31,866   32,541   26,847  
 
Income before income tax expense 14,960 14,676 12,699 26,628 11,262
Income tax expense   4,960   4,848     4,359   8,893   3,844  
 
Net income $ 10,000 $ 9,828   $ 8,340 $ 17,735 $ 7,418  
 

                   

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Selected Data and Ratios
As of and for the Three Months Ended
Dec. 31, 2016 Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015
Per Share Data:
 
Basic weighted average shares outstanding 20,926 20,925 20,947 20,904 20,876
Diluted weighted average shares outstanding 20,941 20,938 20,958 21,009 20,953
 
End of period shares outstanding:
Class A Common Stock 18,615 18,617 18,617 18,659 18,652
Class B Common Stock 2,245 2,245 2,245 2,245 2,245
 
Book value per share(3) $ 28.97 $ 28.79 $ 28.52 $ 28.30 $ 27.59
Tangible book value per share(3) 27.89 27.70 27.44 27.58 26.87
 
Earnings per share:
Basic earnings per Class A Common Stock $ 0.48 $ 0.47 $ 0.40 $ 0.86 $ 0.36
Basic earnings per Class B Common Stock 0.44 0.43 0.37 0.78 0.33
Diluted earnings per Class A Common Stock 0.48 0.47 0.40 0.85 0.36
Diluted earnings per Class B Common Stock 0.44 0.43 0.37 0.77 0.33
 
Cash dividends declared per share:
Class A Common Stock $ 0.209 $ 0.209 $ 0.209 $ 0.198 $ 0.198
Class B Common Stock 0.190 0.190 0.190 0.180 0.180
 
Performance Ratios:
 
Return on average assets 0.87 % 0.87 % 0.77 % 1.60 % 0.73 %
Return on average equity 6.62 6.54 5.59 12.07 5.13
Efficiency ratio(4) 62 66 69 51 67
Yield on average interest-earning assets 4.15 4.07 3.87 4.22 3.76
Cost of average interest-bearing liabilities 0.56 0.60 0.63 0.63 0.62
Cost of average deposits(5) 0.22 0.21 0.19 0.20 0.19
Net interest spread 3.59 3.47 3.24 3.59 3.14
Net interest margin - Total Company 3.77 3.65 3.43 3.78 3.32
Net interest margin - Core Bank(1) 3.42 3.38 3.28 3.12 3.17
 
Other Information:
 
End of period FTEs(6) - Total Company 938 899 883 817 785
End of period FTEs(6) - Core Bank(1) 869 830 818 756 726
Number of banking centers 44 44 44 40 40
 

                   

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Credit Quality Data and Ratios
As of and for the Three Months Ended
Dec. 31, 2016 Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015
Credit Quality Asset Balances:
 
Loans on nonaccrual status $ 15,892 $ 17,769 $ 18,778 $ 19,907 $ 21,712
Loans past due 90-days-or-more and still on accrual   167     223     1,178     -     224  
Total nonperforming loans 16,059 17,992 19,956 19,907 21,936
OREO   1,391     2,435     1,503     1,280     1,220  
Total nonperforming assets $ 17,450   $ 20,427   $ 21,459   $ 21,187   $ 23,156  
Total delinquent loans $ 8,958 $ 8,714 $ 10,607 $ 8,657 $ 11,731
 
 
Credit Quality Ratios - Total Company:
 
Nonperforming loans to total loans 0.42 % 0.47 % 0.54 % 0.59 % 0.66 %
Nonperforming assets to total loans (including OREO) 0.46 0.53 0.58 0.63 0.70
Nonperforming assets to total assets 0.36 0.42 0.46 0.50 0.55
Allowance for loan and lease losses to total loans 0.86 0.80 0.79 0.94 0.83
Allowance for loan and lease losses to nonperforming loans 205 169 147 158 125
Delinquent loans to total loans(7) 0.24 0.23 0.29 0.26 0.35
Net charge-offs to average loans (annualized) 0.27 0.15 0.46 0.15 0.19
 
