Republic Bank & Trust

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Republic Bancorp, Inc. (“Republic” or the “Company”) is pleased to report solid net income of $13.4 million for the first quarter of 2013 resulting in Diluted Earnings per Class A Common Share of $0.64. Return on average assets (“ROA”) and return on average equity (“ROE”) were 1.55% and 9.83%, respectively, for the quarter. The Company’s first quarter 2013 operating results were driven by solid net interest income, a strong quarter in mortgage banking and healthy declines in provision for loan losses, as credit quality trends continue to be favorable.

Steve Trager, Republic’s Chairman and Chief Executive Officer, commented: “Despite the decline in net income compared to our record first quarter of 2012, we are pleased with our results of operations for the first quarter of 2013. Based on our previous public disclosures regarding our tax business, the public was aware that 2013 would likely be a transition year for this business operating segment, and as a result, a year of lower profitability compared to the tremendous year we had in 2012. In addition, with no failed bank acquisition opportunities that fit within our strategic plan during the first quarter of this year, we were not able to report higher net income at our Core Bank compared to the first quarter of 2012, which benefitted from the large bargain purchase gain from our Tennessee Commerce Bank (‘TCB’) acquisition. Despite these items that negatively impacted the comparability of our financial performance to the previous year, results from our core operations remained solid during the quarter. Our overall performance demonstrates the strong relationships we have built with our clients while also maintaining our high credit quality standards.”

While the Company’s first quarter performance represented a good start to its fiscal year, Republic also received recognition during the quarter for its past performance. During the quarter, Bank DirectorMagazine named Republic as the best performing bank in the U.S. for the second consecutive year. The number one ranking was based on a combined score for two financial metrics: core return on tangible common equity and the ratio of average tangible common equity to tangible assets. Data was collected by SNL Financial and Sandler O’Neill + Partners from all banks and thrifts that trade publicly on the NYSE, NASDAQ, or NYSE Amex and represents the average of the two financial metrics for the eight quarters ending June 30, 2012.

The following table highlights Republic’s first quarter financial performance for 2013 compared to the same period in 2012:

Results of Operations for the First Quarter of 2013 Compared to the First Quarter of 2012

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

Net income from Core Banking was $8.2 million for the first quarter of 2013. The Company’s first quarter 2013 operating results were driven by higher net interest income, an active quarter in Mortgage Banking and a healthy decline in required estimated provisions for loan losses. As previously discussed, comparability to the first quarter of 2012 was negatively impacted by a pre-tax bargain purchase gain of $27.9 million recorded during January of 2012 resulting from the acquisition of TCB through an FDIC assisted transaction. The Company recorded a $1.3 million bargain purchase gain during the first quarter of 2013 related to adjustments to its day-one fair values related to its First Commercial Bank (“FCB”) acquisition that occurred during the third quarter of 2012.

Net interest income within the Core Bank rose to $29.1 million for the first quarter of 2013, an increase of $1.1 million, or 4%, from the first quarter of 2012. The increase in net interest income for the quarter was attributable primarily to year-over-year growth in the loan portfolio, which increased from an average of $2.4 billion during the first quarter of 2012 to an average of $2.6 billion for the first quarter of 2013. Approximately $93 million of the increase in average loans was attributable to Republic’s acquisitions of failed banks during 2012 with the remaining increase coming from the net growth in the Company’s Mortgage Warehouse loan portfolio and its traditional banking center footprint. As a result, the Core Bank’s net interest margin remained healthy at 3.60% for the first quarter of 2013, compared to 3.58% for the same period in 2012.

Looking ahead to the remainder of 2013, the Company, and the banking industry in general, will continue to be challenged to maintain net interest margins given the low interest rate environment for longer-term interest earning-assets. In addition, the historically low 15- and 30-year fixed rate loans offered by the Government Sponsored Entities (“GSEs”) continue to encourage mortgage clients to refinance portfolio-level adjustable rate mortgages away from existing bank portfolios leading to excess cash on bank balance sheets. Republic continues to combat these challenges with successful product offerings such as its Home Equity Amortizing Loan (“HEAL”) in 2012 and its newest product offering, a 15 year fixed-rate commercial real estate loan. To mitigate its interest rate risk, the Company plans to continue to extend borrowings from the Federal Home Loan Bank to protect itself in a rising interest rate environment.

