Republic Bancorp, Inc. : Reports 13% Year-Over-Year Increase in First Quarter Net Income

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 first quarter net income of $20.0 million, a 13% increase over the first quarter of 2016, resulting in Diluted Earnings per Class A Common Share of $0.96. Return on average assets (“ROA”) and return on average equity (“ROE”) were 1.65% and 13.12%, respectively, for the first quarter of 2017.

Steve Trager, Republic’s Chairman and Chief Executive Officer, commented: “I am very excited to see the solid growth in our overall net income for the quarter, as we have made, and continue to make, significant investments in people and technology in order to advance our long-term strategic initiatives. As is typically the case during the first quarter of each year, the Tax Refund Solutions (“TRS”) division of our Republic Processing Group (“RPG”) made a proportionately significant contribution to net income for the quarter, as we completed the bulk of our tax season for 2017. In addition, the Republic Credit Solutions (“RCS”) division of RPG had another strong quarter, as well, contributing $1.3 million to RPG’s net income for the quarter.

“In addition to the solid net income at RPG, first quarter 2017 net income within our Warehouse Lending (“Warehouse”) segment grew 74% over the first quarter of 2016, driven by a significant year-over-year increase in average outstanding Warehouse loan balances combined with a higher net interest margin. The strong first quarter for the Warehouse segment helped to drive a 5% increase in the overall net income in our Core Banking operations, which also includes the results of our Traditional Banking and Mortgage Banking business segments. While overall net income within our Traditional Banking segment was slightly lower for the first quarter due primarily to the significant investment in staffing and infrastructure that we’ve made over the previous 12 months, we did achieve solid growth in net interest income, continued low loan losses and a solid increase in average loans and deposits for the quarter, as compared to the first quarter of 2016.”

The following table highlights Republic’s financial performance for the first quarter of 2017 compared to the same period in 2016:

Results of Operations for the First Quarter of 2017 Compared to the First Quarter of 2016

Core Bank⁽¹⁾ – Net income from Core Banking was $8.5 million for the first quarter of 2017, an increase of $439,000 over the first quarter of 2016. As previously discussed, Core Banking noninterest expenses were impacted by several strategic initiatives during the first quarter of 2017. The long-term goal of these initiatives is to geographically expand and grow the Company’s loan and deposit client base, enhance client service through expanded hours and delivery channels, diversify the Company’s product mix, and to create greater operating efficiencies. Significant costs for some of the Company’s more notable strategic investments made over the previous 12 months include the following:

• Expansion of the Company’s footprint into St. Petersburg, Florida through its May 2016 acquisition of Cornerstone Bancorp, Inc.
• The October 2016 launch of MemoryBank^®, a separately-branded, nationwide digital banking platform, which has raised $28 million in deposits during the first three months of 2017.
• The October 2016 introduction of Dealer Floor Plan Lending, which had $8 million of loans outstanding at March 31, 2017.
• The opening of the Company’s new Vine Street location in downtown Lexington, Kentucky.
• The opening of a new loan production office in Brentwood (Nashville), Tennessee.
• Expanded contact center hours from 7 a.m. to midnight, seven days a week.
• The pilot introduction of six interactive teller machines (“ITMs”) into four of the Company’s banking centers, with an expected expansion into additional banking centers upon the completion of a successful pilot phase.

In addition to the launched initiatives above, the Company also has plans for the following during the remainder of 2017:

• Implementation of a new client relationship management system.
• Additional investment in mortgage-related personnel, processes and systems in order to expand market share.

Net interest income at the Core Bank increased to $36.6 million during the first quarter of 2017, a $5.3 million, or 17%, increase over the first quarter of 2016. The increase in net interest income was primarily driven by a $386 million, or 12%, year-over-year increase in the Core Bank’s quarterly average loans from the first quarter of 2016 to the first quarter of 2017. The strong growth in average loans outstanding was further supplemented by an increase of 21 basis points in the Core Bank’s net interest margin over the first quarter of 2016.

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:

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 first quarter of 2017, as compared to the first quarter of 2016:

• With the assistance of the $190 million in loans acquired in its May 2016 acquisition of Cornerstone Bancorp, Inc., the Core Bank’s Traditional Network experienced solid average loan growth over the previous 12 months of $354 million. The overall mix of this growth was well diversified, with average balance increases of $181 million in Commercial Real Estate; $70 million in Construction & Development; $51 million in Home Equity Lines of Credit (“HELOCs”); $42 million in Commercial and Industrial; and $41 million in Indirect Auto.
• Within the Warehouse segment, net interest income grew 47% from the first quarter of 2016. Driving the growth in net interest income was a $144 million increase in average outstanding Warehouse balances for the first quarter of 2017. The Core Bank increased its committed Warehouse lines of credit from $615 million at March 31, 2016 to $983 million at March 31, 2017, with usage rates of those lines at 47% and 44%, respectively, during the periods. In addition to the strong balance sheet growth for the portfolio, the yield for Warehouse lines of credit was 4.20% during the first quarter of 2017, an increase of 19 basis points from the same period in 2016.
• As expected, net interest income from the Company’s 2012 FDIC-assisted acquisitions declined $671,000 from the first quarter of 2016 to $380,000 for the first quarter of 2017, as the overall average balance within this portfolio decreased over $9 million when comparing to the same period in 2016. As a result, accretion income from the 2012 FDIC-assisted transactions contributed seven basis points to the Core Bank’s net interest margin during the first quarter of 2016 compared to only one basis point for the first quarter of 2017.