Credit Quality Ratios - Core Bank(1):
 
Nonperforming loans to total loans 0.42 % 0.47 % 0.54 % 0.60 % 0.66 %
Nonperforming assets to total loans (including OREO) 0.46 0.53 0.58 0.63 0.70
Nonperforming assets to total assets 0.36 0.43 0.47 0.51 0.55
Allowance for loan and lease losses to total loans 0.74 0.72 0.73 0.78 0.78
Allowance for loan and lease losses to nonperforming loans 175 152 135 131 118
Delinquent loans to total loans(7) 0.18 0.21 0.28 0.25 0.35
Net charge-offs to average loans (annualized) 0.09 0.03 0.05 0.04 0.10
 

Republic Bancorp, Inc. Financial Information
Fourth quarter 2016 Earnings Release (continued)

Segment Data:

Reportable segments are determined by the type of products and services offered and the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business (such as banking centers and business units), which are then aggregated if operating performance, products/services, and customers are similar.

As of December 31, 2016, the Company was divided into four distinct operating segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking and Republic Processing Group (“RPG”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” activities. Correspondent Lending operations and the Company’s national branchless banking platform, MemoryBank, are considered part of the Traditional Banking segment. The RPG segment includes the following divisions: Tax Refund Solutions (“TRS”), Republic Payment Solutions (“RPS”) and Republic Credit Solutions (“RCS”). TRS generates the majority of RPG’s income, with the relatively smaller divisions of RPG, RPS and RCS, considered immaterial for separate and independent segment reporting. All divisions of the RPG segment operate through the Bank.

The nature of segment operations and the primary drivers of net revenues by reportable segment are provided below:

         

Segment:

Nature of Operations:

Primary Drivers of Net Revenues:

 
Core Banking:
Traditional Banking Provides traditional banking products to clients primarily in its market footprint via its network of banking centers and to clients outside of its market footprint primarily via its Digital and Correspondent Lending delivery channels. Loans, investments and deposits
Warehouse Lending Provides short-term, revolving credit facilities to mortgage bankers across the Nation. Mortgage warehouse lines of credit
  Mortgage Banking   Primarily originates, sells and services long-term, single family, first lien residential real estate loans primarily to clients in its market footprint.   Loan sales and servicing
Republic Processing Group The TRS division facilitates the receipt and payment of federal and state tax refund products. The RPS division offers general purpose reloadable cards. The RCS division offers short-term credit products. RPG products are primarily provided to clients outside of the Bank’s market footprint. Refund transfers and loans
 

The accounting policies used for Republic’s reportable segments are the same as those described in the summary of significant accounting policies in the Company’s 2015 Annual Report on Form 10-K. Segment performance is evaluated using operating income. Goodwill is allocated to Traditional Banking operations. Income taxes are generally allocated based on income before income tax expense unless specific segment allocations can be reasonably made. Transactions among reportable segments are made at carrying value.

   

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

Segment information for the three months and years ended December 31, 2016 and 2015 follows:

 
Three Months Ended December 31, 2016
Core Banking        
Traditional     Warehouse     Mortgage     Total Republic Total
(dollars in thousands)     Banking     Lending     Banking     Core Banking     Processing Group     Company  
 
Net interest income $ 32,413 $ 5,160 $ 52 $ 37,625 $ 4,020 $ 41,645
 
Provision for loan and lease losses 1,881 (189 ) - 1,692 3,312 5,004
 
Net refund transfer fees - - - - 121 121
Mortgage banking income - - 980 980 - 980
Program fees - - - - 1,102 1,102
Other noninterest income   6,710     4     148     6,862     1,420     8,282  
Total noninterest income 6,710 4 1,128 7,842 2,643 10,485
 
Total noninterest expenses   26,809     985     1,112     28,906     3,260     32,166  
 
Income before income tax expense 10,433 4,368 68 14,869 91 14,960
Income tax expense   3,282     1,624     24     4,930     30     4,960  
Net income $ 7,151   $ 2,744   $ 44   $9,939   $ 61   $10,000  
 
Segment end-of-period assets $ 4,169,557 $ 584,916 $ 17,453 $ 4,771,926 $ 44,383 $ 4,816,309
 
Net interest margin 3.41 % 3.50 % NM 3.42 % NM 3.77 %
 
 
Three Months Ended December 31, 2015
Core Banking
Traditional Warehouse Mortgage Total Republic Total
(dollars in thousands)     Banking     Lending     Banking     Core Banking     Processing Group     Company  
Net interest income $ 27,934 $ 2,855 $ 39 $ 30,828 $ 1,638 $ 32,466
 
Provision for loan and lease losses 890 (17 ) - 873 1,201 2,074
 
Net refund transfer fees - - - - 49 49
Mortgage banking income - - 862 862 - 862
Program fees - - - - 362 362
Other noninterest income   6,384     5     17     6,406     38     6,444  
Total noninterest income 6,384 5 879 7,268 449 7,717
 
Total noninterest expenses   22,389     680     1,208     24,277     2,570     26,847  
 
Income (loss) before income tax expense 11,039 2,197 (290 ) 12,946 (1,684 ) 11,262
Income tax expense (benefit)   3,692     843     (101 )   4,434     (590 )   3,844  
Net income (loss) $ 7,347   $ 1,354   $ (189 )$8,512   $ (1,094 )$7,418  
 
Segment end-of-period assets $ 3,809,526 $ 386,414 $ 9,348 $ 4,205,288 $ 25,001 $ 4,230,289
 
Net interest margin 3.13 % 3.57 % NM 3.17 % NM 3.32 %
 

   

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

 
Year Ended December 31, 2016
Core Banking        
Traditional     Warehouse     Mortgage     Total Republic Total
(dollars in thousands)     Banking     Lending     Banking     Core Banking     Processing Group     Company
 
Net interest income $ 121,692 $ 16,529 $ 200 $ 138,421 $ 17,633 $ 156,054
 
Provision for loan and lease losses 3,448 497 - 3,945 10,548 14,493
 
Net refund transfer fees - - - - 19,240 19,240
Mortgage banking income - - 6,882 6,882 - 6,882
Program fees - - - - 3,044 3,044
Other noninterest income   26,090     18     360     26,468     1,875   28,343  
Total noninterest income 26,090 18 7,242 33,350 24,159 57,509
 
Total noninterest expenses   108,360     3,142     4,688     116,190     13,917   130,107  
 
Income before income tax expense 35,974 12,908 2,754 51,636 17,327 68,963
Income tax expense   11,015     4,798     964     16,777     6,283   23,060  
Net income $ 24,959   $ 8,110   $ 1,790   $34,859   $ 11,044$45,903  
 
Segment end-of-period assets $ 4,169,557 $ 584,916 $ 17,453 $ 4,771,926 $ 44,383 $ 4,816,309
 
Net interest margin 3.26 % 3.59 % NM 3.30 % NM 3.65 %
 
 
Year Ended December 31, 2015
Core Banking
Traditional Warehouse Mortgage Total Republic Total
(dollars in thousands)     Banking     Lending     Banking     Core Banking     Processing Group     Company
 
Net interest income $ 108,303 $ 12,209 $ 219 $ 120,731 $ 3,239 $ 123,970
 
Provision for loan and lease losses 2,897 168 - 3,065 2,331 5,396
 
Net refund transfer fees - - - - 17,388 17,388
Mortgage banking income - - 4,411 4,411 - 4,411
Program fees - - - - 1,233 1,233
Gain on call of security available for sale 88 - - 88 - 88
Other noninterest income   23,670     24     248     23,942     932   24,874  
Total noninterest income 23,758 24 4,659 28,441 19,553 47,994
 
Total noninterest expenses   93,740     2,526     4,918     101,184     12,140   113,324  
 
