Republic Bank & Trust

LOUISVILLE, Ky.--(BUSINESS WIRE)-- 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 fourth quarter net income of $7.4 million, a 42% increase over the fourth quarter of 2014, resulting in Diluted Earnings per Class A Common Share of $0.36. Fiscal year 2015 net income was $35.2 million, a $6.4 million, or 22%, increase from fiscal year 2014, resulting in return on average assets (“ROA”) and return on average equity (“ROE”) of 0.88% and 6.12% for 2015, respectively.

Steve Trager, Republic’s Chairman and Chief Executive Officer, commented: “We are very excited about the positive year-over-year momentum of our operating results during 2015. Compliments go to our dedicated bankers, as the Core Bank’s loan portfolio grew $283 million during 2015, with our Traditional footprint accounting for $209 million of that growth. In addition to the strong loan growth within our Traditional footprint, our deposits increased $429 million during 2015, with our core deposits achieving the best growth year in the Company’s history. Our strong balance sheet growth in 2015 has positioned us well to continue our positive earnings momentum into 2016.”

The following table highlights Republic’s financial performance for the fourth quarters and years ended December 31, 2015 and 2014:

Results of Operations for the Fourth Quarter of 2015 Compared to the Fourth Quarter of 2014

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

Net income from Core Banking was $8.5 million for the fourth quarter of 2015, an increase of $1.9 million, or 28%, from the fourth quarter of 2014. The increase in net income for the fourth quarter of 2015 at the Core Bank was driven primarily by higher net interest income resulting from solid loan growth. The Core Bank’s growth in net interest income was further complemented by a continued modest provision for loan and lease losses and a reduction in incentive compensation accruals.

Net interest income at the Core Bank increased to $30.8 million during the fourth quarter of 2015, a $1.4 million, or 5%, increase over the fourth quarter of 2014. The increase in net interest income was primarily the result of a $283 million, or 9%, year-over-year increase in the Core Bank’s loan portfolio. This growth over the previous year led to an increase in the Core Bank’s average loan balances of $290 million, or 10%, when comparing the fourth quarter of 2015 to the fourth quarter of 2014. The growth in average loan balances more than offset the negative impact to the Core Bank’s net interest income resulting from a decrease of 21 basis points to its net interest margin from the fourth quarter of 2014 to the fourth quarter of 2015.

The overall change in the Core Bank’s period-end and average loan balances by origination channel is presented below:

Within the Warehouse Lending channel, net interest income was strong compared to the fourth quarter of 2014, as Warehouse lines of credit usage continued to be high among the Core Bank’s clients during the quarter. The Warehouse balances at December 31, 2015 were $67 million higher than balances on December 31, 2014, with average Warehouse balances increasing $66 million comparing the fourth quarter of 2015 to the fourth quarter of 2014.

Net interest income at the Core Bank for the fourth quarter of 2015 included $642,000 of net interest income contributed from the Company’s 2012 FDIC-assisted transactions compared to $1.5 million contributed during the fourth quarter of 2014. Accretion income from the 2012 FDIC-assisted transactions contributed two and eleven basis points to the Core Bank’s net interest margin during these two periods.

Further adding to growth in net interest income for the fourth quarter of 2015 was a $447,000 decrease in interest expense associated with the Company’s subordinated debentures. The decrease in interest expense was brought about by the downward repricing of the Company’s subordinated note on October 1, 2015, which was the expiration of the note’s fixed rate period. The Company’s subordinated note is now subject to repricing on the first day of each calendar quarter based on the three-month London Interbank Offered Rate (“LIBOR”) plus 1.42%. Based on this repricing, the note’s coupon rate decreased from 6.015% during the fourth quarter of 2014 to 1.75% during the same period in 2015.

