Republic Bank & Trust

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Republic Bancorp, Inc. (“Republic” or the “Company”) is pleased to report net income of $4.6 million for the third quarter of 2013 resulting in Diluted Earnings per Class A Common Share of $0.22. Return on average assets (“ROA”) and return on average equity (“ROE”) were 0.55% and 3.36%, respectively, for the quarter. Net income for the first nine months of 2013 was $24.1 million, with Diluted Earnings per Class A Common share of $1.16. ROA and ROE for the first nine months of 2013 were 0.95% and 5.87%, respectively.

On October 8, 2013 Republic filed a Form 8K announcing that it was withdrawing its applications to the Office of the Comptroller of the Currency (the “OCC”) to merge and consolidate its Republic Bank & Trust (“RB&T”) and Republic Bank (“RB”) charters into one national bank charter and to acquire certain assets and assume all of the deposits of H&R Block Bank (the “Agreement”). As a result of RB&T withdrawing its application with the OCC, H&R Block Bank terminated the Agreement with RB&T.

Steve Trager, Chairman and CEO of Republic made the following comment in regards to that announcement:

“We are disappointed that we were not able to consummate a relationship with an industry leader and quality provider like H&R Block. We remain one of the most significant and long lasting financial institutions in the tax industry given our great history in the business over the last 20 years. We continue to be well positioned to pursue opportunities as we have been recognized as one of the best capitalized, top performing and most community minded banks in the country. I am very proud that 22 community and industry leaders submitted public letters of support to the Office of the Comptroller of Currency as it relates to our acquisition of H&R Block Bank, including: the Mayor of Louisville; the Presidents of the Universities of Louisville and Kentucky; the President of the Louisville Urban League; the Attorney General of Kentucky; the Executive Director of the Louisville Asset Building Coalition; the President of the Metro United Way; the President and CEO of the WHAS Crusade for Children; the President of the Federal Home Loan Bank of Cincinnati; the CEO of Habitat For Humanity; the Executive Director of Community Action of Southern Indiana; and the Chief Business Officer of Girl Scouts of Kentuckiana, among many others.

Republic will strive to continue to serve our customers and communities the right way as we look for opportunities to serve more people in more places,” Steve Trager concluded.

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

Comparability between the third quarter and first nine months of 2013 and the third quarter and first nine months of 2012 are challenging due to the large bargain purchase gains earned by Republic related to RB&T’s two FDIC-assisted acquisitions in 2012. As a result, the tables below summarize Republic’s third quarter and year-to-date 2013 financial performance as reported in accordance with Generally Accepted Accounting Principles (“GAAP”) and excluding its bargain purchase gains, a non-GAAP basis. A reconciliation of these GAAP and non-GAAP figures are included as part of this filing as well.

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

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

Net income from Core Banking was $6.5 million for the third quarter of 2013, a decrease of $15.4 million from the third quarter of 2012, which contained a $27.1 million pre-tax bargain purchase gain resulting from RB&Ts FDIC-assisted acquisition in Minnesota.

Net interest income within the Core Bank for the third quarter of 2013 was $28.5 million compared to $28.6 million for the third quarter of 2012. The Core Bank’s net interest margin for the third quarter of 2013 was 3.55% compared to 3.54% for the third quarter of 2012. The Core Bank’s net interest income continued to benefit from RB&T’s 2012 FDIC-assisted acquisitions in Tennessee and Minnesota, which contributed $3.4 million of net interest income for the third quarter of 2013 compared to $1.2 million for the third quarter of 2012. Overall, RB&T’s 2012 FDIC-assisted acquisitions added approximately 30 basis points to the Core Bank’s net interest margin for the third quarter of 2013. The increase in net interest income resulting from RB&T’s 2012 FDIC-assisted acquisitions was partially offset by a decline in net interest income within the Bank’s historical footprint, as strong cash in-flows during the previous 12 months from the Bank’s existing loan portfolio were redeployed into lower yielding portfolio products. Management believes that maintaining current net interest income and net interest margin levels will remain a challenge for the Company, as well as the banking industry as a whole.

The Core Bank’s provision for loan losses was $2.3 million for the third quarter of 2013 reflecting a $286,000 decrease from the third quarter of 2012. Approximately $1.2 million of the Core Bank’s provision expense for the third quarter of 2013 was related to its Minnesota and Tennessee loan portfolios. The majority of this provision represented yield-related adjustments, as the projected future cash flows of a few larger acquired loans were expected to extend beyond management’s initial day-one expectations. These yield related provisions from the Tennessee and Minnesota acquired loans will be accreted into interest income on loans over the revised expected lives of the applicable loans. At September 30, 2013, the contractual value of the Minnesota and Tennessee purchased loan portfolios totaled $134 million with a carrying value of $106 million.

The Core Bank’s overall credit quality ratios remained solid at the end of the third quarter. The Core Bank’s non-performing loans to total loans ratio was 0.79% at the end of the quarter while its delinquent loans to total loans ratio was 0.59%, both ratios comparing favorably to the Bank’s peers. The table below illustrates the Core Bank’s continuing solid credit quality ratios for the most recent quarter-ends and the previous three calendar year-ends.

