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 third quarter net income of $9.8 million, a $4.2 million, or 74%, increase from the same period in 2015, resulting in Diluted Earnings per Class A Common Share of $0.47. Year-to-date net income was $35.9 million, an $8.2 million, or 29%, increase from the same period in 2015, resulting in a return on average assets (“ROA”) and a return on average equity (“ROE”) of 1.08% and 8.04% for the first nine months of 2016.

Steve Trager, Republic’s Chairman and Chief Executive Officer, commented: “While we are very pleased with our increase in quarterly net income, when compared to the third quarter of the previous year, we are even more pleased to see solid net income growth spread across all four of our major operating segments. More specifically,

• Within our Traditional Banking segment, net income grew 13%, partially due to a full quarter of accretive benefits from our Cornerstone Bancorp (‘Cornerstone’) acquisition and partially from meaningful organic growth over the previous 12 months.
• Our Warehouse Lending (‘Warehouse’) segment had a $178 million increase in quarter over quarter growth in average outstanding balances, which drove a 47% increase in its net income.
• The Company’s Mortgage Banking segment experienced higher origination volume, and in addition, benefited nicely from a bulk loan sale during the quarter.
• Despite a nominal net loss for the third quarter of 2016, our Republic Processing Group (‘RPG’) segment reflected a $1.3 million improvement in its net income for the quarter, thanks to meaningful growth in its Republic Credit Solutions (‘RCS’) division.

These achievements, combined with our attractive footprint and best-in-class team, give me much confidence about the things happening at Republic.”

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

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

Core Bank⁽¹⁾– Net income from Core Banking was $9.9 million for the third quarter of 2016, an increase of $2.8 million, or 40%, from the third quarter of 2015. Strong growth in net interest income, continued favorably-low loan loss provisions and solid mortgage banking income were all major contributors to the Core Bank’s performance for the quarter.

Net interest income at the Core Bank increased to $36.1 million during the third quarter of 2016, a $5.1 million, or 17%, increase over the third quarter of 2015. The increase in net interest income was primarily the result of a $456 million, or 14%, year-over-year increase in the Core Bank’s quarterly average loans from the third quarter of 2015 to the third quarter of 2016. The strong growth in average loans outstanding was supplemented by an increase of nine basis points to the Core Bank’s net interest margin during the same periods.

The overall change in the Core Bank’s average loan balances and net interest income 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 third quarter of 2016 as compared to the third 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 third quarter of 2015 to the third quarter of 2016 for the following portfolios: $67 million in Commercial Real Estate (“CRE”); $43 million in Commercial & Industrial (“C&I”); $37 million in Home Equity Lines of Credit (“HELOCs”); and $35 million in Indirect Auto. Growth in the commercial-related categories was primarily driven by 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 reintroduction of the product in 2015.
• Within the Warehouse segment, net interest income grew 49% from the third quarter of 2015, as client usage of the Bank’s Warehouse lines of credit increased from 56% for the third quarter of 2015 to 62% for the third quarter of 2016. In addition, the Bank also increased its committed Warehouse lines of credit from $653 million at September 30, 2015 to $915 million at September 30, 2016. As a result of these factors, average Warehouse line-of-credit balances for the third quarter of 2016 were $543 million, a $178 million increase from a strong third quarter in 2015. The yield for Warehouse lines of credit during the third quarter of 2016 increased 16 basis points from the same period in 2015, as Warehouse yields were positively impacted by an increase in short-term interest rates.
• The third quarter of 2016 represented the first full quarter of earnings impact from the Company’s May 2016 Cornerstone acquisition. As expected, the acquired Cornerstone franchise provided a solid contribution to the Company’s overall earnings with an impact of $1.9 million to net interest income for the third quarter driven by average loans of $190 million.

The Core Bank’s favorably-low provision expense for the quarter resulted primarily from growth in the overall loan portfolio, while the Bank’s charge-off trends continued to show general improvement from its already favorably-low historical charge-off levels.

