Republic Bancorp, Inc. Reports 37% Year-Over-Year Increase in First Quarter Net Income

Apr 19, 2018 09:00 am
LOUISVILLE, Ky. -- 

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 first quarter net income of $27.5 million, a 37% increase over the first quarter of 2017, resulting in Diluted Earnings per Class A Common Share (“Diluted EPS”) of $1.32. Return on average assets (“ROA”) and return on average equity (“ROE”) were 2.08% and 17.12%, respectively, for the first quarter of 2018.

The Company’s performance metrics for the first quarter of 2018 were positively impacted by the 2017 Tax Cuts and Jobs Act (“TCJA”)(1), which, among other things, lowered the federal corporate tax rate from 35% to 21%, effective January 1, 2018. Pre-tax earnings increased 16% year over year, as the Company estimates that the lower effective tax rate benefitted its first quarter 2018 metrics by increasing net income approximately $4.0 million, Diluted EPS by $0.19, ROA by 0.30%, and ROE by 2.47%.

Steve Trager, Chairman & CEO of Republic commented, “I am delighted to see continued growth in our overall net income for the quarter. While we certainly welcome the after-tax benefits of the lower tax rate, I am particularly pleased with the 16% year-over-year growth in our pre-tax earnings, which reflects positively on our ability to execute our long-term growth strategies.

“As is typically the case during the first quarter of each year, our seasonally strong Tax Refund Solutions (‘TRS’) segment of our Republic Processing Group(2) (‘RPG’) operations made a substantial contribution. TRS earned net income of $12.4 million for the first quarter of 2018 while completing the bulk of our tax season. Additionally, the Republic Credit Solutions (‘RCS’) segment of RPG continued to produce solid earnings, contributing $3.9 million to RPG’s net income for the quarter.

“In addition to the solid net income at RPG, first quarter 2018 Core Banking(3) net income grew 31% over the first quarter of 2017, driven by net interest margin expansion, which was complemented by solid year-over-year growth in average outstanding loan balances,” concluded Steve Trager.

The following table highlights Republic’s financial performance for the first quarter of 2018 compared to the same period in 2017:

 
  (dollars in thousands, except per share data)
       
Three Months Ended Mar. 31,    
2018     2017 $ Change     % Change
 
Income Before Income Taxes* $ 34,910 $ 30,071 $ 4,839 16 %
Net Income* 27,469 20,017 7,452 37
Diluted Earnings per Class A Common Stock 1.32 0.96 0.36 38
Return on Average Assets 2.08 % 1.65 % NA 26
Return on Average Equity 17.12 13.12 NA 30
 

NA – Not applicable
*See Segment Data at the End of this Earnings Release

 

Results of Operations for the First Quarter of 2018 Compared to the First Quarter of 2017

Core Bank(3) – Net income from Core Banking was $11.1 million for the first quarter of 2018, an increase of $2.6 million, or 31%, over the first quarter of 2017, with the previously mentioned lower 2018 effective tax rate contributing approximately $1.5 million to the increase. In addition to the lower effective tax rate, the increase in net income at the Core Bank was primarily driven by strong growth in net interest income, which increased $5.2 million, or 14%, over the first quarter of 2017. The growth in net interest income was propelled by a 22-basis-point expansion of the Core Bank’s net interest margin for the first quarter of 2018 to 3.55% and further complemented by a $247 million, or 7%, 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:

 
      Net Interest Income    
for the
(dollars in thousands)

Three Months Ended

Mar. 31,

Origination Channel 2018     2017

$ Change

   

% Change

 
Traditional Network $ 37,934 $ 32,067 $ 5,867 18 %
Warehouse Lending 3,591 3,900 (309 ) (8 )
Correspondent Lending 260 281 (21 ) (7 )
2012-FDIC Acquired Loans   66   380   (314 ) (83 )
Total Core Bank $ 41,851 $ 36,628 $ 5,223   14
 
 
                                 
Average Loan Balances Period-End Loan Balances
(dollars in thousands)

Three Months Ended

Mar. 31,

Mar. 31,
Origination Channel 2018 2017

$ Change

% Change 2018 2017

$ Change

% Change
 
Traditional Network $ 3,307,756 $ 3,033,392 $ 274,364 9 % $ 3,322,017 $ 3,017,051 $ 304,966 10 %
Warehouse Lending 448,039 436,459 11,580 3 534,959 495,165 39,794 8
Correspondent Lending 114,156 145,068 (30,912 ) (21 ) 111,263 141,375 (30,112 ) (21 )
2012-FDIC Acquired Loans   6,443   14,371   (7,928 ) (55 )   6,065   14,078   (8,013 ) (57 )
Total Core Bank $ 3,876,394 $ 3,629,290 $ 247,104   7 $ 3,974,304 $ 3,667,669 $ 306,635   8
 
 

The primary drivers of the changes in the Core Bank’s average loan balances and net interest income for the first quarter of 2018, as compared to the first quarter of 2017 follow:

  • The Traditional Network experienced solid growth in average loan balances of $274 million, or 9%, from the first quarter of 2017 to the first quarter of 2018. This growth was largely concentrated in the commercial loan sector, with average commercial real estate balances growing $169 million, or 16%, and average commercial and industrial balances growing $75 million, or 31%.
  • The yield on the Traditional Network loans expanded 26 basis points to 4.51% during the first quarter of 2018 from 4.25% during the first quarter of 2017. As expected, yields on variable rate portfolios that frequently reprice to an index, such as the Wall Street Journal Prime Rate, reflected greater expansion than their fixed or adjustable rate counterparts.
  • The fluctuation in net interest income related to the Warehouse Lending (“Warehouse”) segment was related to an internal change in the way the Company assigns a cost of funds to Warehouse through its Funds Transfer Pricing (“FTP”) methodology. The Company changed its Warehouse FTP methodology during the first quarter of 2018 to be more consistent with the FTP methodology used for other Core Bank loan products with similar pricing and duration characteristics.

