Republic Bancorp, Inc. Reports 29% Year-Over-Year Increase in First Quarter Net Income

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 first quarter net income of $17.7 million, a 29% increase over the first quarter of 2015, resulting in Diluted Earnings per Class A Common Share of $0.85. Return on average assets (“ROA”) and return on average equity (“ROE”) were 1.60% and 12.07%, respectively, for the first quarter of 2016.

Steve Trager, Republic’s Chairman and Chief Executive Officer, commented: “I am excited to say that after coming off a very successful year in 2015, the story for the first quarter of 2016 continues to be positive and consistent with our solid 2015 results in several areas. On the income statement, net income once again grew nicely during the first quarter in both our Core and non-traditional business segments, thanks to solid top-line revenue growth. On the balance sheet, credit quality remained solid as our Core Bank delinquent loans to total loans ratio finished the first quarter of 2016 at 0.25%. In addition, deposit growth at the Core Bank remained strong, growing $147 million for the quarter, continuing our momentum from 2015. These continued positive trends on the income statement and balance sheet give me considerable optimism for 2016.”

The following table highlights Republic’s financial performance for the first quarter of 2016 compared to the same period in 2015:

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

Core Bank(1) – Net income from Core Banking was $8.1 million for the first quarter of 2016, an increase of $1.5 million, or 22%, from the first quarter of 2015. The increase in net income for the first quarter of 2016 was driven primarily by higher net interest income and higher interchange revenue combined with a continued modest provision for loan and lease losses.

Net interest income at the Core Bank increased to $31.3 million during the first quarter of 2016, a $2.9 million, or 10%, increase over the first quarter of 2015. The increase in net interest income was primarily the result of the $229 million, or 8%, year-over-year increase in the Core Bank’s average loans outstanding. 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 five basis points to its net interest margin from the first quarter of 2015 to the first quarter of 2016.

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

Strong loan growth in the Core Bank’s Traditional Network throughout 2015 was the primary driver to the Core Bank’s overall increase in average loans from the first quarter of 2015 to the first quarter of 2016. The Traditional Network’s growth in average loans was particularly strong in its Home Equity Lines of Credit (“HELOCs”), as well as its Commercial Real Estate (“CRE”) and Commercial & Industrial (“C&I”) portfolios, which increased $46 million, $71 million and $55 million, respectively. Year-over-year growth in HELOCs was driven primarily by a successful marketing campaign for its promotional product, while growth in the commercial-related categories was primarily driven by a strong production year from the Core Bank’s Commercial and Corporate Banking Department.

Within the Warehouse Lending (“Warehouse”) segment, net interest income remained solid when compared to the first quarter of 2015, as usage of Warehouse lines of credit continued to be relatively high among the Core Bank’s clients during the quarter. Average Warehouse balances for the first quarter of 2016 were $293 million, a $12 million increase from a strong first quarter of 2015. The yield for Warehouse lines of credit during the first quarter of 2016 increased 16 basis points from the same period in 2015, as a favorable variance resulting from an increase in short-term interest rates was partially offset by a negative variance from competitive pricing pressures.

Net interest income at the Core Bank also continued to receive a solid contribution from the Company’s 2012 FDIC-assisted transactions. Net interest income from these transactions during the first quarter of 2016 was $1.1 million compared to $598,000 during the first quarter of 2015. Overall, accretion income from the 2012 FDIC-assisted transactions contributed seven basis points and one basis point to the Core Bank’s net interest margin during these periods.

The Core Bank’s provision for loan and lease losses remained favorably low for the first quarter of 2016. Provision expense for the first quarters of 2016 and 2015 primarily represented an increase in general loss reserves, driven by the growth in the Core Bank’s loan portfolio. The table below illustrates the Core Bank’s well-regarded credit quality ratios for the most recent quarter end and the previous three calendar year ends:

Noninterest income for the Core Bank was $7.5 million during the first quarter of 2016 compared to $6.8 million for the first quarter of 2015. Impacting the Core Bank’s noninterest income comparisons between the first quarters of 2016 and 2015 were the following:

• Interchange fees increased $442,000, with debit card interchange increasing $324,000 and credit card interchange increasing $118,000 between the two periods. Drivers of these increases were as follows:
  • The higher revenue for debit-related transactions was primarily the result of growth in retail checking accounts and an increase in customer use of signature-based transactions. Management attributes the increased use of signature-based transactions generally to the Bank’s new chip-enabled debit cards, which offer enhanced security over traditional magstripe-only cards.
  • The higher revenue for credit-related transactions was primarily due to an increase in purchasing transactions resulting from activity in the Bank’s small business and purchasing cards, which the Bank has promoted heavily over the previous twelve months.
• Net gains (losses) on other real estate owned (“OREO”) improved $367,000, as the Bank’s OREO portfolio declined over $5 million from March 31, 2015.

Core Bank noninterest expenses increased $1.5 million, or 6%, from the first quarter of 2015 to the same period in 2016. The increase was primarily due to higher salary expense as the Core Bank added 63 additional full-time equivalent employees over the previous 12 months.

Republic Processing Group (“RPG”) – The RPG segment reported net income of $9.7 million for the first quarter of 2016 compared to $7.2 million for the same period in 2015. The higher first quarter 2016 net income was primarily the result of an 11% increase in net Refund Transfer (“RT”) revenue resulting from a correspondingly solid increase in RT volume. The increase in RT revenue was further complemented by net revenues generated from the Easy Advance (“EA”) product, which was a new product offering for the first quarter of 2016. Interest income on EAs was $5.2 million for the first quarter of 2016 and was partially offset by a $3.6 million estimated provision for loan losses. The estimated loan loss provision for EAs equated to 2.90% of total EA originations for the quarter.

(For additional information on the product features of the EA, see Part I, Item 1. titled “Business” in the Company’s Form 10K filed with the Securities and Exchange Commission on March 11, 2016.)

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.

Conclusion

“Looking ahead to the remainder of 2016, we have reason for great optimism, given the success of our first quarter and the potential of the many initiatives that we have going at this time in both our Core Bank and our non-traditional RPG business lines. Within our Core Bank, our completion of the acquisition and integration of Cornerstone Bank in St. Petersburg, Florida, remains our number one focus. Republic is prepared to complete the legal acquisition of Cornerstone during the second quarter of 2016, pending final regulatory approval, with our systems integration planned for mid-July. In addition to the Cornerstone acquisition, we also have plans to roll out a separately-branded, completely digital banking platform by the third quarter of 2016, as well. With clients placing more and more value on the digital delivery of their banking products and services, we want to become a major player in the digital banking space to further complement our brick-and-mortar strategy.

"Within our RPG business lines, we are in the very early stages of three new pilot programs. While not all pilot programs will ultimately prove to be successful, I am excited about the breadth of opportunities our programs present and the ability they give us to diversify our revenue streams and our client base, as we seek to consistently become one of the highest performing financial institutions 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, 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
First Quarter 2016 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 March 31, 2016, 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 2015 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.