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

Noninterest income for the Core Bank was $10.0 million during the third quarter of 2016 compared to $7.2 million for the third quarter of 2015. Impacting the Core Bank’s noninterest income comparisons between the third quarters of 2016 and 2015 were the following:

• Mortgage banking income increased $2.1 million from the third quarter of 2015. Approximately $1.1 million of this increase was attributable to a bulk loan sale of $71 million during the third quarter of 2016, representing a portion of the Company’s correspondent loan portfolio. The remainder of the increase in mortgage banking income was primarily due to a rise in refinance activity resulting from a downturn in long-term interest rates. As a result, secondary-market loan originations increased from $32 million during the third quarter of 2015 to $59 million for the third quarter of 2016.
• Interchange fees increased $499,000, mainly 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.

Core Bank noninterest expenses increased $4.9 million, or 19%, from the third quarter of 2015 to the same period in 2016, primarily driven by the following:

• Salaries and benefits expense increased $2.4 million, primarily due to an increase of 118 full-time-equivalent (“FTE”) employees from September 30, 2015 to September 30, 2016. A total of 36 of these additions was directly attributable to the Company’s Cornerstone acquisition. The remaining 82 increase in FTEs was driven by additional staffing needed to implement the Company’s strategic initiatives.
• Data processing expenses increased $645,000, with $212,000 of the increase attributable to the Company’s Cornerstone acquisition. The remainder of the increase was spread across multiple loan and deposit platforms and was due to growth in the Company’s overall customer base.
• The Core Bank incurred a prepayment penalty of $846,000 during the quarter related to the payoff of $50 million in long-term Federal Home Loan Bank advances. The Core Bank expects to recover the amount of this penalty through a reduction in interest expense over what would have been the remaining original term of these advances. These advances carried an interest rate of 4.39% and had an original maturity of March 9, 2017.

Republic Processing Group (“RPG”)

The overall profitability of the RPG segment has historically been driven by its largest division, Tax Refund Solutions (“TRS”). 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. During the second half of 2015, the Company began to more meaningfully grow the Republic Credit Solutions (“RCS”) small dollar loan division of RPG. As a result of strong growth in profitability within the RCS division, the overall profitability of the RPG segment has continued to improve during 2016.

During the third quarter of 2016, RPG recorded a nominal net loss of $110,000 compared to a net loss of $1.5 million during the third quarter of 2015. More specifically within the RCS division, RCS contributed net income of $1.0 million during the third quarter of 2016 compared to a net loss of $366,000 during the third quarter of 2015. The increased profitability within the RCS division resulted primarily from a $56 million increase in small-dollar loans originated for sale, which generated a strong increase in fee income. In addition, the balances for the RCS loans retained on balance sheet by the Company increased from $5 million at September 30, 2015 to $16 million at September 30, 2016, contributing to a solid increase in net interest income for the quarter.

Conclusion

“It has been an exciting year thus far at Republic. While the current environment has headwinds providing constant challenges in the financial service industry, we are driven to make the Company more agile in order to meet these challenges. Our on-going strategic initiatives remain focused on providing the Company’s shareholders an industry leading return, while responsibly serving the needs of our clients.

“Going forward, our team will continue to evaluate acquisition opportunities, both whole-bank and nonbank, that we believe present the best overall synergies for Republic. Furthermore, our digital banking team remains excited and continues to work hard on our new branchless banking platform, which is scheduled to launch by the end of October. We believe this new digital banking platform will provide the most cost effective way for the Company to expand its geographic reach.

“In an ever-evolving banking landscape, our successful results and our promising initiatives, together with our attractive footprint and best-in-class team, give me much excitement about Republic and its long-term future,” concluded Steve 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 Norwood (Cincinnati), Ohio. The Bank offers internet banking at www.republicbank.com. The Company has $4.8 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 resulting from changes in interest rates, the ability to develop products and strategies in order to meet the Company’s long-term strategic goals, 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 based upon 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.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.