The Core Bank’s provision for loan and lease losses (“Provision”) increased to $960,000 for the first quarter of 2018 from a very low $241,000 for the same period in 2017. The primary drivers of the increase in Provision expense were an increase of four basis points in annualized net charge-offs and higher general reserves related to stronger loan growth in the first quarter of 2018 as compared to the first quarter of 2017. Overall, the Core Bank’s credit quality metrics remained strong from period to period.

The Core Bank’s credit quality metrics are presented in the table below:

 
      As of and for the:
Quarters Ended:     Years Ended:
Mar. 31,     Mar. 31,     Dec. 31,     Dec. 31,     Dec. 31,
Core Banking Credit Quality Ratios       2018     2017     2017     2016     2015
 
Nonperforming loans to total loans 0.37 % 0.46 % 0.36 % 0.42 % 0.66 %
 
Nonperforming assets to total loans (including OREO) 0.38 0.50 0.36 0.46 0.70
 
Delinquent loans to total loans(4) 0.21 0.16 0.21 0.18 0.35
 
Net charge-offs to average loans 0.06 0.02 0.04 0.05 0.05
(Quarterly rates annualized)
 
OREO = Other Real Estate Owned
 
 

Noninterest income for the Core Bank was $8.3 million during the first quarter of 2018, a $425,000, or 5%, increase from the $7.9 million achieved during the first quarter of 2017. The increase was primarily driven by the following:

  • Service charges on deposits increased $269,000, or 8%, consistent with an 8% increase in active checking accounts from March 31, 2017 to March 31, 2018.
  • Interchange fee income increased $375,000, or 15%, with debit card interchange fees up $231,000, or 12%, and credit card interchange fees up $144,000, or 29%. The increase in interchange fees was driven by increases of 6% in active debit cards and 18% in active credit cards over the previous 12 months, as well as the corresponding usage on those cards.

Core Bank noninterest expenses increased $3.4 million, or 11%, during the first quarter of 2018 compared to the first quarter of 2017. The increase was primarily driven by the following:

  • Salaries and employee benefits expense increased $2.1 million, or 11%, driven partially by annual merit increases, partially by an increase of approximately 21 Core Bank full-time-equivalent employees (“FTEs”) over the previously 12 months, and partially by a $763,000 increase in healthcare benefits. The additional FTEs were added primarily to support Core Bank strategic initiatives.
  • Occupancy expense increased $339,000, or 8%, primarily driven by a 23% increase in depreciation expense associated with banking center renovations over the previous year.
  • Data processing expenses increased $608,000, or 44%, driven by new and upgraded third-party technology implemented in the previous 12 months to support several key strategic Core Bank initiatives. Such initiatives include improving the Company’s client relationship management system, its online-banking functionality, and its overall information security.

Republic Processing Group(2)

Republic Processing Group (“RPG”) reported net income of $16.3 million for the first quarter of 2018 compared to $11.5 million for the same period in 2017, with the previously mentioned lower 2018 effective tax rate contributing approximately $2.5 million to the increase. In addition to the lower effective tax rate, RPG’s net income growth from the same quarter in 2017 was also driven by strong revenue growth within the RCS segment and partially by an increase in net Refund Transfer (“RT”) revenues within the TRS segment.

Within the RCS segment, net income increased $2.6 million and was driven by revenue growth from its short-term consumer loan products over the previous 12 months. Profitability growth was concentrated in RCS’s line-of-credit product, with loan fees for this product increasing $1.7 million, or 37%, from the first quarter of 2017. Additionally, Provision expense for RCS’s line-of-credit product decreased $1.3 million from the first quarter of 2017, as net charge-offs to-date within the portfolio have continued to season and have remained within an expectedly and relatively narrow range for a consistent period of time.

Within the TRS segment, net income increased $2.3 million compared to the same period in 2017. TRS experienced a $970,000, or 6%, increase in net RT revenues compared to the first quarter of 2017, consistent with a 6% increase in the number of RTs funded when comparing the two periods.

Offsetting the income growth discussed above, TRS’s net EA revenues (EA fees, less estimated loan loss provisions for EAs) was $1.1 million lower than the first quarter of 2017, as the Company has currently reserved higher amounts for estimated loan losses in the product. TRS originated $430 million of EAs during the first quarter of 2018 compared to $329 million for the same period in 2017. While the increase in EA originations drove an increase in EA fee income of $3.6 million, the Company has experienced, thus far, slower repayment of EAs from the federal government, resulting in higher estimated loan loss reserves. These higher estimated reserves drove a $4.7 million increase in EA Provision expense.

