Republic Bancorp, Inc. Reports an 11% Increase to Fourth Quarter Pre-Tax Earnings

Jan 26, 2018 08:05 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 pre-tax earnings of $16.6 million for the fourth quarter of 2017, an 11% increase from the same period in 2016. The Company’s fourth quarter 2017 net income and Diluted Earnings per Class A Common Share both decreased 52% to $4.8 million and $0.23, with comparability to the prior period of both key metrics significantly impacted by a $6.3 million charge to income tax expense upon remeasurement of the Company’s net deferred tax assets (“DTAs”)(1) precipitated by tax reform and common among financial institutions. Without this charge, net income and Diluted Earnings per Class A Common Share for the fourth quarter of 2017 would have been $11.2 million and $0.53, with these non-GAAP(2) metrics representing increases of 12% and 10% over the fourth quarter of 2016.

As it relates to the Company’s charge to income tax expense upon remeasurement of its net DTAs during the quarter, on December 22, 2017, President Donald Trump signed into law the “Tax Cuts and Jobs Act” (the “TCJA”). The TCJA, among other things, reduces the federal corporate tax rate from 35% to 21%, effective January 1, 2018. As a result of the reduced tax rate, Republic and many other financial institutions incurred charges to income tax expense representing the decrease in the value of their net DTAs. In general, net DTAs represent the future benefits of tax deductions that the Company has recognized in a current or prior period for its GAAP-based financial statements, as compared to what it expects to record in the future for its income tax returns when those deductions can be realized for tax purposes.

Fiscal year 2017 net income was $45.6 million, a less than 1% decrease from fiscal 2016, resulting in Diluted Earnings per Class A Common Share of $2.20. As with the comparability between the fourth quarters of 2017 and 2016, comparability between the fiscal years of 2017 and 2016 was also significantly impacted by the TCJA-driven charge to income tax expense of $6.3 million as mentioned above. Excluding the impact of this charge, net income for 2017 would have been $52.0 million with Diluted Earnings per Class A Common Share of $2.50, with both of these non-GAAP metrics representing an increase of 13% over 2016.

Steve Trager, Chairman & Chief Executive Officer of Republic, commented, “Before addressing tax reform, let me say that I am very excited to see solid growth in our pre-tax earnings from the same quarter a year ago. Largely driven by loan growth and complemented by expansion in our net interest margin, our top-line revenue for the fourth quarter of 2017 increased a strong $9.0 million, or 22%, over the same period in 2016. Furthermore, credit quality metrics within our Core Banking(3) operations continue to remain quite strong from period to period. On the other side of the ledger, I am thrilled about our $272 million, or 9%, growth in deposits during 2017, with $195 million of that growth representing ‘core deposits’(4). We set deposit growth as one of our main goals for 2017, and I would like to acknowledge the entire Republic team for their efforts in this growth.

“Regarding tax reform, while the new law had a negative impact on the net income and the carrying value of the net DTAs of most financial institutions during the fourth quarter, including Republic, we embrace the benefits of the reduced federal tax rate in the years to come. While there remains a level of uncertainty regarding how this new law will impact consumer behavior and the many products and services that we offer, we are optimistic that over the long term it will provide us more flexibility in attracting new clients and new associates, while at the same time providing a greater return to our shareholders,” concluded Steve Trager.

The following table presents Republic’s financial performance in accordance with GAAP for the fourth quarters and years ended December 31, 2017 and 2016, along with adjusted non-GAAP performance and a reconciliation to GAAP for the impact of the previously mentioned charge to income tax expense during the fourth quarter of 2017. The non-GAAP presentation and the reconciliation to GAAP are presented to allow appropriate comparability between the reported periods and to illustrate the impact of the TCJA-driven charge to income tax expense on the Company’s financial performance.