Income (loss) before income tax expense 35,424 9,539 (40 ) 44,923 8,321 53,244
Income tax expense (benefit)   11,505     3,575     (14 )   15,066     3,012   18,078  
Net income (loss) $ 23,919   $ 5,964   $ (26 )$29,857   $ 5,309$35,166  
 
Segment end-of-period assets $ 3,809,526 $ 386,414 $ 9,348 $ 4,205,288 $ 25,001 $ 4,230,289
 
Net interest margin 3.20 % 3.58 % NM 3.24 % NM 3.27 %
 

   

Republic Bancorp, Inc. Financial Information

Fourth quarter 2016 Earnings Release (continued)

 

(1)

“Core Bank” or “Core Banking” operations consist of the Traditional Banking, Warehouse Lending and Mortgage Banking segments.

 

(2)

The amount of loan fee income included in total interest income was $5.9 million and $3.1 million for the quarters ended December 31, 2016 and 2015. The amount of loan fee income included in total interest income was $24.2 million and $10.3 million for the years ended December 31, 2016 and 2015.

 

The amount of loan fee income included in total interest income per quarter was as follows: $5.9 million (quarter ended December 31, 2016); $4.8 million (quarter ended September 30, 2016); $3.7 million (quarter ended June 30, 2016); $9.8 million (quarter ended March 31, 2016); and $3.1 million (quarter ended December 31, 2015).

 

(3)

The following table provides a reconciliation of total stockholders’ equity in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) to tangible stockholders’ equity in accordance with applicable regulatory requirements, a non-GAAP disclosure. The Company provides the tangible book value per share, in addition to those defined by banking regulators, because of its widespread use by investors as a means to evaluate capital adequacy.

                   
Quarterly Comparison
(dollars in thousands, except per share data) Dec. 31, 2016     Sep. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015
Total stockholders' equity (a) $ 604,406 $ 600,560 $ 595,023 $ 591,557 $ 576,547
Less: Goodwill 16,300 16,300 16,313 10,168 10,168
Less: Mortgage servicing rights 5,180 5,338 4,998 4,891 4,912
Less: Core deposit intangible   1,070     1,121     1,171     -     -  
Tangible stockholders' equity (c) $ 581,856   $ 577,801   $ 572,541   $ 576,498   $ 561,467  
 
Total assets (b) $ 4,816,309 $ 4,827,277 $ 4,646,922 $ 4,246,765 $ 4,230,289
Less: Goodwill 16,300 16,300 16,313 10,168 10,168
Less: Mortgage servicing rights 5,180 5,338 4,998 4,891 4,912
Less: Core deposit intangible   1,070     1,121     1,171     -     -  
Tangible assets (d) $ 4,793,759   $ 4,804,518   $ 4,624,440   $ 4,231,706   $ 4,215,209  
 
Total stockholders' equity to total assets (a/b) 12.55 % 12.44 % 12.80 % 13.93 % 13.63 %
Tangible stockholders' equity to tangible assets (c/d) 12.14 % 12.03 % 12.38 % 13.62 % 13.32 %
 
Number of shares outstanding (e)   20,860     20,862     20,862     20,904     20,897  
 
Book value per share (a/e) $ 28.97 $ 28.79 $ 28.52 $ 28.30 $ 27.59
Tangible book value per share (c/e) 27.89 27.70 27.44 27.58 26.87
 
   

(4)

The efficiency ratio, a non-GAAP measure, equals total noninterest expense divided by the sum of net interest income and noninterest income. The ratio excludes net gains (losses) on sales, calls and impairment of investment securities, if applicable.

(5)

The cost of average deposits ratio equals annualized total interest expense on deposits divided by total average interest-bearing deposits plus total average noninterest-bearing deposits.

(6)

FTEs – Full-time-equivalent employees.

(7)

The delinquent loans to total loans ratio equals loans 30-days-or-more past due divided by total loans. Depending on loan class, loan delinquency is determined by the number of days or the number of payments past due.

 

NM – Not meaningful