As of March 31, 2018, the Company had reserved through its loan loss provision approximately 3.09% of total EA originations for the first quarter of 2018 compared to 2.62% of total EA originations for the same period in 2017. Each 0.10% in estimated reserves equates to approximately $430,000 in Provision expense.

Republic Bancorp, Inc. (the “Company”) is the parent company of Republic Bank & Trust Company (the “Bank”). The Bank currently has 44 full-service banking centers and one loan production office 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; six banking centers in five Florida communities (Tampa MSA) – Largo, Port Richey, St. Petersburg, Seminole, and Temple Terrace; two banking centers in two Tennessee communities (Nashville MSA) – 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 $5.1 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, information concerning the impact of the TCJA, 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, 2017. 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 2018 Earnings Release
(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Balance Sheet Data
Mar. 31, 2018     Dec. 31, 2017     Mar. 31, 2017
Assets:
Cash and cash equivalents $ 362,122 $ 299,351 $ 206,187
Investment securities 483,573 591,458 578,130
Loans held for sale 14,295 16,989 10,292
Loans 4,052,500 4,014,034 3,710,376
Allowance for loan and lease losses   (52,341 )   (42,769 )   (42,362 )
Loans, net 4,000,159 3,971,265 3,668,014
Federal Home Loan Bank stock, at cost 32,067 32,067 28,208
Premises and equipment, net 46,792 45,605 43,962
Goodwill 16,300 16,300 16,300
Other real estate owned ("OREO") 160 115 1,362
Bank owned life insurance ("BOLI") 63,727 63,356 62,185
Other assets and accrued interest receivable   59,139     48,856     50,152  
Total assets $ 5,078,334   $ 5,085,362   $ 4,664,792  
 
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 1,241,127 $ 1,022,042 $ 1,070,237
Interest-bearing   2,476,496     2,411,116     2,278,547  
Total deposits 3,717,623 3,433,158 3,348,784
 
Securities sold under agreements to repurchase and other short-term borrowings 175,682 204,021 144,375
Federal Home Loan Bank advances 440,000 737,500 467,500
Subordinated note 41,240 41,240 41,240
Other liabilities and accrued interest payable   50,535     37,392     42,229  
Total liabilities 4,425,080 4,453,311 4,044,128
 
Stockholders' equity   653,254     632,051     620,664  
Total liabilities and Stockholders' equity $ 5,078,334   $ 5,085,362   $ 4,664,792  
 
 
 
Average Balance Sheet Data
Three Months Ended Mar. 31,
2018 2017
Assets:
Investment securities, including FHLB stock $ 552,760 $ 586,621
Federal funds sold and other interest-earning deposits 283,161 184,007
Loans and fees, including loans held for sale 4,082,050 3,749,738
Total interest-earning assets 4,917,971 4,520,366
Total assets 5,278,204 4,847,700
 
Liabilities and Stockholders' Equity:
Noninterest-bearing deposits $ 1,319,860 $ 1,132,591
Interest-bearing deposits 2,416,142 2,212,219

Securities sold under agreements to repurchase and other short-term borrowings

257,439 218,412
Federal Home Loan Bank advances 545,778 598,167
Subordinated note 41,240 41,240
Total interest-bearing liabilities 3,260,599 3,070,038
Stockholders' equity 641,624 610,429

 
 
 

Republic Bancorp, Inc. Financial Information
First Quarter 2018 Earnings Release (continued)
(all amounts other than per share amounts, number of employees, and number of banking centers are expressed in thousands unless otherwise noted)

 
Income Statement Data
    Three Months Ended Mar. 31,
2018   2017
 
Total interest income(5) $ 73,833 $ 60,883
Total interest expense   6,168   4,445
Net interest income 67,665 56,438
 
Provision for loan and lease losses 17,255 12,351
 
Noninterest income:
Service charges on deposit accounts 3,555 3,247
Net refund transfer fees 16,352 15,382
Mortgage banking income 1,020 1,160
Interchange fee income 2,944 2,549
Program fees 1,696 1,091
Increase in cash surrender value of BOLI 371 391
Net gains on OREO 132 142
Other   1,752   1,184
Total noninterest income   27,822   25,146
 
Noninterest expense:
Salaries and employee benefits 23,834 21,211
Occupancy and equipment, net 6,221 5,967
Communication and transportation 1,382 1,272
Marketing and development 916 1,004
FDIC insurance expense 525 450
Bank franchise tax expense 2,518 2,435
Data processing 2,386 1,652
Interchange related expense 1,284 1,281
Supplies 381 527
OREO expense 45 97
Legal and professional fees 1,043 752
Other   2,787   2,514
Total noninterest expense   43,322   39,162
 
Income before income tax expense 34,910 30,071
Total income tax expense(1)   7,441   10,054
 
Net income $ 27,469 $ 20,017

 
 
 

Republic Bancorp, Inc. Financial Information
First Quarter 2018 Earnings Release (continued)
(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Selected Data and Ratios      
 
Three Months Ended Mar. 31,
2018 2017
Per Share Data:
 
Basic weighted average shares outstanding 20,920 20,915
Diluted weighted average shares outstanding 21,018 20,996
 
Period-end shares outstanding:
Class A Common Stock 18,645 18,615
Class B Common Stock 2,243 2,243
 
Book value per share(6) $ 31.27 $ 29.76
Tangible book value per share(6) 30.22 28.68
 