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

Noninterest income for the Core Bank was $7.7 million during the first quarter of 2017 compared to $7.5 million for the first quarter of 2016. Impacting the Core Bank’s noninterest income comparisons between the first quarters of 2017 and 2016 were the following:

• Service charges on deposits increased $146,000, or 5%, driven by an 11% growth in the Core Bank’s transaction account base from period to period.
• Interchange income increased $163,000, or 8%, as both the number of active debit cards and the activity on those cards experienced year-over-year increases.
• Mortgage banking income decreased $101,000 from the first quarter of 2016, as secondary market originations decreased consistent with a decrease in consumer refinance activity.

Core Bank noninterest expenses increased $5.3 million, or 20%, during the first quarter of 2017 compared to the first quarter of 2016. The increase was primarily driven by the following:

• Salaries and employee benefits expense increased $3.5 million, or 24%, as the Core Bank’s full-time-equivalent employees increased by 145 over the previous 12 months to support the previously mentioned Core Bank’s strategic initiatives.
• Occupancy expense increased $562,000, or 11%, primarily driven by an 11% increase in rent expense and a 23% increase in depreciation expense resulting from new locations, existing banking center renovations and the cost of technology to support the Core Bank’s strategic initiatives.
• Marketing expenses increased $422,000, with $304,000 of the increase related to promotion of the Core Bank’s MemoryBank digital banking platform.

RPG

The RPG segment reported net income of $11.5 million for the first quarter of 2017 compared to $9.7 million for the same period in 2016. The higher first quarter 2017 net income was primarily driven by growth within the RCS division of RPG and growth of the Easy Advance (“EA”) loan product at TRS.

Within the RCS division, net income increased to $1.3 million for the first quarter of 2017 compared to $63,000 for the same period in 2016. RCS’s net income benefitted from continued growth of its short-term consumer loan products. Sales of such loans reached $126 million during the first quarter of 2017, a 187% increase over the same period in 2016, while loans retained on balance sheet increased from $9 million at March 31, 2016 to $32 million at March 31, 2017. In addition, RCS benefitted during the first quarter of 2017 from the final revenue payment of $427,000 from a program sponsor related to a first-year volume guarantee for its short-term credit product.

Within the TRS division, net income increased $611,000, or 6%, to $10.5 million for the first quarter of 2017 compared to $9.9 million for the same period in 2016. TRS net EA revenues (EA fees, less estimated loan loss provisions for EAs) increased $4.0 million for the first quarter of 2017 compared to the same period in 2016 driven by a $205 million increase in EAs originated from period to period. As of March 31, 2017, the Company had reserved through its loan loss provision approximately 2.62% of total originations for estimated losses on the EA product based on expectations derived from prior period experience together with the current period’s underwriting model.

The growth in net revenue at TRS associated with the EA helped to offset a 10% reduction in revenue from the Refund Transfer (“RT”) products, as RT volume decreased 9% from the first quarter of 2016 to the first quarter of 2017. The decrease in RT volume was directionally consistent with a reported decline in e-filings at the Internal Revenue Service.

Conclusion

“I’m excited about the good growth in the top-line revenue at our Core Bank and our net interest margin continues to trend in a positive direction, as well. We remain on track making meaningful in-roads with many of our strategic initiatives, which we believe will pay dividends for our clients, our associates, and our shareholders over the long term. With that in mind, we will continue to be vigilant for opportunities that are in the best interest of our shareholders, as we pursue market-best talent, technology, new products and services, and prudent acquisitions that will advance our long-term goals,” concluded Steve Trager.

Republic Bancorp, Inc. (the “Company”) is the parent company of Republic Bank & Trust Company (the “Bank”). The Bank currently has 45 full-service banking centers and one loan production office throughout five states: 33 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 loan production office in Brentwood (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 $4.7 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, 2016. 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
First Quarter 2017 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 clients are similar.

As of March 31, 2017, 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 Traditional Banking. The RPG segment includes the following divisions: Tax Refund Solutions (“TRS”), Republic Credit Solutions (“RCS”) and Republic Payment Solutions (“RPS”). TRS generates the majority of RPG’s income, with the relatively smaller divisions of RPG, RCS and RPS, 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:

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 2016 Annual Report on Form 10-K. Segment performance is evaluated using operating income. Goodwill is allocated to the Traditional Banking segment. 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.