Republic Bank & Trust

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Republic Bancorp, Inc.(NASDAQ: RBCAA), headquartered in Louisville, Kentucky, is the holding company of Republic Bank & Trust Company (the “Bank”).

Republic Bancorp, Inc. (“Republic” or the “Company”) is pleased to report second quarter net income of $8.3 million and Diluted Earnings per Class A Common Share of $0.40, both on par with the second quarter of 2015 despite additional noninterest expenses during the quarter resulting from transaction costs associated with the Company’s completion of its Cornerstone Bancorp, Inc. (“Cornerstone”) acquisition on May 17, 2016. Year-to-date net income was $26.1 million, a $4.0 million, or 18%, increase from the same period in 2015, resulting in return on average assets (“ROA”) and return on average equity (“ROE”) of 1.19% and 8.81% for the first six months of 2016.

Steve Trager, Republic’s Chairman and Chief Executive Officer, commented: “While the successful completion of our Cornerstone acquisition highlighted our second quarter, we continued to receive solid contributions from all of our other operating segments. Warehouse Lending, in particular, experienced solid growth with an increase in its quarterly average loans of $121 million from the first quarter of 2016. In addition, our Republic Processing Group (“RPG”) segment experienced positive net income growth in two of its small-dollar loan programs during the quarter. The solid performance of our Company across all of our operating segments continues to give me great optimism for the remainder of 2016 and beyond.”

The following tables highlight Republic’s financial performance for the second quarter and first six months of 2016 compared to the same periods in 2015:

Second Quarter Impact of the Company’s Cornerstone Acquisition

As previously noted, the Company completed its acquisition of Cornerstone on May 17, 2016. As a result of the completion of the merger, the Company incurred pre-tax charges during the quarter totaling $704,000 for conversion-related expenses, professional fees and compensation-related expenses for Cornerstone employees acquired as part of the acquisition. As expected, the Cornerstone acquisition contributed a net after-tax loss of $330,000 to the Company’s operating results for the second quarter of 2016 as a consequence of these day-one expenses. Net income from the Cornerstone acquisition is expected to be accretive to the Company’s overall operating results on a quarterly basis going forward, as well as cumulatively for its first twelve months of operations post-acquisition.

Results of Operations for the Second Quarter of 2016 Compared to the Second Quarter of 2015

Core Bank⁽¹⁾– Net income from Core Banking was $6.9 million for the second quarter of 2016, a decrease of $741,000, or 10%, from the second quarter of 2015. Comparability between the two quarters was impacted by the previously mentioned acquisition of Cornerstone and a $1.1 million reduction in loan accretion income from the second quarter of 2015, which resulted from continued paydowns and payoffs in the Company’s loan portfolios obtained through its 2012-FDIC assisted transactions.

Net interest income at the Core Bank increased to $33.4 million during the second quarter of 2016, a $2.8 million, or 9%, increase over the second quarter of 2015. The overall change in the Core Bank's net interest income for the second quarter of 2016 is further segmented by its origination channels in the table below:

The increase in net interest income was primarily the result of a $290 million, or 9%, year-over-year increase in the Core Bank’s quarterly average loans from the second quarter of 2015 to the second quarter of 2016. The strong growth in average loans outstanding more than offset the negative impact to the Core Bank’s net interest income resulting from a decrease of three basis points to its net interest margin from the second quarter of 2015 to the second quarter of 2016.

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

The following factors were the primary drivers of the changes in the Core Bank’s average loan balances and net interest income by origination channel for the second quarter of 2016 as compared to the second quarter of 2015:

• The Core Bank’s Traditional Network experienced solid overall loan growth, with particularly strong growth in the quarterly average balance from the second quarter of 2015 to the second quarter of 2016 for the following portfolios: $64 million in Commercial Real Estate (“CRE”); $56 million in Commercial & Industrial (“C&I”); $41 million in Home Equity Lines of Credit (“HELOCs”); and $18 million in Indirect Auto. Growth in the commercial-related categories was primarily driven by a strong 2015 production year from the Core Bank’s Commercial and Corporate Banking Department. Year-over-year growth in HELOCs was driven primarily by a successful first-year-introductory-rate promotion, while growth in Indirect Auto loans was driven by the Company’s Dealer Services Department.
• Within the Warehouse Lending (“Warehouse”) segment, net interest income remained solid when compared to the second quarter of 2015, as usage of Warehouse lines of credit remained relatively high among the Core Bank’s clients during the quarter. Average Warehouse loan balances for the second quarter of 2016 were $413 million, a $16 million increase from a strong second quarter of 2015. The yield for Warehouse lines of credit during the second quarter of 2016 increased 28 basis points from the same period in 2015, as Warehouse yields were positively impacted by an increase in short-term interest rates.
• While the Core Bank’s average balance of correspondent loans increased only $5 million from the second quarter of 2015, its period-end balances within this portfolio decreased $87 million. The decrease in the period-end balances for correspondent loans resulted primarily from a reclassification of $74 million of these loans into the held-for-sale category, as management decided in late June to sell a portion of this portfolio in order to further enhance its overall liquidity position. The Company expects the sale to close in late July 2016.
• With the Company’s Cornerstone mid-quarter acquisition occurring as of the close of business on May 17, 2016, the Core Bank benefitted from 44 days of net interest income from the acquired Cornerstone assets and liabilities.
• The Core Bank’s 2012 FDIC-assisted transactions, as expected, contributed $1.1 million less in net interest income during the second quarter of 2016 compared to the same period in 2015, partially offsetting the positive variances noted above. Overall, accretion income from the 2012 FDIC-assisted transactions contributed only two basis points to the Core Bank’s net interest margin during the second quarter of 2016 compared to 14 basis points for the same period in 2015.