The Core Bank’s provision for loan losses decreased from $3.1 million during the first quarter of 2012 to a net credit of $26,000 during the first quarter of 2013. Included in provision expense for the first quarter of 2012 was $1.2 million for two large classified real estate secured credits, while the Core Bank experienced no such large loan impairment charges within its loan loss provision during the first quarter of 2013. Overall, provision expense for the first quarter of 2013 benefitted from continued improvement in the Company’s historical loss percentages and no new significant classified loans identified during the quarter.

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

Non-interest income for the Core Bank was $10.0 million for the first quarter of 2013 compared to $34.9 million for the first quarter of 2012. The decrease in non-interest income was driven largely by the previously noted bargain purchase gain realized from the TCB acquisition during the first quarter of 2012. Excluding the impact of the bargain purchase gains, non-interest income increased $1.7 million, or 24%, over the first quarter of 2012. The first quarter of 2013 reflected strong mortgage banking income resulting from the favorable low interest rate environment combined with Republic’s new $0 closing cost promotion, which drove a significant increase in consumer demand for secondary market loans. As a result, mortgage banking income increased from $1.4 million during the first quarter of 2012 to $3.3 million during the first quarter of 2013.

The Core Bank’s non-interest expenses decreased $2.2 million for the first quarter of 2013 to $26.0 million. In the first quarter 2012, non-interest expenses included $600,000 in TCB related expenses associated with third party consulting, third party core conversion costs and internal incentive compensation accruals contingent upon a successful systems conversion and long term profitability goals. Additionally, the Core Bank recorded a $2.4 million early termination penalty during the first quarter of 2012 as it prepaid $81 million in Federal Home Loan Bank advances that were scheduled to mature at various times during 2012 and 2013.

Republic Processing Group (“RPG”) – During the first quarter of 2013, RPG generated net income of $5.1 million, as it processed over $3.0 billion in tax refunds for clients across the United States. Net income from the Tax Refund Solutions (“TRS”) division declined from the first quarter of 2012 due to a substantial reduction in Refund Transfer (“RT”) volume and the elimination of the Refund Anticipation Loan (“RAL”) product in April 2012.

The decrease in RT volume was primarily the result of the termination of the Company’s contracts with Jackson Hewitt Tax Services (“JH”) and Liberty Tax Service (“Liberty”). As previously disclosed in a Form 8-K filed on August 29, 2012, JH unilaterally terminated its contract with Republic on August 27, 2012. In addition, as previously disclosed in a Form 8-K filed on September 19, 2012, Liberty unilaterally terminated its contract with Republic on September 18, 2012. On a combined basis, these contracts represented approximately 53% of the Company’s 2012 RT product volume. The TRS segment of RPG 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 a year, as the Company prepares for the upcoming tax season.

Along with TRS, Republic Payment Solutions (“RPS”) operates as a division of RPG. RPS was formed to capitalize on the internal resources of TRS by expanding the Company’s consumer product offerings. During the first quarter of 2013, through RPS, the Company began offering prepaid cards through a third party program manager on a small pilot basis. The Company has plans to pilot more cards through additional third party program managers during the remainder of 2013. If successful, the Company hopes to grow its outstanding cardholder base in a judicious manner in the following year. RPS is not expected to impact the Company’s bottom line by a material amount in 2013, regardless of the overall success of the program. Its impact to the Company’s bottom line in 2014 and beyond will depend upon the success of its pilot phases.

Conclusion

“Our first quarter results continue to reflect the conservative approach to doing business that we have employed since the Company was started over 30 years ago. In addition, because of our operational nimbleness, we were able to shift our resources to meet consumer demand for fixed rate secondary market products, as consumer demand for portfolio level adjustable rate mortgage products remains modest in this historically low interest rate environment. While the economy overall is showing continued favorable signs of recovery, there remains significant challenges ahead for the banking industry in terms of competition, continuing margin compression and the cost of complying with on-going legal and regulatory requirements. It is my belief in our ability to meet and overcome these challenges that allows me to say to our associates, our clients and our shareholders: ‘We were here for you yesterday. We are here for you today. We will be here for you tomorrow,’” concluded Trager.