                                                 
(dollars in thousands, except per share data)     Financial Performance Highlights
                           
 
Three Months Ended Dec. 31, $ % Years Ended Dec. 31, $ %
2017 2016 Change Change 2017 2016 Change Change
TOTAL COMPANY:
Income before income tax expense - GAAP* $ 16,612 $ 14,960 $ 1,652 11 % $ 78,386 $ 68,963 $ 9,423 14 %
 
Net income:
Net income - GAAP* $ 4,838 $ 10,000 $ (5,162 ) (52 )% $ 45,632 $ 45,903 $ (271 ) (1 )%
Impact of TCJA(1)*   6,326     —     6,326   NM   6,326     —     6,326   NM
Adjusted net income - Non-GAAP $ 11,164   $ 10,000   $ 1,164   12 $ 51,958   $ 45,903   $ 6,055   13
 

Diluted earnings per share (“EPS”) of Class A Common Stock:

Diluted EPS of Class A Common Stock - GAAP $ 0.23 $ 0.48 $ (0.25 ) (52 )% $ 2.20 $ 2.22 $ (0.02 ) (1 )%
Impact of TCJA   0.30     —     0.30   NM   0.30     —     0.30   NM
Adjusted diluted EPS of Class A Common Stock - Non-GAAP $ 0.53   $ 0.48   $ 0.05   10 $ 2.50   $ 2.22   $ 0.28   13
 
 

Return on average assets (“ROA”):

ROA - GAAP 0.39 % 0.87 % NA (55 )% 0.95 % 1.02 % NA (7 )%
Impact of TCJA   0.51     —   NA NM   0.13     —   NA NM
Adjusted ROA - Non-GAAP   0.90     0.87   NA 3   1.08     1.02   NA 6
 

Return on average equity (“ROE”):

ROE - GAAP 3.02 % 6.62 % NA (54 )% 7.26 % 7.68 % NA (5 )%
Impact of TCJA   3.95     —   NA NM   1.01     —   NA NM
Adjusted ROE - Non-GAAP   6.97     6.62   NA 5   8.27     7.68   NA 8
                                                 
CORE BANK(3):
 
Income before income tax expense $ 17,105 $ 14,869 $ 2,236 15 % $ 56,545 $ 51,636 $ 4,909 10 %
 
Net income:
Net income - GAAP $ 6,883 $ 9,939 $ (3,056 ) (31 )% $ 33,448 $ 34,859 $ (1,411 ) (4 )%
Impact of TCJA   4,594     —     4,594   NM   4,594     —     4,594   NM
Adjusted net income - Non-GAAP $ 11,477   $ 9,939   $ 1,538   15 $ 38,042   $ 34,859   $ 3,183   9
                                                 
REPUBLIC PROCESSING GROUP(5):
 
Income (loss) before income tax expense $ (493 ) $ 91 $ (584 ) NM $ 21,841 $ 17,327 $ 4,514 26 %
 
Net income (loss):
Net income (loss) - GAAP $ (2,045 ) $ 61 $ (2,106 ) NM $ 12,184 $ 11,044 $ 1,140 10 %
Impact of TCJA   1,732     —     1,732   NM   1,732     —     1,732   NM
Adjusted net income (loss) - Non-GAAP $ (313 ) $ 61   $ (374 ) NM $ 13,916   $ 11,044   $ 2,872   26
                                                                             
 

NA – Not applicable

NM – Not meaningful

*See Segment Data at the end of this Earnings Release

 

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

Core Bank(3) – Net income from Core Banking was $6.9 million for the fourth quarter of 2017, a decrease of $3.1 million from the fourth quarter of 2016. Approximately $4.6 million of the Company’s TCJA-driven charge to income tax expense was tied to the Core Bank. Excluding the previously mentioned charge to income tax expense, Core Bank non-GAAP net income (as adjusted) for the fourth quarter of 2017 would have increased $1.5 million, or 15%, from the fourth quarter of 2016.

Core Bank net interest income increased $6.3 million, or 17%, over the fourth 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 fourth quarter of 2017 to 3.72% and further complemented by a $137 million, or 4%, 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 Dec. 31,
Origination Channel 2017     2016

$ Change

    % Change
 
Traditional Network $ 37,529 $ 31,604 $ 5,925 19 %
Warehouse Lending 4,460 5,160 (700 ) (14 )
Correspondent Lending 247 336 (89 ) (26 )
2012-FDIC Acquired Loans   1,648   525   1,123   214
Total Core Bank $ 43,884 $ 37,625 $ 6,259   17
                         
 
                                                 
                               
Average Loan Balances Period-End Loan Balances
(dollars in thousands) Three Months Ended Dec. 31, Dec. 31,
Origination Channel 2017 2016

