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”).

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Republic Bancorp, Inc. (“Republic” or the “Company”) is pleased to report first quarter net income of $29.5 million, a $2.0 million, or 7% increase over the first quarter of 2018, resulting in Diluted Earnings per Class A Common Share (“Diluted EPS”) of $1.41. Return on average assets (“ROA”) and return on average equity (“ROE”) were 2.16% and 16.70% for the first quarter of 2019.

Steve Trager, Chairman & CEO of Republic commented, “We are very excited to report another strong quarter-over-quarter growth in net income for the Company. As is the case each year during the first quarter, our seasonal tax business is a major component of our overall results. We are pleased with our performance at Tax Refund Solutions (“TRS”), as net income increased 6% over the first quarter of 2018, and we are also optimistic as to how that performance could look at the end of the year if the refund payments from the federal government pick up during the remainder of 2019.

“In addition to our success at TRS, first quarter 2019 net income from our Core Banking operations grew 12% over the first quarter of 2018. With 94% of our total assets and the vast majority of our associates dedicated solely to its operations each and every day, the performance of our Core Bank continues to be the foundation for everything we are able to do and achieve as a company. Despite an inverted yield curve providing strong headwinds to the profits for all in the banking industry, I couldn’t be more proud of the first quarter performance of our Core Bank, as our success continues to be built on a strong net interest margin and the solid credit quality of our loan portfolio. While the economic times ahead are filled with uncertainty, I am confident that our business model will continue to position us well for success no matter what challenges come our way,” concluded Steve Trager.

The following table highlights Republic’s financial performance for the first quarter of 2019 compared to the first quarter of 2018:

Results of Operations for the First Quarter of 2019 Compared to the First Quarter of 2018

Core Bank⁽¹⁾– Net income from Core Banking was $12.5 million for the first quarter of 2019, an increase of $1.4 million, or 12%, over the first quarter of 2018. Year-over-year net interest margin (“NIM”) expansion, higher mortgage banking income, and a reduction in the provision for loan losses resulting from continued strong credit quality all contributed to the rise in Core Bank net income. These positive drivers were partially offset by a 7% increase in salaries and employee benefits expense from the first quarter of 2018 to the same period in 2019, as the Core Bank continues to invest in its most valuable assets, its human resources, in an effort to achieve its long-term, strategic growth aspirations.

Despite headwinds associated with an increased cost of interest-bearing deposits, the Core Bank’s net interest income increased $2.5 million, or 6%, over the first quarter of 2018. A 21-basis point expansion in the Core Bank’s NIM, accompanied by a $129 million, or 3%, increase in quarterly average Core Bank loans drove the overall increase in net interest income. The table below presents the overall change in the Core Bank’s net interest income, as well as average and period-end loan balances by origination channel:

The primary drivers of the changes in the Core Bank’s average loan balances and net interest income for the first quarter of 2019, as compared to the first quarter of 2018 follow:

• The difference between the Core Bank’s net interest margin and net interest spread was 36 basis points during the first quarter of 2019 compared to 22 basis points during the first quarter of 2018, with the differential representing the value to the net interest margin of noninterest-bearing deposits and stockholders’ equity. The increase in this value resulted from a 49-basis point rise in the yield of the Bank’s interest-earning assets from period to period.
• Over the previous 12 months, the Core Bank’s interest-earning assets repriced at a faster pace than its interest-bearing liabilities, leading to a higher spread. Altogether, the Core Bank’s net interest spread increased seven basis points from the first quarter 2018 to the same period in 2019. Contributing significantly to this overall expansion in net interest spread was the ability of the Core Bank to manage its overall funding costs related to its non-maturity deposits. Overall, the Core Bank’s interest-bearing deposit funding costs rose 38 basis points from the first quarter of 2018 to the same period in 2019, despite a 91-basis-point increase in the average Federal Funds Target Rate over the same period.
• The Traditional Network experienced growth in average loan balances of $193 million, or 6%, from the first quarter of 2018 to the first quarter of 2019. The primary contributors for the increase in the quarter-over-quarter average balances were commercial and industrial loans, which grew $82 million, and commercial real estate loans, which increased $39 million. March 2019 was an exceptional growth month for the Traditional Network, as period-end loan balances grew $51 million during the month, alone, driven by strong commercial-related loan activity.
• Partially offsetting the positive drivers above, net interest income from Warehouse Lending (“Warehouse”) declined $696,000, as average Warehouse loan balances decreased $41 million from the first quarter of 2018 to the first quarter of 2019. While this segment did experience a larger than usual seasonal decline during January 2019, it rebounded significantly during March 2019, as the average usage rate among its clients increased notably during the month to bring its average loans for the quarter closer in-line with the first quarter of 2018.

The Core Bank’s provision for loan and lease losses (“Provision”) decreased to $414,000 for the first quarter of 2019 from $960,000 for the same period in 2018. The Core Bank’s overall credit quality metrics remained strong from period to period, with its ratios of nonperforming loans to total loans and delinquent loans to total loans remaining near historically low levels. Additionally, the Core Bank had no notable individual charge-offs during the first quarter of 2019.

