Republic Bancorp, Inc. Reports 9% Year-Over-Year Increase in Third Quarter Net Income

Republic Bancorp, Inc. Reports 9% Year-Over-Year Increase in Third Quarter Net Income

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 $10.7 million, a 9% increase over the third quarter of 2016, resulting in Diluted Earnings per Class A Common Share of $0.51. Year-to-date net income was $40.8 million, a $4.9 million, or 14%, increase from the same period in 2016, resulting in return on average assets (“ROA”) and return on average equity (“ROE”) of 1.14% and 8.71% for the first nine months of 2017.

Steve Trager, Chairman & CEO of Republic commented, “As we enter the homestretch of 2017, we remain pleased with our strong operating results this year. As with the previous quarters of 2017, the third quarter saw the Company achieve strong net interest margin expansion, continued strong credit quality metrics within our Core Banking⁽¹⁾ operations, and solid growth in both loans and deposits.

“In addition to the strong performance for the Company overall, we are also pleased with the results of our various operating segments. In particular, our Traditional Banking segment within our Core Banking operations experienced a 25% increase in net income for the quarter, while our Republic Credit Solutions (“RCS”) segment within our Republic Processing Group⁽²⁾ (“RPG”) increased its quarterly net income by 54% over the third quarter of 2016. We also continued to see success in our separately branded on-line digital banking platform, which finished the quarter with over 1,000 clients totaling $58 million in deposits from 49 states.

“Looking ahead to the fourth quarter, we expect to go live with several major technological platform enhancements that we have been implementing and testing during the first nine months of 2017. These initiatives include, among others, new loan origination systems for mortgage and consumer loans, and a new client-relationship-management platform for managing our sales teams and strategic marketing opportunities as well as our client communications. On a long-term basis, we expect these systems to help us expand sales and provide better client service in a more efficient and cost effective manner. We look forward to getting a strong start in 2018 with this new technology in place,” concluded Steve Trager.

The following table highlights Republic’s financial performance for the third quarters and nine months ended September 30, 2017 and 2016:

Results of Operations for the Third Quarter of 2017 Compared to the Third Quarter of 2016

Core Bank ⁽¹⁾ – Net income from Core Banking was $10.2 million for the third quarter of 2017, an increase of $273,000, or 3%, over the third quarter of 2016. The increase in net income at the Core Bank was primarily driven by strong growth in net interest income, which increased $6.1 million, or 17%, over the third quarter of 2016. The growth in net interest income was propelled by a 30-basis-point rise in the Core Bank’s net interest margin for the third quarter of 2017 to 3.68% and further complemented by a $144 million increase in the Core Bank’s quarterly average loans.

The overall change in the Core Bank’s net interest income, as well as average and period-end 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 third quarter of 2017, as compared to the third quarter of 2016:

• The Core Bank’s Traditional Network experienced solid average loan growth of $209 million from the third quarter of 2016 to the third quarter of 2017. The overall mix of this growth was well diversified, with average balance increases of $108 million in commercial real estate; $55 million in construction and development; and $53 million in commercial and industrial loans.
• The Core Bank’s 2012 FDIC-Acquired loans contributed $1.5 million more in net interest income during the third quarter of 2017 compared to the same period in 2016, resulting from the early payoff of one large commercial loan and a credit to income of $1.6 million of discount associated with this loan. Overall, accretion income from the 2012 FDIC-Acquired loans contributed 15 basis points to the Core Bank’s net interest margin during the third quarter of 2017 with only a nominal contribution for the same period in 2016.

The Core Bank’s provision expense for the third quarters of 2017 and 2016 primarily represented general loss reserves driven by growth in the loan portfolio during the two periods. The Core Bank’s credit quality metrics remained favorable, as indicated by the table below:

Noninterest income for the Core Bank was $8.3 million during the third quarter of 2017, a $1.7 million, or 17%, decrease from the $10.0 million achieved during the third quarter of 2016. The primary driver of the drop in noninterest income was a $2.0 million decrease in mortgage banking income attributable to the following:

• Approximately $1.1 million of the decrease was attributable to a gain from a nonrecurring bulk sale of $71 million in correspondent mortgage loans during the third quarter of 2016.
• The remainder of the decrease was the result of a decline in consumer refinance activity of first-mortgage home loans.

Core Bank noninterest expenses increased $3.4 million, or 11%, during the third quarter of 2017 compared to the third quarter of 2016. The increase was primarily driven by the following:

• Salaries and employee benefits expense increased $2.0 million, or 12%, as the Core Bank’s full-time-equivalent employees increased by 66 employees over the previous 12 months to support the Core Bank’s strategic initiatives.
• Occupancy expense increased $1.2 million, primarily due to a $907,000 impairment charge resulting from a mark-to-market adjustment of a bank property that the Company intends to market for sale. The remaining increase in occupancy expense was primarily driven by increases in rent expense and depreciation expense resulting from new locations, existing banking center renovations and the cost of technology to support the previously mentioned Core Bank’s strategic initiatives.
• Marketing and development expense increased $531,000, with a substantial portion of this increase focused on driving loan and deposit growth in markets outside of the Company’s Louisville, Kentucky footprint. In addition, the Company also instituted a marketing awareness campaign in its Louisville, Kentucky market as part of a mortgage lending initiative.
• Partially offsetting the increases above, the Core Bank’s noninterest expenses during the third quarter of 2016 included a nonrecurring prepayment penalty of $846,000 related to the payoff of $50 million in long-term Federal Home Loan Bank advances. No similar expense was incurred during the third quarter of 2017.

Republic Processing Group ⁽²⁾

RPG reported net income of $495,000 for the third quarter of 2017 compared to a nominal loss of $110,000 for the same period in 2016.

Within the RCS segment of RPG, net income increased to $1.6 million for the third quarter of 2017 compared to $1.0 million for the same period in 2016, with increases in net interest income and noninterest income of $2.8 million and $724,000, respectively, offsetting an increase of $2.4 million in provisions for loan losses. Growth in RCS loans held for investment and RCS loans sold was the primary driver of revenue growth. Average RCS loans held for investment increased to $47 million during the third quarter of 2017 from $16 million during the third quarter of 2016, while loans sold through RCS increased to $178 million during the third quarter of 2017 from $125 million during the third quarter of 2016.

RCS loans typically earn a higher yield but also carry higher credit risk compared to Core Bank loans. Provision expense was $2.4 million higher at RCS during the third quarter of 2017 compared to the same period in 2016 due to an increase in general loss reserves for growth in RCS loans and an increase in the historical loss factors within the loan loss reserve calculation resulting from a rise in charge-offs from the prior year.

Partially offsetting the net income attributable to the RCS segment, the Tax Refund Solutions (“TRS”) segment of RPG reported an expected net loss of $1.1 million for the third quarter of 2017, approximately even with the net loss reported during the third quarter of 2016. The TRS segment of RPG accounts for the majority of RPG’s annualized revenues, but 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.

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 one loan production office throughout five states: 33 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 (Tampa MSA) – Largo, Port Richey, St. Petersburg, Seminole, and Temple Terrace; two banking centers in Tennessee – Cool Springs (Franklin) and Green Hills (Nashville) and one loan production office in Brentwood (Nashville); 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 $5.0 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 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, 2016. 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.