Non-interest income for the Core Bank was $7.3 million for the third quarter of 2013 compared to $34.6 million for the third quarter of 2012, which contained the previously disclosed $27.1 million bargain purchase gain from RB&T’s Minnesota acquisition. Excluding the 2012 bargain purchase gains, non-interest income decreased $384,000, as increases of $238,000 in services charges on deposits and $441,000 in gains on sale of Other Real Estate Owned (“OREO”) in the other income category were offset by a decline in mortgage banking income.

The $1.2 million decline in mortgage banking income was the result of a decrease in consumer mortgage refinance activity, as fixed long-term mortgage interest rates rose dramatically during the second quarter of 2013. As a result of the decrease in consumer refinance activity, the Core Bank’s pipeline of secondary market loan applications, in which the consumer had locked the rate on his or her loan, declined to $12 million at September 30, 2013 compared to $31 million at June 30, 2013 and $39 million at September 30, 2012. With long-term mortgage interest rates forecasted to remain near or higher than current levels, management anticipates mortgage banking income will likely remain somewhat below its third quarter 2013 level for the foreseeable future.

The Core Bank’s third quarter 2013 non-interest expenses decreased $4.0 million from the third quarter of 2012 to $23.0 million. Non-interest expenses for the third quarter of 2013 benefited from a $3.3 million credit to salaries and benefits expense, as the Bank reduced its incentive compensation accruals to be in-line with its revised payout estimates for 2013 bonuses. In addition, non-interest expenses also benefited from an $831,000 decrease in OREO expenses resulting from a decline of 46 properties in OREO since September 30, 2012.

Republic Processing Group (“RPG”)

During the third quarter of 2013, RPG generated a net loss of $1.9 million compared to a net loss of $1.3 million during the third quarter of 2012. Approximately $915,000 of the operating loss was attributable to legal costs associated with RB&T’s negotiations and contract review related to the H&R Block Joint Marketing Master Services Agreement and its related schedules, as well as continuing arbitration and mediation with Jackson Hewitt and Liberty Tax Services.

Conclusion

“Our successful business model, which includes industry-strong capital levels, has allowed us to take advantage of many opportunities the past few years in both the traditional and non-traditional space. With changes in the banking industry continuing at a frantic pace due to the regulatory and economic environment, Republic continues to change and adapt, as it strives to maintain its place among the highest performing financial institutions for banks its size in the United States. With the supply of FDIC-assisted acquisition opportunities steadily decreasing during 2013, we plan to turn our focus to seeking potentially larger and more synergistic acquisition opportunities in the future, while still maintaining an eye toward FDIC-assisted deals that fit our profile. Additionally, the Bank is exploring ways to leverage the success and risk management practices of its warehouse lending program through potential new opportunities, such as a possible correspondent lending origination channel.

As an ever-increasing regulatory burden continues to drive the cost of doing business, we are continuously striving to find new opportunities that supplement our existing franchise, while also looking for ways to provide more of our core products and services in a more efficient manner. It is our pride in the achievements of our past and our confidence in our ability to reach our future goals that allows us to once again say, ‘We were here for you yesterday. We are here for you today. We will be here for you tomorrow,’” concluded Steve Trager.

Republic Bancorp, Inc. has 45 banking centers and is the parent company of Republic Bank & Trust Company (“RB&T”) and Republic Bank (“RB”). RB&T 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; two banking centers in Tennessee – Cool Springs (Franklin) and Green Hills (Nashville); and one banking center in Bloomington (Minneapolis), Minnesota. RB 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 $3.3 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 non interest income, net interest income and net interest margin in the Company’s Core Bank operations, the future growth and performance of Republic Processing Group, 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 and quarterly report on Form 10-Q for the period ended June 30, 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 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 September 30, 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 RPG segment. Along with the TRS division, Republic Payment Solutions (“RPS”) and Republic Credit Solutions (“RCS”) were created to operate as divisions of RPG segment.

Nationally, through RB&T, RPG facilitates the receipt and payment of federal and state tax refund products under the TRS division. Nationally, through RB, the RPS division is an issuing bank offering general purpose reloadable prepaid debit cards through third party program managers. Nationally, through RB&T, the RCS division preparing to pilot short-term consumer credit products through multiple channels, including the internet and retail locations.

For the projected near-term, as programs are being established, the operating results of these divisions are expected to be immaterial to the Company’s overall results of operations and will be reported as part of the RPG business operating segment. The RPS and RCS divisions will not be reported as separate business operating segments 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, while servicing fees and loan sales provide the majority of revenue from Mortgage Banking operations. Prior to 2013, Refund Anticipation Loan (“RAL”) fees and net Refund Transfer (“RT”) fees provided the majority of the revenue for RPG. In 2013, net RT fees have provided, and are expected to continue to provide going forward, the majority of revenues for RPG, as the Company no longer offers RALs. 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 2012 Annual Report on Form 10-K. 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 and nine months ended September 30, 2013 and 2012 follows: