Republic Bancorp KY : , Inc. : Reports Solid Growth in Net Income for the Fourth Quarter of 2014

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

Republic Bancorp, Inc. (“Republic” or the “Company”) concluded 2014 with fourth quarter net income of $5.2 million, a significant increase over the fourth quarter of 2013, resulting in Diluted Earnings per Class A Common Share of $0.25. For the 2014 fiscal year, the Company achieved net income of $28.8 million, resulting in Diluted Earnings per Class A Common Share of $1.38, a 13% increase over 2013.

Steve Trager, Republic’s Chairman and Chief Executive Officer, commented: “I’m very pleased with the positive momentum we have created with our balance sheet growth and our overall earnings during the second half of 2014. I am particularly proud of our efforts to overcome industry challenges, as we were able to successfully execute several of our strategic growth initiatives. We were able to successfully achieve growth through a diverse set of origination channels, including: our Traditional market footprint, our correspondent lending channel and our Warehouse Lending segment. Our strong loan growth in 2014 has allowed us to combat industry-wide net interest margin challenges without compromising our industry-strong credit standards.”

The following chart highlights Republic’s fourth quarter and year-to-date 2014 financial performance compared to the same periods in 2013:

Results of Operations for the Fourth Quarter of 2014 Compared to the Fourth Quarter of 2013

Traditional Banking, Warehouse Lending (“Warehouse”) and Mortgage Banking (collectively “Core Banking”)

Net income from Core Banking was $6.6 million for the fourth quarter of 2014, an increase of $1.5 million, or 31%, from the fourth quarter of 2013. The increase in quarterly net income at the Core Bank was largely driven by solid growth in net interest income complemented by a meaningful reduction in overhead expenses.

Net interest income at the Core Bank increased to $29.4 million during the fourth quarter of 2014, a $2.7 million, or 10%, increase over the fourth quarter of 2013. The Core Bank’s net interest margin was 3.36% during the fourth quarter of 2014 compared to 3.27% during the fourth quarter of 2013. While net interest income benefitted from a $509,000, or 14%, reduction in FHLB borrowings costs for the quarter, strong growth in interest income, driven by a $448 million, or 17%, increase in gross loans during 2014, was the primary driver of the increase in net interest income for the quarter. The Core Bank’s Warehouse lines of credit and correspondent lending portfolios, in particular, contributed strong growth in loan balances during the year. A breakdown in the overall change in Core Bank loan balances by origination channel during 2014 follows:

Net interest income at the Core Bank, excluding the impact from the Company’s 2012 FDIC-assisted transactions⁽¹⁾, increased $2.8 million, or 11%, from the fourth quarter of 2013 to the fourth quarter of 2014. While net interest income at the Core Bank continues to benefit from discount accretion on the loans it acquired in the Company’s 2012 FDIC-assisted transactions, this benefit continues to decline as the remaining loans from this transaction pay down or completely pay off. Altogether, the Company earned $978,000 in discount accretion from its 2012 FDIC-assisted transactions during the fourth quarter of 2014 compared to $1.1 million during the fourth quarter of 2013. Accretion income from the 2012 FDIC-assisted transactions contributed 11 and 13 basis points to the Core Bank’s net interest margin during these two periods.

The Core Bank’s provision for loan and lease losses was $1.4 million for the fourth quarter of 2014 compared to $552,000 during the fourth quarter of 2013. Provision expense for the fourth quarter of 2014 primarily represented an increase in general loan loss reserves, driven by the previously mentioned strong growth in the Core Bank’s loan portfolio. The Core Bank’s overall credit metrics in both periods continued to compare favorably to peer.

The table below illustrates the Core Bank’s continuing well-regarded credit quality ratios for the three previous calendar year ends:

Non-interest income for the Core Bank was $5.8 million during the fourth quarter of 2014 compared to $6.2 million for the fourth quarter of 2013. The decrease was driven primarily by a larger net loss on the value of the Bank’s Other Real Estate Owned (“OREO”), which was $294,000 during the fourth quarter of 2013 compared to $909,000 for the fourth quarter of 2014. The higher net loss on OREO was partially offset by a $292,000 increase in the cash surrender value of the Company’s Bank Owned Life Insurance (“BOLI”).