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

Republic Bancorp, Inc. (Republic) has 44 banking centers and is the parent company of Republic Bank & Trust Company and Republic Bank. Republic Bank & Trust Company has 34 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, one banking center in Franklin (Nashville), Tennessee, and one banking center in Bloomington (Minneapolis), Minnesota. Republic Bank has banking centers in Hudson, Palm Harbor, Port Richey and Temple Terrace, Florida as well as Blue Ash (Cincinnati), Ohio. Republic offers internet banking at www.republicbank.com. Republic has $3.4 billion in assets and is headquartered in Louisville, Kentucky. Republic’s Class A Common Stock is listed under the symbol “RBCAA” on the NASDAQ Global Select Market.

We were here for you yesterday. We are here for you today. We will be here for you tomorrow.^®

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, future challenges of growing or maintaining net interest income and net interest margin in the Company’s Core Bank operations, the future growth and performance of the Company’s RPS division of RPG, 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,” “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, 2012. 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.

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First Quarter 2013 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 branches and subsidiary banks), which are then aggregated if operating performance, products/services, and customers are similar.

As of March 31, 2013, the Company was divided into three distinct business operating segments: Traditional Banking, Mortgage Banking and Republic Processing Group (“RPG”). During 2012, the Company realigned the previously reported Tax Refund Solutions (“TRS”) segment as a division of the newly formed RPG segment. Along with the TRS division, Republic Payment Solutions (“RPS”) and Republic Credit Solutions (“RCS”) were created to operate as divisions of the RPG segment.

Nationally, through Republic Bank & Trust Company (“RB&T”), RPG facilitates the receipt and payment of federal and state tax refund products under the TRS division. Nationally, through Republic Bank, the RPS division is preparing to become an issuing bank to offer general purpose reloadable prepaid debit, payroll, gift and incentive cards through third party program managers. Nationally, through RB&T, the RCS division is preparing to pilot short-term consumer credit products through multiple channels, including the internet and retail locations. For the projected near-term, as the programs are established, the operating results of the RPS and RCS divisions are expected to be immaterial to the Company’s overall results of operations and will therefore not be reported as a separate business operating segment until such time, if any, that they become material to the Company’s overall results of operations.

Loans, investments and deposits provide the majority of the net revenue from Traditional Banking operations; servicing fees and loan sales provide the majority of revenue from Mortgage Banking operations; Refund Transfer fees provide the majority of the revenue from TRS. 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. Segment performance is evaluated using operating income. Goodwill is not allocated. Income taxes which are not segment specific are allocated based on income before income tax expense. Transactions among reportable segments are made at fair value.

Segment information for the three months ended March 31, 2013 and 2012 follows:

Republic Bancorp, Inc. Financial Information
First Quarter 2013 Earnings Release (continued)

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(1) – The amount of loan fee income included in total interest income was $2.6 million and $46.0 million for the quarters ended March 31, 2013 and 2012.

The amount of loan fee income included in total interest income per quarter was as follows: $2.6 million (quarter ended March 31, 2013), $2.4 million (quarter ended December 31, 2012), $1.1 million (quarter ended September 30, 2012), $1.3 million (quarter ended June 30, 2012) and $46.0 million (quarter ended March 31, 2012).

(2) – 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. The Company provides the tangible common equity ratio, in addition to those defined by banking regulators, because of its widespread use by investors as a means to evaluate capital adequacy.

(3) – Equals total non-interest expense divided by the sum of net interest income and non interest income. The ratio excludes net gain (loss) on sales, calls and impairment of investment securities.

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First Quarter 2013 Earnings Release (continued)

(4) – The following tables reflect the calculation of the allowance for loan losses plus non-accretable yield on purchased, credit impaired loans as a percentage of total gross contractual loan principal receivable (“GCLPR”). While this ratio is not considered in accordance with GAAP, it provides additional insight regarding the Bank’s ability to absorb impairment of contractual loan principal receivable.