The Core Bank’s provision for loan and lease losses remained modest for the fourth quarter of 2015, as credit quality remained strong and the Core Bank’s credit metrics continued to compare favorably to peer. Core Bank provision expense was $873,000 for the fourth quarter of 2015, a favorable decrease of $507,000 compared to the fourth quarter of 2014. Provision expense for the fourth quarters of 2015 and 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 table below illustrates the Core Bank’s well-regarded credit quality ratios for the previous three fiscal year ends:

Non interest income for the Core Bank was $7.3 million during the fourth quarter of 2015 compared to $5.8 million for the fourth quarter of 2014. Impacting the Core Bank’s non interest income comparisons between the fourth quarters of 2015 and 2014 were the following:

• The Core Bank experienced an improvement of $890,000 in net gain/loss on other real estate owned (“OREO”). This improvement was driven by an $818,000 reduction in mark-to-market OREO writedowns compared to the same period in 2014, as the balance of OREO properties held by the Core Bank dropped to an eight year low of $1.2 million at December 31, 2015.
• Interchange fee income increased $476,000, primarily driven by increases in both credit and debit card sales volume. Such sales growth was further complemented by a greater mix of commercial credit and signature debit transactions, which generally generate higher margins than consumer and PIN related transactions.
• Mortgage Banking income increased $174,000 from fourth quarter 2014 as the dollar amount of secondary market loans originated increased from $28 million during the fourth quarter of 2014 to $33 million during the fourth quarter of 2015.

Core Bank non-interest expense increased $528,000, or 2%, from the fourth quarter of 2014. Comparability of non-interest expense between the two quarters was meaningfully impacted by adjustments to the Core Bank’s incentive compensation accruals, which were made during both periods to bring accrual balances in line with projected payouts for the year. As a result of these adjustments, net incentive compensation expense was a net credit of $998,000 for the fourth quarter of 2015 compared to a net expense of $345,000 for the fourth quarter of 2014.

Excluding the impact of the change in incentive compensation expense, non-interest expense increased $1.9 million, or 8%, for the fourth quarter of 2015 as compared to the fourth quarter of 2014. A large portion of the increase in non-interest expense for the quarter, excluding incentive compensation adjustments, was in the salaries and benefits category, as the Core Bank increased its full-time equivalent employees (“FTEs”) from 672 at December 31, 2014 to 726 at December 31, 2015. The increased staffing was generally spread throughout the Core Bank in order to meet current loan demand and execute the Company’s overall long-term growth objectives.

Further impacting the Core Bank’s non-interest expenses for the fourth quarter of 2015 were $233,000 of data processing expenses and $173,000 in legal expenses related to the Company’s pending acquisition of Cornerstone Bancorp, Inc. (“Cornerstone”). The Company expects to close its acquisition of Cornerstone during the first quarter of 2016.

Republic Processing Group (“RPG”) – The Tax Refund Solutions (“TRS”) division of RPG accounts for the majority of RPG’s annualized revenues and expenses. 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 $1.1 million during the fourth quarter of 2015 compared to a net loss of $1.4 million during the fourth quarter of 2014. The primary improvement for the quarter was related to a modest profit generated by Republic Credit Solutions (“RCS”), the small dollar loan division within the RPG segment. Total loans within the RCS division reached $7 million outstanding at December 31, 2015.

Conclusion

“As we look ahead to 2016, ‘excited’ is the one word I can say to express our outlook for the future. We are excited about our credit quality and where it places us among our peers. We are excited to complement our organic growth strategies with the completion of our acquisition of Cornerstone, which is expected to occur during the first quarter of 2016. In addition, we are excited about new product launches that are expected in 2016 within our non traditional business lines for both small dollar loans and prepaid cards. We hope to capitalize on these new endeavors by not only increasing our earnings in the year ahead once again, but also further improving our performance ratios, as we strive to place our bank among the highest performing banks in the country,”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 $4.2 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, changes in interest rates, the ability to develop products and strategies in order to meet the Company’s long-term strategic goals, the ability to close on future acquisitions, 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. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the actual timing, magnitude and frequency of interest rate changes, as well as the actual changes in market conditions and the application and timing of various management strategies as compared to those projected in our interest rate model. Additionally, actual results could differ materially from the interest rate model if interest rates do not move equally across all points on the yield curve and based upon other 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, 2014 and those in the Company’s quarterly report on Form 10-Q for the period ended September 30, 2015.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
Fourth Quarter 2015 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 December 31, 2015, 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 are considered part of the Traditional Banking segment. The RPG segment includes the following divisions: Tax Refund Solutions (“TRS”), 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:

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 2014 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.