The Core Bank’s provision for loan and lease losses remained favorably low for the second quarter of 2016. Provision expense for the second quarter of 2016 included one notable provision of $330,000 associated with one C&I relationship. The remaining provision expense for the second quarter of 2016 and 2015 primarily represented an increase in general loss reserves, driven by the growth in the Core Bank’s loan portfolio during the respective quarters.

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

Noninterest income for the Core Bank was $8.0 million during the second quarter of 2016 compared to $7.2 million for the second quarter of 2015. Impacting the Core Bank’s noninterest income comparisons between the second quarters of 2016 and 2015 were the following:

• Mortgage banking income increased $336,000 due to an increase in home-purchase loans combined with a rise in refinance activity. Such refinance activity resulted from a downturn in long-term interest rates and the subsequent increase in customer demand for long-term fixed rate loan products. As a result, secondary-market loan originations increased from $50 million during the second quarter of 2015 to $59 million for the second quarter of 2016.
• Interchange fees increased $351,000, primarily due to an increase in debit-card interchange revenue. The higher revenue for debit card related transactions was primarily the result of growth in retail checking accounts and an increase in customer use of signature-based transactions, which grew 23% on a quarter-over-quarter basis.
• Net gains (losses) on other real estate owned (“OREO”) improved $235,000, as the Bank’s OREO required no mark-to-market charges during the second quarter of 2016 compared to $220,000 in such charges during the same period in 2015.

Core Bank noninterest expenses increased $3.9 million, or 15%, from the second quarter of 2015 to the same period in 2016. The increase was primarily due to higher salary expense, as the Core Bank, excluding the acquired Cornerstone employees, added 76 additional full-time equivalent employees over the previous 12 months. Additionally, as previously discussed, the Core Bank incurred approximately $704,000 in pre-tax transaction-related expenses for its Cornerstone acquisition.

Republic Processing Group (“RPG”)

RPG recorded net income of $1.4 million for the second quarter of 2016 compared to net income of $665,000 during the second quarter of 2015. A notable part of this increase was from a rise in net income associated with RPG’s Republic Credit Solutions (“RCS”) small-dollar loan division, which contributed a net loss to RPG of $142,000 during the second quarter of 2015, as compared to net income of $962,000 during the second quarter of 2016. The increased profitability within the RCS division resulted primarily from a $59 million increase in small-dollar loan origination volume for the quarter, which generated a solid increase in fee income as the majority of these loans were sold subsequent to origination. In addition, the balances for the loans retained by RPG, generating an on-going spread, increased from $6 million at June 30, 2015 to $12 million at June 30, 2016. Loan balances are expected to increase modestly as RPG continues to prudently grow its overall small dollar program.

Conclusion

“As we enter the second half of 2016, we are excited about the many initiatives that we have on-going at the Company. Front and center of these initiatives is the rollout of our new, separately-branded, digital banking platform, which remains on schedule to launch in the fall. We plan to use this new platform to complement our existing brick-and-mortar locations, and if successful, expand our deposit reach over the long term. Other notable initiatives for the remainder of 2016 include:

• The completion of our core systems’ merger with Cornerstone’s legacy systems on July 22nd, which should allow us to capitalize on the operational synergies of the transaction;
• The relocation of our Cincinnati, Ohio, banking center to a larger, more prominent facility; and
• The rollout of our new Dealer Floor Plan Lending platform, to further diversify our loan product mix and further complement our Indirect Auto Lending platform.

We continue to be excited about these and all opportunities available to us as a nimble and well-capitalized, $4.6 billion bank. We look forward to finishing the year strong, as we remain steadfast in our desire to provide great value to our customers and shareholders,” concluded Trager.

Republic Bancorp, Inc. (the “Company”) is the parent company of Republic Bank & Trust Company (the “Bank”).The Bank currently has 44 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; six banking centers in five Florida communities – Largo, Port Richey, St. Petersburg, Seminole, 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 $4.6 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.^®

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 the following: our current expectations and assumptions regarding our business; changes in interest rates; the ability to develop products and strategies in order to meet the Company’s long-term strategic goals; the ability of the Company to integrate acquired operations, including obtaining synergies, integration objectives and anticipated timelines; the ability to close on future acquisitions; the overall 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, 2015. 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.