$ Change

% Change 2017 2016

$ Change

% Change
 
Traditional Network $ 3,247,472 $ 3,003,553 $ 243,919 8 % $ 3,286,582 $ 3,022,305 $ 264,277 9 %
Warehouse Lending 523,725 590,196 (66,471 ) (11 ) 525,573 585,439 (59,866 ) (10 )
Correspondent Lending 120,734 152,481 (31,747 ) (21 ) 116,792 149,028 (32,236 ) (22 )
2012-FDIC Acquired Loans   6,836   15,672   (8,836 ) (56 )   6,551   15,059   (8,508 ) (57 )
Total Core Bank $ 3,898,767 $ 3,761,902 $ 136,865   4 $ 3,935,498 $ 3,771,831 $ 163,667   4
                                                                     
 

The following factors were the primary drivers of the changes in the Core Bank’s net interest income and average loan balances by origination channel for the fourth quarter of 2017, as compared to the fourth quarter of 2016:

  • The Core Bank’s Traditional Network experienced solid average loan growth of $244 million from the fourth quarter of 2016 to the fourth quarter of 2017. The overall mix of this growth was well diversified, with average balance increases of $149 million in commercial real estate; $79 million in commercial and industrial; and $35 million in the construction and development category.
  • The Core Bank’s Traditional Network received a favorable payoff of a purchased credit-impaired loan acquired in the Company’s 2016 acquisition of Cornerstone Bancorp, Inc. This favorable payoff contributed approximately $670,000 of non-recurring interest income and approximately six basis points of net interest margin to the Core Bank for the fourth quarter of 2017.
  • The Core Bank’s 2012 FDIC-Acquired loans contributed $1.1 million more in net interest income during the fourth quarter of 2017 compared to the same period in 2016, resulting from the payoff of one large 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 13 basis points to the Core Bank’s net interest margin during the fourth quarter of 2017 compared to a one-basis-point contribution for the same period in 2016. Prospective accretion income related to these loans is expected to be nominal, as the substantial majority of discount accretion from these loans has now been recognized.
  • Within the Warehouse segment, net interest income decreased $700,000, or 14%, from the fourth quarter of 2016, as an increase in mortgage interest rates during the quarter contributed to a decline in client usage of the Bank’s Warehouse lines of credit. Overall, usage rates decreased from 58% during the fourth quarter of 2016 to 50% for the fourth quarter of 2017. Primarily as a result of this factor, average outstanding Warehouse line-of-credit balances for the fourth quarter of 2017 were $524 million, a $66 million, or 11%, decrease from a robust fourth quarter in 2016.

The Core Bank’s provision expense for the fourth 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:

                                           
    As of and for the:
Quarters Ended:     Years Ended:
Dec. 31,     Sep. 30,     Jun. 30,     Mar. 31, Dec. 31,     Dec. 31,     Dec. 31,
Core Banking Credit Quality Ratios 2017     2017     2017     2017 2017 2016 2015
 
Nonperforming loans to total loans 0.36 % 0.40 % 0.40 % 0.46 % 0.36 % 0.42 % 0.66 %
 
Nonperforming assets to total loans (including OREO) 0.36 0.40 0.41 0.50 0.36 0.46 0.70
 
Delinquent loans to total loans(6) 0.21 0.20 0.18 0.16 0.21 0.18 0.35
 
Net charge-offs to average loans 0.06 0.03 0.05 0.02 0.04 0.05 0.05
(Quarterly rates annualized)
                                           
OREO = Other Real Estate Owned                                          
 

Noninterest income for the Core Bank was $7.9 million during the fourth quarter of 2017, a $24,000 increase from the fourth quarter of 2016. Notable fluctuations in noninterest income for the quarter included the following items:

  • Interchange fees increased $247,000 primarily due to an 11% year-over-year growth in active debit cards.
  • Partially offsetting the increase above, the Core Bank recorded $136,000 in losses on the sale of two securities during the fourth quarter of 2017, with no similar sales during the fourth quarter of 2016.