The table below presents the Core Bank’s credit quality metrics:

Noninterest income for the Core Bank was $8.5 million during the first quarter of 2019, a $417,000, or 5%, increase from the $8.1 million achieved during the first quarter of 2018. Driving the change in noninterest income was a $519,000 rise in mortgage banking income, which resulted from a $12 million increase in secondary market loans originated for the period combined with a $15 million increase in the Bank’s pipeline of secondary market loans-in-process from March 31, 2018 to March 31, 2019. Over the previous 12 months, the Bank has continued to increase its staffing and resources to the mortgage origination function. The Bank’s continued investments in these resources, combined with a meaningful period-to-period decline in home-mortgage interest rates, contributed to the increased quarter-over-quarter mortgage activity.

Core Bank noninterest expense increased $2.2 million, or 6%, during the first quarter of 2019 compared to the first quarter of 2018. The following primarily drove the increase:

• Salaries and employee benefits expense increased $1.5 million, or 7%. Annual merit increases and the addition of 75 Core Bank full-time-equivalent employees (“FTEs”) from March 31, 2018 to March 31, 2019 primarily drove the increase.
• Occupancy expense increased $377,000, or 6%, primarily driven by increases in rent expense and support costs for the Core Bank’s technology and infrastructure.

Republic Processing Group⁽³⁾

Republic Processing Group (“RPG”) reported net income of $17.0 million for the first quarter of 2019 compared to $16.3 million for the same period in 2018. Net income at RPG’s TRS segment grew $798,000, or 6%, to $13.2 million during the first quarter of 2019 compared to $12.4 million for the same period in 2018. Solid revenue growth of $1.8 million from TRS’s Easy Advance (“EA”) and Refund Transfer (“RT”) products was partially offset by a $1.0 million decline in revenue related to a one-time fee recorded by TRS during the first quarter of 2018 for a non-tax-related product.

EA revenue, net of Provision expense, increased to $5.5 million for the first quarter of 2019, a $960,000, or 21%, increase over the same period in 2018. For the first quarter 2019 tax season, TRS modified its EA product offering with the following changes:

• TRS allowed the taxpayer to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $6,250, a substantial increase over the maximum of $3,500 the previous year;
• TRS lowered the fee charged to the tax providers for the EA; and
• TRS implemented a direct fee to the taxpayer for the EA, with the annual percentage rate to the taxpayer for his or her portion of the total fee being less than 36% for all offering tiers.

Despite the increase in the available EA maximum amount, the average loan amount for the first quarter of 2019 decreased by 10% compared to the first quarter 2018 tax season, as the taxpayer base generally opted for lower loan amounts during 2019. While the average amount borrowed per loan decreased during 2019, the average fee per loan increased 6% for the same period, as the combined tax provider and taxpayer fee for 2019 resulted in a higher total average fee per loan than the lone tax provider fee in 2018.

TRS’s Provision for EA loan losses was $13.4 million, or 3.44% of its $389 million in EAs originated during the first quarter of 2019, compared to a Provision of $13.3 million, or 3.09% of its $430 million of EAs originated during the first quarter of 2018. The increased loan loss for the first quarter of 2019 was due to slower refund payments received from the U.S. Treasury for 2019 as compared to 2018. The Company believes these slower payments were primarily due to the partial government shutdown during the first quarter of 2019. While the Company is optimistic its ultimate EA losses will finish the year more in line with its prior season, it is unable to predict that outcome at this time given the current level of payments received. EAs are only originated during the first two months of each year, with all uncollected EAs charged off by June 30^th of each year. EAs collected during the second half of each year are recorded as recoveries of previously charged-off loans. TRS’s loss rate as of June 30, 2018 was 2.88% of total originations and it finished the year with an EA loss rate of 2.50% of total EAs originated during 2018.

TRS’s net RT revenues reached $17.1 million during the first quarter of 2019, an increase of $748,000, or 5%, over the same period in 2018. A nominal increase in RT pricing and a shift in the RT mix among the various tax providers primarily drove the rise in net RT revenues.

Republic Bancorp, Inc. (the “Company”) is the parent company of Republic Bank & Trust Company (the “Bank”). The Bank currently has 45 full-service banking centers and two loan production offices throughout five states: 32 banking centers in 11 Kentucky communities - Covington, Crestview Hills, Elizabethtown, Florence, Frankfort, Georgetown, Lexington, Louisville, Owensboro, Shelbyville, and Shepherdsville; three banking centers in southern Indiana – Floyds Knobs, Jeffersonville, and New Albany; seven banking centers in six Florida communities (Tampa MSA) – Largo, Port Richey, St. Petersburg, Seminole, Tampa, and Temple Terrace, and one loan production office in Oldsmar; two banking centers in Tennessee (Nashville MSA) – Cool Springs (Franklin) and Green Hills (Nashville), and one loan production office in Brentwood; and one banking center in Norwood (Cincinnati), Ohio. The Bank offers internet banking at www.republicbank.com. The Bank also offers separately branded, nation-wide digital banking at www.mymemorybank.com. The Company has $5.4 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, changes in Easy Advance loss estimates, 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 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. 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, 2018.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
First Quarter 2019 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 clients are similar.

As of March 31, 2019, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking, Tax Refund Solutions (“TRS”), and Republic Credit Solutions (“RCS”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute Republic Processing Group (“RPG”) operations. The Bank’s Correspondent Lending channel and the Company’s national branchless banking platform, MemoryBank^®, are considered part of the Traditional Banking segment.

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 2018 Annual Report on Form 10-K. Republic evaluates segment performance using operating income. The Company allocates goodwill to the Traditional Banking segment. Republic generally allocates income taxes based on income before income tax expense unless Republic can reasonably make specific segment allocations. The Company makes transactions among reportable segments at carrying value.