Earnings per share ("EPS"):
Basic EPS - Class A Common Stock $ 1.32 $ 0.97
Basic EPS - Class B Common Stock 1.21 0.88
Diluted EPS - Class A Common Stock 1.32 0.96
Diluted EPS - Class B Common Stock 1.20 0.88
 
Cash dividends declared per Common share:
Class A Common Stock $ 0.242 $ 0.209
Class B Common Stock 0.220 0.190
 
Performance Ratios:
 
Return on average assets 2.08 % 1.65 %
Return on average equity 17.12 13.12
Efficiency ratio(7) 45 48
Yield on average interest-earning assets(5) 6.01 5.39
Cost of average interest-bearing liabilities 0.76 0.58
Cost of average deposits(8) 0.36 0.22
Net interest spread(5) 5.25 4.81
Net interest margin - Total Company(5) 5.50 4.99
Net interest margin - Core Bank(3) 3.55 3.33
 
Other Information:
 
End of period FTEs(9) - Total Company 1,003 973
End of period FTEs - Core Bank 922 901
Number of full-service banking centers 45 45

 
 
 

Republic Bancorp, Inc. Financial Information
First Quarter 2018 Earnings Release (continued)
(all amounts other than per share amounts, number of employees, and number of banking centers are expressed in thousands unless otherwise noted)

 
 
Credit Quality Data and Ratios     As of and for the
Three Months Ended Mar. 31,
2018   2017
Credit Quality Asset Balances:
 
Nonperforming Assets - Total Company:
Loans on nonaccrual status $ 14,849 $ 16,793
Loans past due 90-days-or-more and still on accrual   1,279     203  
Total nonperforming loans 16,128 16,996
OREO   160     1,362  
Total nonperforming assets $ 16,288   $ 18,358  
 
Nonperforming Assets - Core Bank(3):
Loans on nonaccrual status $ 14,849 $ 16,793
Loans past due 90-days-or-more and still on accrual   27     81  
Total nonperforming loans 14,876 16,874
OREO   160     1,362  
Total nonperforming assets $ 15,036   $ 18,236  
 
Delinquent loans:
Delinquent loans - Core Bank $ 8,303 $ 5,952
Delinquent loans - RPG(2)(10)   17,530     10,211  
Total delinquent loans - Total Company $ 25,833   $ 16,163  
 
 
Credit Quality Ratios - Total Company:
 
Nonperforming loans to total loans 0.40 % 0.46 %
Nonperforming assets to total loans (including OREO) 0.40 0.49
Nonperforming assets to total assets 0.32 0.39
Allowance for loan and lease losses to total loans 1.29 1.14
Allowance for loan and lease losses to nonperforming loans 325 249
Delinquent loans to total loans(4)(10) 0.64 0.44
Net charge-offs to average loans (annualized) 0.75 0.31
 
Credit Quality Ratios - Core Bank:
 
Nonperforming loans to total loans 0.37 % 0.46 %
Nonperforming assets to total loans (including OREO) 0.38 0.50
Nonperforming assets to total assets 0.31 0.40
Allowance for loan and lease losses to total loans 0.77 0.76
Allowance for loan and lease losses to nonperforming loans 205 166
Delinquent loans to total loans 0.21 0.16
Net charge-offs to average loans (annualized) 0.06 0.02

 
 
 

Republic Bancorp, Inc. Financial Information
First Quarter 2018 Earnings Release (continued)
(all amounts other than per share amounts, number of employees, and number of banking centers are expressed in thousands unless otherwise noted)

 
Balance Sheet Data
      Quarterly Comparison
Mar. 31, 2018     Dec. 31, 2017     Sep. 30, 2017     Jun. 30, 2017     Mar. 31, 2017
Assets:
Cash and cash equivalents $ 362,122 $ 299,351 $ 329,862 $ 332,695 $ 206,187
Investment securities 483,573 591,458 523,896 525,684 578,130
Loans held for sale 14,295 16,989 13,135 11,756 10,292
Loans 4,052,500 4,014,034 3,957,512 3,916,320 3,710,376
Allowance for loan and lease losses   (52,341 )   (42,769 )   (40,191 )   (37,898 )   (42,362 )
Loans, net 4,000,159 3,971,265 3,917,321 3,878,422 3,668,014
Federal Home Loan Bank stock, at cost 32,067 32,067 32,067 32,067 28,208
Premises and equipment, net 46,792 45,605 44,845 44,255 43,962
Goodwill 16,300 16,300 16,300 16,300 16,300
Other real estate owned 160 115 167 300 1,362
Bank owned life insurance 63,727 63,356 62,972 62,578 62,185
Other assets and accrued interest receivable   59,139     48,856     52,609     51,604     50,152  
Total assets $ 5,078,334   $ 5,085,362   $ 4,993,174   $ 4,955,661   $ 4,664,792  
 
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 1,241,127 $ 1,022,042 $ 1,040,414 $ 1,061,637 $ 1,070,237
Interest-bearing   2,476,496     2,411,116     2,309,315     2,072,301     2,278,547  
Total deposits 3,717,623 3,433,158 3,349,729 3,133,938 3,348,784
 