Core Bank noninterest expenses increased $4.5 million, or 16%, from the fourth quarter of 2016 to the same period in 2017. Comparability of noninterest expense between the two quarters was impacted by adjustments to the Core Bank’s incentive compensation accruals, which were made during both periods to bring accrual balances in line with projected payouts. As a result of these adjustments, net incentive compensation expense was a net charge of $457,000 for the fourth quarter of 2017 compared to a net credit of $393,000 for the fourth quarter of 2016. Excluding the impact of the change in incentive compensation expense, noninterest expense increased $3.9 million, or 13%, for the fourth quarter of 2017, as compared to the fourth quarter of 2016 and was primarily driven by the following:

  • Salaries and employee benefits expense increased $2.2 million, or 13%, as the Core Bank’s full-time-equivalent employees increased by 46 employees during 2017 to support the Core Bank’s strategic initiatives.
  • Occupancy expense increased $919,000, primarily due to increases in rent, depreciation, and equipment service expense resulting from new locations, existing banking center renovations and the cost of technology to support the Core Bank’s strategic initiatives.
  • Data processing expense increased $823,000, with a large portion of this increase due to estimated conversion-related expenses for an upcoming change to the Company’s digital-banking vendor for its commercial clients.

Republic Processing Group(5)

Republic Processing Group (“RPG”) reported a net loss of $2.0 million for the fourth quarter of 2017 compared to net income of $61,000 for the same period in 2016. Approximately $1.7 million of the Company’s TCJA-driven charge to income tax expense was tied to RPG. Excluding the previously mentioned charge to income tax expense, RPG would have reflected a $313,000 non-GAAP loss (as adjusted) for the fourth quarter of 2017.

Within the Republic Credit Solutions (“RCS”) segment of RPG, net income decreased $1.6 million primarily due to RCS’s $1.7 million portion of the TCJA-driven charge to income tax expense. Pre-tax earnings for RCS increased to $2.6 million for the fourth quarter of 2017 compared to $2.4 million for the same period in 2016. The nominal increase in pre-tax earnings at RCS was primarily driven by growth in net interest income and largely offset by greater provisions for loan losses, with the change in both income statement categories resulting from a higher volume of RCS’s line-of-credit product during the fourth quarter of 2017 as compared to the fourth quarter of 2016.

The Tax Refund Solutions (“TRS”) segment of RPG reported an expected net loss of $2.0 million for the fourth quarter of 2017 compared to a net loss of $1.5 million during the fourth quarter of 2016. The higher net loss for the fourth quarter of 2017 was primarily driven by a $673,000 increase in salaries and employee benefits expense resulting from additional contract labor retained to prepare for the 2018 tax season. The TRS segment 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 44 full-service banking centers and one loan production office throughout five states: 32 banking centers in 11 Kentucky communities - Covington, 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 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, 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.

 

Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 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        
Dec. 31, 2017 Dec. 31, 2016
Assets:
Cash and cash equivalents $ 299,351 $ 289,309
Investment securities 591,458 534,139
Loans held for sale 16,989 15,170
Loans 4,014,034 3,810,778
Allowance for loan and lease losses   (42,769 )   (32,920 )
Loans, net 3,971,265 3,777,858
Federal Home Loan Bank stock, at cost 32,067 28,208
Premises and equipment, net 45,605 42,869
Goodwill 16,300 16,300

Other real estate owned (“OREO”)

115 1,391

Bank owned life insurance (“BOLI”)

63,356 61,794
Other assets and accrued interest receivable   48,856     49,271  
Total assets $ 5,085,362   $ 4,816,309  
 

Liabilities and Stockholders’ Equity:

Deposits:
Noninterest-bearing $ 1,022,042 $ 971,952
Interest-bearing   2,411,116     2,188,740  
Total deposits 3,433,158 3,160,692
 
Securities sold under agreements to repurchase and other short-term borrowings 204,021 173,473
Federal Home Loan Bank advances 737,500 802,500
Subordinated note 41,240 41,240
Other liabilities and accrued interest payable   37,019     33,998  
Total liabilities 4,452,938 4,211,903
 

Stockholders’ equity

  632,424     604,406  

Total liabilities and Stockholders’ equity

$ 5,085,362   $ 4,816,309  
 
               
Average Balance Sheet Data
Three Months Ended Dec. 31, Years Ended Dec. 31,
2017 2016 2017 2016
Assets:
Investment securities, including FHLB stock $ 559,381 $ 571,158 $ 574,027 $ 572,599
Federal funds sold and other interest-earning deposits 229,638 57,950 188,427 130,889
Loans and fees, including loans held for sale 3,967,211 3,792,902 3,831,406 3,568,383
Total interest-earning assets 4,756,230 4,422,010 4,593,860 4,271,871
Total assets 4,953,134 4,622,760 4,826,208 4,485,829
 

Liabilities and Stockholders’ Equity:

Noninterest-bearing deposits $ 1,045,939 $ 950,020 $ 1,073,181 $ 894,049
Interest-bearing deposits 2,383,196 2,197,411 2,267,663 2,058,592

 

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

271,434 231,817 219,515 280,296
Federal Home Loan Bank advances 537,326 570,135 563,552 583,591
Subordinated note 41,240 41,240 41,240 42,502
Total interest-bearing liabilities 3,233,196 3,040,603 3,091,970 2,964,981

Stockholders’ equity

640,686 604,095 628,329 597,463
 

               
Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 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 Dec. 31, Years Ended Dec. 31,
2017 2016 2017 2016
 
Total interest income(7) $ 56,349 $ 45,903 $ 218,778 $ 173,992
Total interest expense   5,711     4,258   20,258     17,938
Net interest income 50,638 41,645 198,520 156,054
 
Provision for loan and lease losses 6,071 5,004 27,704 14,493
 
Noninterest income:
Service charges on deposit accounts 3,325 3,338 13,357 13,176
Net refund transfer fees 171 121 18,500 19,240
Mortgage banking income 935 980 4,642 6,882
Interchange fee income 2,533 2,254 9,881 9,009
Program fees 1,851 1,102 5,824 3,044
Increase in cash surrender value of BOLI 384 402 1,562 1,516
Losses on securities available for sale (136 ) — (136 ) —
Net gains on OREO 254 53 676 244
Other   873     2,235   4,108     4,398
Total noninterest income   10,190     10,485   58,414     57,509
 
Noninterest expenses:
Salaries and employee benefits 20,502 16,917 82,233 69,882
Occupancy and equipment, net 6,518 5,618 25,194 21,777
Communication and transportation 1,261 1,282 4,711 4,256
Marketing and development 1,098 1,005 5,188 3,778
FDIC insurance expense 328 297 1,378 1,780
Bank franchise tax expense 652 813 4,626 4,757
Data processing 2,606 1,586 7,748 6,121
Interchange related expense 931 1,071 3,988 4,140
Supplies 565 437 1,594 1,406
OREO expense 104 148 388 503
Legal and professional fees 616 591 2,410 2,556
FHLB advance prepayment penalty — — — 846
Other   2,964     2,401   11,386     8,305
Total noninterest expenses   38,145     32,166   150,844     130,107
 
Income before income tax expense 16,612 14,960 78,386 68,963
 
Income tax expense:
Income tax expense - TCJA(1) 6,326 — 6,326 —
Income tax expense - Other   5,448     4,960   26,428     23,060
Total income tax expense   11,774     4,960   32,754     23,060
 
Net income $ 4,838   $ 10,000 $ 45,632   $ 45,903
 

 
Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 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 Dec. 31, Years Ended Dec. 31,
2017 2016 2017 2016
Per Share Data:
 
Basic weighted average shares outstanding 21,149 20,926 20,921 20,942
Diluted weighted average shares outstanding 21,258 20,941 21,007 20,954
 
Period-end shares outstanding:
Class A Common Stock 18,607 18,615 18,607 18,615
Class B Common Stock 2,243 2,245 2,243 2,245
 
Book value per share(8) $ 30.33 $ 28.97 $ 30.33 $ 28.97
Tangible book value per share(8) 29.27 27.89 29.27 27.89
 

Earnings per share (“EPS”):

Basic EPS - Class A Common Stock $ 0.23 $ 0.48 $ 2.21 $ 2.22
Basic EPS - Class B Common Stock 0.21 0.44 2.01 2.02
Diluted EPS - Class A Common Stock 0.23 0.48 2.20 2.22
Diluted EPS - Class B Common Stock 0.21 0.44 2.00 2.01
 