Core Bank non-interest expense decreased $1.6 million, or 6%, from the fourth quarter of 2013 to $23.7 million during the same period in 2014. Impacting the Core Bank’s non-interest expense comparisons between the fourth quarters of 2014 and 2013 were the following items:

• Salaries and benefits expense at the Core Bank decreased $613,000 for the fourth quarter of 2014 compared to the same period in 2013 primarily due to a modest reduction in force which occurred during the fourth quarter of 2013.
• OREO expenses at the Core Bank declined $331,000 for the fourth quarter of 2014 compared to the fourth quarter of 2013, with the reduction due to a significant decrease in the number OREO properties held by the Core Bank. The reduction in OREO properties was mainly attributable to a reduction of 13 properties arising from the Company’s 2012 FDIC-assisted transactions.
• Core deposit intangible amortization decreased from the fourth quarter of 2013 by $289,000. Amortization expense related to the Company’s core deposit intangible from its Minnesota acquisition was accelerated during the fourth quarter of 2013, consistent with the Company’s decision to close its banking center in the Minnesota market.

Republic Processing Group (“RPG”) – The Tax Refund Solutions (“TRS”) division of RPG accounts for the majority of RPG’s annualized revenues. 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.

RPG generated a net loss of $1.4 million during the fourth quarter of 2014 compared to a net loss of $3.7 million during the fourth quarter of 2013. The primary improvement for the quarter was in the legal expense category. The fourth quarter of 2013 included elevated legal costs, as the Company resolved a contract dispute with one of its large third party marketing and servicing providers in the tax business.

In addition to the lower legal expenses during the quarter, RPG also experienced a notable decrease in income tax expense compared to the fourth quarter of 2013. The higher income tax expenses for the fourth quarter of 2013 was related to additional accruals recorded for possible state income tax liabilities beyond the Company’s original estimates related to the tax years 2010 through 2013. The Company attributed the increased state income taxes to the RPG segment, as RPG generated the substantial majority of all of the Company’s state income tax exposure outside of its geographic footprint during those tax years.

Conclusion

“The year 2014 was a successful one for Republic, as we were able to gain solid traction in our earnings growth during the second half of the year, bolstered by net interest income. In addition, we received a positive response to our new ‘It’s just easier here^sm.’ marketing campaign, as our name recognition continues to grow throughout our markets. As we look ahead to 2015 and beyond, we will remain focused on our core footprint growth, while also looking to expand through acquisition and at RPG through new loan and prepaid pilot programs and relationships. While many of the same economic headwinds that we have faced over the past several years still exist going into 2015, I am optimistic that we can continue to build upon our momentum from 2014 and achieve many new successes in 2015 as well,” concluded Trager.

Republic Bancorp, Inc. (the “Company”) is the parent company of Republic Bank & Trust Company (the “Bank”). The Bank currently has 40 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; two banking centers in Florida – Port Richey and Temple Terrace; two banking centers in Tennessee – Cool Springs (Franklin) and Green Hills (Nashville); and one banking center in Blue Ash (Cincinnati), Ohio. The Bank offers internet banking at www.republicbank.com. The Company has $3.7 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 ^SM.

Forward-Looking Statements

This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, future acquisitions and the future growth in outstanding loan balance, as well as current expectations and assumptions regarding its business, the economy and other future conditions. Forward-looking statements can be identified by the use of the words “expect,” “appear,” “anticipate,” “believe,” “intend,” “could” and “should,” and other words of similar meaning. These forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to risks and uncertainties and there are a number of factors that could cause actual results to differ materially from those in such statements.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results may differ materially from those contemplated by the forward-looking statements. The Company cautions you therefore against relying on any of these forward-looking statements, which speak only as of the date on which they are made. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include 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, 2013. 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.

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, 2014, 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 Banking” activities. The RPG segment includes the Tax Refund Solutions (“TRS”) division, 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:

Prior to the quarter ended December 31, 2014, the Company’s Warehouse segment was reported as a division within the Traditional Banking segment. All prior periods presented have been restated to conform to the current presentation.

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 2013 Annual Report on Form 10-K. Segment performance is evaluated using operating income. Goodwill is not allocated. 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.