Securities sold under agreements to repurchase and other short-term borrowings

175,682 204,021 173,311 113,334 144,375
Federal Home Loan Bank advances 440,000 737,500 757,500 1,002,500 467,500
Subordinated note 41,240 41,240 41,240 41,240 41,240
Other liabilities and accrued interest payable   50,535     37,392     38,107     37,758     42,229  
Total liabilities 4,425,080 4,453,311 4,359,887 4,328,770 4,044,128
 
Stockholders' equity   653,254     632,051     633,287     626,891     620,664  
Total liabilities and Stockholders' equity $ 5,078,334   $ 5,085,362   $ 4,993,174   $ 4,955,661   $ 4,664,792  
 
 
 
Average Balance Sheet Data
Quarterly Comparison
Mar. 31, 2018 Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017
Assets:
Investment securities, including FHLB stock $ 552,760 $ 559,381 $ 552,821 $ 597,818 $ 586,621
Federal funds sold and other interest-earning deposits 283,161 229,638 208,688 130,650 184,007
Loans and fees, including loans held for sale 4,082,050 3,967,211 3,875,420 3,730,379 3,749,738
Total interest-earning assets 4,917,971 4,756,230 4,636,929 4,458,847 4,520,366
Total assets 5,278,204 4,953,134 4,834,653 4,668,048 4,847,700
 
Liabilities and Stockholders' Equity:
Noninterest-bearing deposits $ 1,319,860 $ 1,045,939 $ 1,052,162 $ 1,063,215 $ 1,132,591
Interest-bearing deposits 2,416,142 2,383,196 2,249,436 2,224,127 2,212,219

Securities sold under agreements to repurchase and other short-term borrowings

257,439 271,434 208,160 179,594 218,412
Federal Home Loan Bank advances 545,778 537,326 618,750 500,027 598,167
Subordinated note 41,240 41,240 41,240 41,240 41,240
Total interest-bearing liabilities 3,260,599 3,233,196 3,117,586 2,944,988 3,070,038
Stockholders' equity 641,619 640,686 633,874 627,940 610,429

 
 
 

Republic Bancorp, Inc. Financial Information
First Quarter 2018 Earnings Release (continued)
(all amounts other than per share amounts, number of employees, and number of banking centers are expressed in thousands unless otherwise noted)

 
Income Statement Data
      Three Months Ended
Mar. 31, 2018     Dec. 31, 2017     Sep. 30, 2017     Jun. 30, 2017     Mar. 31, 2017
 
Total interest income(5) $ 73,833 $ 56,349 $ 53,725 $ 47,821 $ 60,883
Total interest expense   6,168   5,711     5,418   4,684   4,445
Net interest income 67,665 50,638 48,307 43,137 56,438
 
Provision for loan and lease losses 17,255 6,071 4,221 5,061 12,351
 
Noninterest income:
Service charges on deposit accounts 3,555 3,325 3,395 3,390 3,247
Net refund transfer fees 16,352 171 177 2,770 15,382
Mortgage banking income 1,020 935 1,102 1,445 1,160
Interchange fee income 2,944 2,817 2,711 2,759 2,549
Program fees 1,696 1,851 1,597 1,284 1,091
Increase in cash surrender value of BOLI 371 384 394 393 391
Losses on available-for-sale debt securities — (136 ) — — —
Net gains on OREO 132 254 31 249 142
Other   1,752   873     1,203   849   1,184
Total noninterest income   27,822   10,474     10,610   13,139   25,146
 
Noninterest expense:
Salaries and employee benefits 23,834 20,502 20,505 20,015 21,211
Occupancy and equipment, net 6,221 6,518 6,806 5,903 5,967
Communication and transportation 1,382 1,261 1,239 939 1,272
Marketing and development 916 1,098 1,677 1,409 1,004
FDIC insurance expense 525 328 300 300 450
Bank franchise tax expense 2,518 652 749 790 2,435
Data processing 2,386 2,606 1,795 1,695 1,652
Interchange related expense 1,284 1,215 1,164 1,283 1,281
Supplies 381 565 241 261 527
OREO expense 45 104 55 132 97
Legal and professional fees 1,043 616 446 596 752
Other   2,787   2,964     3,285   2,623   2,514
Total noninterest expense   43,322   38,429     38,262   35,946   39,162
 
Income before income tax expense 34,910 16,612 16,434 15,269 30,071
Total income tax expense(1)   7,441   11,774     5,728   5,198   10,054
 
Net income $ 27,469 $ 4,838   $ 10,706 $ 10,071 $ 20,017

 
 
 

Republic Bancorp, Inc. Financial Information
First Quarter 2018 Earnings Release (continued)
(all amounts other than per share amounts, number of employees and number of banking centers are expressed in thousands unless otherwise noted)

 
Selected Data and Ratios
      As of and for the Three Months Ended
Mar. 31, 2018     Dec. 31, 2017     Sep. 30, 2017     Jun. 30, 2017     Mar. 31, 2017
Per Share Data:
 
Basic weighted average shares outstanding 20,920 21,149 21,153 21,151 20,915
Diluted weighted average shares outstanding 21,018 21,258 21,236 21,230 20,996
 
Period-end shares outstanding:
Class A Common Stock 18,645 18,607 18,618 18,618 18,615
Class B Common Stock 2,243 2,243 2,243 2,243 2,243
 
Book value per share(6) $ 31.27 $ 30.31 $ 30.36 $ 30.05 $ 29.76
Tangible book value per share(6) 30.22 29.25 29.29 28.98 28.68
 
Earnings per share ("EPS"):
Basic EPS - Class A Common Stock $ 1.32 $ 0.23 $ 0.51 $ 0.48 $ 0.97
Basic EPS - Class B Common Stock 1.21 0.21 0.47 0.44 0.88
Diluted EPS - Class A Common Stock 1.32 0.23 0.51 0.48 0.96
Diluted EPS - Class B Common Stock 1.20 0.21 0.47 0.44 0.88
 
Cash dividends declared per Common share:
Class A Common Stock $ 0.242 $ 0.220 $ 0.220 $ 0.220 $ 0.209
Class B Common Stock 0.220 0.200 0.200 0.200 0.190
 
Performance Ratios:
 
Return on average assets 2.08 % 0.39 % 0.89 % 0.86 % 1.65 %
Return on average equity 17.12 3.02 6.76 6.42 13.12
Efficiency ratio(7) 45 63 65 64 48
Yield on average interest-earning assets(5) 6.01 4.74 4.63 4.29 5.39
Cost of average interest-bearing liabilities 0.76 0.71 0.70 0.64 0.58
Cost of average deposits(8) 0.36 0.35 0.31 0.28 0.22
Net interest spread(5) 5.25 4.03 3.93 3.65 4.81
Net interest margin - Total Company(5) 5.50 4.26 4.17 3.87 4.99
Net interest margin - Core Bank(3) 3.55 3.72 3.68 3.46 3.33
 
Other Information:
 
End of period FTEs(9) - Total Company 1,003 997 970 976 973
End of period FTEs - Core Bank 922 915 896 904 901
Number of full-service banking centers 45 45 45 45 45

 
 
 

Republic Bancorp, Inc. Financial Information
First Quarter 2018 Earnings Release (continued)
(all amounts other than per share amounts, number of employees, and number of banking centers are expressed in thousands unless otherwise noted)

 
Credit Quality Data and Ratios
      As of and for the Three Months Ended
Mar. 31, 2018     Dec. 31, 2017     Sep. 30, 2017     Jun. 30, 2017     Mar. 31, 2017
Credit Quality Asset Balances:
 
Nonperforming Assets - Total Company:
Loans on nonaccrual status $ 14,849 $ 14,118 $ 15,475 $ 15,467 $ 16,793
Loans past due 90-days-or-more and still on accrual   1,279     956     906     335     203  
Total nonperforming loans 16,128 15,074 16,381 15,802 16,996
OREO   160     115     167     300     1,362  
Total nonperforming assets $ 16,288   $ 15,189   $ 16,548   $ 16,102   $ 18,358  
 
Nonperforming Assets - Core Bank(3):
Loans on nonaccrual status $ 14,849 $ 14,118 $ 15,475 $ 15,467 $ 16,793
Loans past due 90-days-or-more and still on accrual   27     19     55     33     81  
Total nonperforming loans 14,876 14,137 15,530 15,500 16,874
OREO   160     115     167     300     1,362  
Total nonperforming assets $ 15,036   $ 14,252   $ 15,697   $ 15,800   $ 18,236  
 
Delinquent Loans:
Delinquent loans - Core Bank $ 8,303 $ 8,460 $ 7,756 $ 6,844 $ 5,952
Delinquent loans - RPG(2)(10)   17,530     5,641     4,270     2,169     10,211  
Total delinquent loans - Total Company $ 25,833   $ 14,101   $ 12,026   $ 9,013   $ 16,163  
 
 
Credit Quality Ratios - Total Company:
 
Nonperforming loans to total loans 0.40 % 0.38 % 0.41 % 0.40 % 0.46 %
Nonperforming assets to total loans (including OREO) 0.40 0.38 0.42 0.41 0.49
Nonperforming assets to total assets 0.32 0.30 0.33 0.32 0.39
Allowance for loan and lease losses to total loans 1.29 1.07 1.02 0.97 1.14
Allowance for loan and lease losses to nonperforming loans 325 284 245 240 249
Delinquent loans to total loans(4)(10) 0.64 0.35 0.30 0.23 0.44
Net charge-offs to average loans (annualized) 0.75 0.35 0.20 1.02 0.31
 
Credit Quality Ratios - Core Bank:
 
Nonperforming loans to total loans 0.37 % 0.36 % 0.40 % 0.40 % 0.46 %
Nonperforming assets to total loans (including OREO) 0.38 0.36 0.40 0.41 0.50
Nonperforming assets to total assets 0.31 0.28 0.32 0.32 0.40
Allowance for loan and lease losses to total loans 0.77 0.77 0.76 0.76 0.76
Allowance for loan and lease losses to nonperforming loans 205 213 190 189 166
Delinquent loans to total loans 0.21 0.21 0.20 0.18 0.16
Net charge-offs to average loans (annualized) 0.06 0.06 0.03 0.05 0.02




Republic Bancorp, Inc. Financial Information
First Quarter 2018 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, 2018, 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.

Prior to the third quarter of 2017, management reported RPG as a segment consisting of its largest division, TRS, along with its relatively smaller divisions, Republic Payment Solutions (“RPS”), and RCS. During the third quarter of 2017, due to RCS’s growth in revenues relative to the total Company’s revenues, management identified TRS and RCS as separate reportable segments under the newly classified RPG operations. Also, as part of the updated segmentation, management will report the RPS division, which remained below thresholds to be classified a separate reportable segment, within the newly classified TRS segment. The reportable segments within RPG operations and divisions within those segments operate through the Bank. All prior periods have been reclassified to conform to the current presentation.

The nature of segment operations and the primary drivers of net revenues by reportable segment are provided below:

           
Reportable Segment: Nature of Operations: Primary Drivers of Net Revenues:
 
Core Banking:
 
Traditional Banking Provides traditional banking products to clients primarily in its market footprint via its network of banking centers and to clients outside of its market footprint primarily via its Digital and Correspondent Lending delivery channels. Loans, investments, and deposits.
 
Warehouse Lending Provides short-term, revolving credit facilities to mortgage bankers across the United States. Mortgage warehouse lines of credit.
 
Mortgage Banking       Primarily originates, sells and services long-term, single family, first lien residential real estate loans primarily to clients in the Bank's market footprint.       Loan sales and servicing.
 
Republic Processing Group:
 
Tax Refund Solutions TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax refund products. The RPS division of TRS offers general-purpose reloadable cards. TRS and RPS products are primarily provided to clients outside of the Bank’s market footprint. Loans, refund transfers, and prepaid cards.
 
Republic Credit Solutions Offers short-term credit products. RCS products are primarily provided to clients outside of the Bank’s market footprint, with a substantial portion of RCS clients considered subprime or near prime borrowers. Unsecured small-dollar, consumer loans.
 
 

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 2017 Annual Report on Form 10-K. Segment performance is evaluated using operating income. Goodwill is allocated to the Traditional Banking segment. 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.

 
 
 

Republic Bancorp, Inc. Financial Information
First Quarter 2018 Earnings Release (continued)
Segment information for the three months ended March 31, 2018 and 2017 follows:

 
        Three Months Ended March 31, 2018
  Core Banking     Republic Processing Group ("RPG")    
            Total Tax     Republic    
Traditional Warehouse Mortgage Core Refund Credit Total Total
(dollars in thousands)         Banking       Lending       Banking       Banking       Solutions       Solutions       RPG       Company
 
Net interest income $ 38,188 $ 3,591 $ 72 $ 41,851 $ 18,686 $ 7,128

$

25,814 $ 67,665
 
Provision for loan and lease losses 939 21 — 960 13,389 2,906 16,295 17,255
 
Net refund transfer fees — — — — 16,352 — 16,352 16,352
Mortgage banking income — — 1,020 1,020 — — — 1,020
Program fees — — — — 59 1,637 1,696 1,696
Other noninterest income   7,279     8     38     7,325     1,110     319     1,429     8,754  
Total noninterest income 7,279 8 1,058 8,345 17,521 1,956 19,477 27,822
 
Total noninterest expense   33,669     839     1,204     35,712     6,525     1,085     7,610     43,322  
 
Income (loss) before income tax expense 10,859 2,739 (74 ) 13,524 16,293 5,093 21,386 34,910
Total income tax expense (benefit)   1,772     627     (16 )   2,383     3,854     1,204     5,058     7,441  
Net income (loss) $ 9,087   $ 2,112   $ (58 ) $ 11,141   $ 12,439   $ 3,889  

$

16,328   $ 27,469  
 
Segment period-end assets $ 4,344,341 $ 534,545 $ 9,864 $ 4,888,750 $ 129,395 $ 60,189

$

189,584 $ 5,078,334
 
Net interest margin 3.59 % 3.21 % NM 3.55 % NM NM NM 5.50 %
 
Net-revenue concentration* 47 % 4 % 1 % 52 % 38 % 10 % 48

%

100 %
 
 
 
 
Three Months Ended March 31, 2017
Core Banking Republic Processing Group ("RPG")
Total Tax Republic
Traditional Warehouse Mortgage Core Refund Credit Total Total
(dollars in thousands)         Banking       Lending       Banking       Banking       Solutions       Solutions       RPG       Company
 
Net interest income $ 32,661 $ 3,900 $ 67 $ 36,628 $ 14,962 $ 4,848

$

19,810 $ 56,438
 
Provision for loan and lease losses 467 (226 ) — 241 8,341 3,769 12,110 12,351
 
Net refund transfer fees — — — — 15,382 — 15,382 15,382
Mortgage banking income — — 1,160 1,160 — — — 1,160
Program fees — — — — (17 ) 1,108 1,091 1,091
Other noninterest income   6,742     6     12     6,760     68     685     753     7,513  
Total noninterest income 6,742 6 1,172 7,920 15,433 1,793 17,226 25,146
 
Total noninterest expense   30,311     777     1,214     32,302     6,069     791     6,860     39,162  
 
Income before income tax expense 8,625 3,355 25 12,005 15,985 2,081 18,066 30,071
Income tax expense   2,262     1,227     9     3,498     5,801     755     6,556     10,054  
Net income $ 6,363   $ 2,128   $ 16   $ 8,507   $ 10,184   $ 1,326  

$

11,510   $ 20,017  
 
Segment period-end assets $ 4,017,173 $ 493,127 $ 15,080 $ 4,525,380 $ 108,858 $ 30,554

$

139,412 $ 4,664,792
 
Net interest margin 3.30 % 3.57 % NM 3.33 % NM NM NM 4.99 %
 
Net-revenue concentration* 48 % 5 % 2 % 55 % 37 % 8 % 45

%

100 %
 

*Net revenues represent total net interest income plus noninterest income.

 
 
 

Republic Bancorp, Inc. Financial Information

First Quarter 2018 Earnings Release (continued)

 

(1)

 

The 2017 Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017 and, among other things, lowered the federal corporate tax rate from 35% to 21%, effective January 1, 2018. With the first quarter of 2018 and the fourth quarter of 2017 largely impacted by the TCJA, the Company’s effective tax rate per quarter was as follows: 21.3% (quarter ended March 31, 2018); 70.9% (quarter ended December 31, 2017); 34.9% (quarter ended September 30, 2017); 34.0% (quarter ended June 30, 2017); and 33.4% (quarter ended March 31, 2017).

 

The relatively high effective tax rate for the fourth quarter of 2017 was driven by a $6.3 million charge to income tax expense due to the remeasurement of the Company’s deferred tax assets and liabilities at a 21% corporate tax rate.

 

(2)

Republic Processing Group operations consist of the Tax Refund Solutions and Republic Credit Solutions segments.

 

(3)

“Core Bank” or “Core Banking” operations consist of the Traditional Banking, Warehouse Lending, and Mortgage Banking segments.

 

(4)

The delinquent loans to total loans ratio equals loans 30-days-or-more past due divided by total loans. Depending on loan class, loan delinquency is determined by the number of days or the number of payments past due.

 

(5)

The amount of loan fee income can meaningfully impact total interest income, loan yields, net interest margin, and net interest spread. The amount of loan fee income included in total interest income per quarter was as follows: $26.9 million (quarter ended March 31, 2018); $9.4 million (quarter ended December 31, 2017); $9.1 million (quarter ended September 30, 2017); $6.4 million (quarter ended June 30, 2017); and $21.3 million (quarter ended March 31, 2017).

 

Interest income for Easy Advances (“EAs”) is composed entirely of loan fees. The loan fees disclosed above included EA fees of $17.8 million and $14.2 million for the quarters ended March 31, 2018 and 2017. EAs are only offered during the first two months of each year.

 

(6)

The following table provides a reconciliation of total stockholders’ equity in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) to tangible stockholders’ equity in accordance with applicable regulatory requirements, a non-GAAP disclosure. The Company provides the tangible book value per share, a non-GAAP measure, in addition to those defined by banking regulators, because of its widespread use by investors as a means to evaluate capital adequacy.

 
 
      Quarterly Comparison
(dollars in thousands, except per share data) Mar. 31, 2018     Dec. 31, 2017       Sep. 30, 2017       Jun. 30, 2017       Mar. 31, 2017
 
Total stockholders' equity - GAAP (a) $ 653,254 $ 632,051 $ 633,287 $ 626,891 $ 620,664
Less: Goodwill 16,300 16,300 16,300 16,300 16,300
Less: Mortgage servicing rights 4,925 5,044 5,128 5,159 5,158
Less: Core deposit intangible   807     858     911     964     1,017  
Tangible stockholders' equity - Non-GAAP (c) $ 631,222   $ 609,849   $ 610,948   $ 604,468   $ 598,189  
 
Total assets - GAAP (b) $ 5,078,334 $ 5,085,362 $ 4,993,174 $ 4,955,661 $ 4,664,792
Less: Goodwill 16,300 16,300 16,300 16,300 16,300
Less: Mortgage servicing rights 4,925 5,044 5,128 5,159 5,158
Less: Core deposit intangible   807     858     911     964     1,017  
Tangible assets - Non-GAAP (d) $ 5,056,302   $ 5,063,160   $ 4,970,835   $ 4,933,238   $ 4,642,317  
 
Total stockholders' equity to total assets - GAAP (a/b) 12.86 % 12.43 % 12.68 % 12.65 % 13.31 %
Tangible stockholders' equity to tangible assets - Non-GAAP (c/d) 12.48 % 12.04 % 12.29 % 12.25 % 12.89 %
 
Number of shares outstanding (e)   20,888     20,850     20,861     20,861     20,858  
 
Book value per share - GAAP (a/e) $ 31.27 $ 30.31 $ 30.36 $ 30.05 $ 29.76
Tangible book value per share - Non-GAAP (c/e) 30.22 29.25 29.29 28.98 28.68
 
 
 

(7)

 

The efficiency ratio, a non-GAAP measure, equals total noninterest expense divided by the sum of net interest income and noninterest income. The ratio excludes net gains (losses) on sales, calls, and impairment of investment securities, if applicable.

 

(8)

The cost of average deposits ratio equals annualized total interest expense on deposits divided by total average interest-bearing deposits plus total average noninterest-bearing deposits.

 

(9)

FTEs – Full-time-equivalent employees.

 

(10)

Delinquent loans for the RPG segment included $13 million and $8 million of EAs at March 31, 2018 and March 31, 2017. EAs were only offered during the first two months of 2018 and 2017. EAs do not have a contractual due date but are eligible for delinquency consideration three weeks after the taxpayer-customer’s tax return is submitted to the applicable tax authority. All unpaid EAs are charged-off by the end of the second quarter of each year.

 

NM – Not meaningful

 
 
 

Republic Bancorp, Inc.
Kevin Sipes, 502-560-8628
Executive Vice President & Chief Financial Officer