Republic Bancorp KY : , Inc. : Reports a Solid Third Quarter of 2014 with Net Income of $5.2 Million

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”) is pleased to report net income of $5.2 million for the third quarter of 2014, resulting in Diluted Earnings per Class A Common Share of $0.25, a 14% increase from the same period in 2013. Return on average assets (“ROA”) and return on average equity (“ROE”) were 0.59% and 3.76%, respectively, for the third quarter of 2014. For the first nine months of 2014, net income was $23.6 million, with Diluted Earnings per Class A Common Share of $1.13 and an ROA and ROE of 0.89% and 5.65%, respectively. The third quarter of 2014 was highlighted by continued strong loan growth of $184 million, or 7%, bringing the total year’s loan growth to $319 million, or 12%, as of September 30, 2014.

Steve Trager, Republic’s Chairman and Chief Executive Officer, commented: “I am excited that in this very competitive lending environment, we have seen two consecutive quarters of strong loan growth. This growth was the result of executing on a plan and taking advantage of opportunities, without compromising our overall credit standards. Furthermore, we have expanded our market reach and customer base during the first nine months of 2014 through our warehouse and correspondent lending channels, while also continuing to win business within our traditional footprint. Our strong loan growth has allowed us to deploy much of our excess cash from the beginning of the year into higher yielding loan products, helping us to partially offset the negative impact of a continued low interest rate environment. Based on our current pipelines, we are encouraged that our loan growth momentum will continue during the fourth quarter of 2014.”

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

Quarterly Results of Operations

Traditional Banking and Mortgage Banking (collectively “Core Banking”)

Net income from Core Banking was $6.4 million for the third quarter of 2014, a decrease of $132,000, or 2%, from the third quarter of 2013. Comparability to the third quarter of 2013 was greatly impacted by a large pre-tax credit of $3.3 million to salaries and benefits expense recorded during the third quarter of 2013, as the Core Bank reversed the substantial majority of its 2013 incentive compensation accruals during the quarter. In contrast, the Core Bank recorded a pre-tax credit of $1.8 million during the third quarter of 2014 related to its 2014 incentive compensation accruals.

Net interest income within the Core Bank decreased slightly during the third quarter of 2014 to $28.4 million, a $145,000, or 1%, decrease compared to the third quarter of 2013. The Core Bank’s net interest margin was 3.38% during the third quarter of 2014 compared to 3.54% during the third quarter of 2013. A decline in discount accretion from the Company’s 2012 FDIC-assisted transactions was the primary driver of the decrease in net interest income for the quarter. Conversely, net interest income benefitted significantly during the third quarter of 2014 from the Core Bank’s solid year-to-date loan growth, which occurred primarily during the second and third quarters of 2014. While the Company generally experienced growth across its entire loan portfolio, growth was particularly strong in the Company’s mortgage warehouse and correspondent lending portfolios, which grew $123 million and $139 million during the first nine months of 2014.

Net interest income at the Core Bank, excluding the impact from the Company’s 2012 FDIC-assisted transactions⁽¹⁾, increased $1.1 million from the third quarter of 2013 to the third quarter of 2014. While net interest income at the Core Bank continues to benefit from discount accretion on the loans it acquired from the Company’s 2012 FDIC-assisted acquisitions, this benefit continues to decline as the remaining loans from this transaction continue to pay down or completely pay off. Altogether, the Company earned $732,000 in discount accretion from its 2012 FDIC-assisted transactions during the third quarter of 2014 compared to $2.0 million during the third quarter of 2013. Accretion income from the 2012 FDIC-assisted transactions contributed nine and 25 basis points to the Core Bank’s net interest margin during these two periods.

The Core Bank’s provision for loan losses was $1.5 million for the third quarter of 2014 compared to $2.3 million during the third quarter of 2013, as the Core Bank’s overall credit metrics in both periods continued to compare favorably to peer. Provision expense for the third quarter of 2014 primarily represented an increase in general loan loss reserves driven by the strong growth in the Core Bank’s loan portfolio. Provision expense for the third quarter of 2013 reflected $1.2 million for loss provisions related to the Bank’s 2012 FDIC-assisted acquisitions, with only $78,000 in similar provisions made for the third quarter of 2014.

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

Non-interest income for the Core Bank was $7.0 million during the third quarter of 2014 compared to $7.2 million for the third quarter of 2013. A decrease in net gains from the sale of Other Real Estate Owned (“OREO”), along with a negative earnings impact from an increase in estimated credit card rewards was partially offset by a $381,000 increase in the cash surrender value of the Company’s Bank Owned Life Insurance (“BOLI”).

Core Bank non-interest expense increased $771,000, or 3%, from the third quarter of 2013 to $23.7 million during the same period in 2014. As previously discussed, comparability of non-interest expense between the two quarters was greatly impacted by incentive compensation accrual credit adjustments. Excluding the impact of these two credit adjustments⁽²⁾, non-interest expense decreased $659,000 for the third quarter of 2014 as compared to the third quarter of 2013. Positively impacting the Core Bank’s non-interest expense comparisons between the third quarters of 2014 and 2013 was a reduction in payroll expenses resulting from a modest reduction in force implemented during the fourth quarter of 2013. Offsetting the expense benefit from the Core Bank’s reduction in force were higher marketing costs associated with the Company’s new “It’s just easier here^SM” brand marketing campaign and higher OREO related expenses.

Republic Processing Group (“RPG”) – The Tax Refund Solutions (“TRS”) division of RPG accounts for the overwhelming 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 $1.2 million during the third quarter of 2014 compared to a net loss of $1.9 million during the third quarter of 2013. The improvement was primarily driven by reduced legal fees within the TRS division.

Conclusion

“On a regular basis we are asked about our long-term acquisition plans and deployment of our excess capital. Although we have experienced a great deal of success growing our balance sheet during the first nine months of 2014 through internal products and business lines, growing through acquisition remains a key growth initiative in our long-term plans. We have deployed, and will continue to deploy, a large amount of resources to finding the right bank with which to partner. Our primary focus in the traditional mergers and acquisitions market has been on banks with total assets of $1 billion or less, with acceptable credit quality metrics in markets that are synergistic with our existing markets, and with balance sheets that will supplement our own existing balance sheet. We will continue to search hard until we find the right fit for our Bank and our shareholders. In the meantime we will continue to work hard to grow our Bank organically and to deploy our strategic capital conservatively until our on-going diligence provides us the right opportunity to grow through acquisition,” concluded Trager.

Republic Bancorp, Inc. (the “Company”) is the parent company of Republic Bank & Trust Company (the “Bank”). The Bank currently has 42 total banking centers: 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; three banking centers in Florida – Hudson, 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 $3.6 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.

Republic Bancorp, Inc. Financial Information
Third Quarter 2014 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 September 30, 2014, the Company was divided into three distinct business operating segments: Traditional Banking, Mortgage Banking and Republic Processing Group (“RPG”). Along with the Tax Refund Solutions (“TRS”) division, Republic Payment Solutions (“RPS”) and Republic Credit Solutions (“RCS”) operate as divisions of the RPG segment.

All divisions of the RPG segment operate through the Bank. The TRS division facilitates the receipt and payment of federal and state tax refund products. The RPS division is an issuing bank offering general purpose reloadable prepaid debit cards through third party program managers. The RCS division is piloting short-term consumer credit products.

Loans, investments and deposits provide the majority of the net revenue from Traditional Banking operations, while servicing fees and loan sales provide the majority of revenue from Mortgage Banking operations. Net refund transfer fees provide the majority of revenue for RPG. All Company operations are domestic.

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.