Cash dividends declared per Common share:
Class A Common Stock $ 0.220 $ 0.209 $ 0.869 $ 0.825
Class B Common Stock 0.200 0.190 0.790 0.750
 
Performance Ratios:
 
Return on average assets 0.39 % 0.87 % 0.95 % 1.02 %
Return on average equity 3.02 6.62 7.26 7.68
Efficiency ratio(9) 63 62 59 61
Yield on average interest-earning assets(7) 4.74 4.15 4.76 4.07
Cost of average interest-bearing liabilities 0.71 0.56 0.66 0.60
Cost of average deposits(10) 0.35 0.22 0.29 0.21
Net interest spread(7) 4.03 3.59 4.10 3.47
Net interest margin - Total Company(7) 4.26 3.77 4.32 3.65
Net interest margin - Core Bank(3) 3.72 3.42 3.55 3.30
 
Other Information:
 
End of period FTEs(11) - Total Company 997 938 997 938
End of period FTEs - Core Bank 915 869 915 869
Number of full-service banking centers 44 44 44 44
 

 
Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 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     As of and for the
Three Months Ended Dec. 31, Years Ended Dec. 31,
2017     2016 2017     2016
Credit Quality Asset Balances:
 
Nonperforming Assets - Total Company:
Loans on nonaccrual status $ 14,118 $ 15,892 $ 14,118 $ 15,892
Loans past due 90-days-or-more and still on accrual   956     167     956     167  
Total nonperforming loans 15,074 16,059 15,074 16,059
OREO   115     1,391     115     1,391  
Total nonperforming assets - Total Company $ 15,189   $ 17,450   $ 15,189   $ 17,450  
 
Nonperforming Assets - Core Bank(3):
Loans on nonaccrual status $ 14,118 $ 15,892 $ 14,118 $ 15,892
Loans past due 90-days-or-more and still on accrual   19     85     19     85  
Total nonperforming loans 14,137 15,977 14,137 15,977
OREO   115     1,391     115     1,391  
Total nonperforming assets - Core Bank $ 14,252   $ 17,368   $ 14,252   $ 17,368  
 
Delinquent loans:
Delinquent loans - Core Bank $ 8,460 $ 6,821 $ 8,460 $ 6,821
Delinquent loans - RPG(5)   5,641     2,137     5,641     2,137  
Total delinquent loans - Total Company $ 14,101   $ 8,958   $ 14,101   $ 8,958  
 
 
Credit Quality Ratios - Total Company:
 
Nonperforming loans to total loans 0.38 % 0.42 % 0.38 % 0.42 %
Nonperforming assets to total loans (including OREO) 0.38 0.46 0.38 0.46
Nonperforming assets to total assets 0.30 0.36 0.30 0.36
Allowance for loan and lease losses to total loans 1.07 0.86 1.07 0.86
Allowance for loan and lease losses to nonperforming loans 284 205 284 205
Delinquent loans to total loans(6) 0.35 0.24 0.35 0.24
Net charge-offs to average loans (annualized) 0.35 0.27 0.47 0.25
 
Credit Quality Ratios - Core Bank:
 
Nonperforming loans to total loans 0.36 % 0.42 % 0.36 % 0.42 %
Nonperforming assets to total loans (including OREO) 0.36 0.46 0.36 0.46
Nonperforming assets to total assets 0.28 0.36 0.28 0.36
Allowance for loan and lease losses to total loans 0.77 0.74 0.77 0.74
Allowance for loan and lease losses to nonperforming loans 213 175 213 175
Delinquent loans to total loans 0.21 0.18 0.21 0.18
Net charge-offs to average loans (annualized) 0.06 0.09 0.04 0.05
 

 
Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 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
Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016
Assets:
Cash and cash equivalents $ 299,351 $ 329,862 $ 332,695 $ 206,187 $ 289,309
Investment securities 591,458 523,896 525,684 578,130 534,139
Loans held for sale 16,989 13,135 11,756 10,292 15,170
Loans 4,014,034 3,957,512 3,916,320 3,710,376 3,810,778
Allowance for loan and lease losses   (42,769 )   (40,191 )   (37,898 )   (42,362 )   (32,920 )
Loans, net 3,971,265 3,917,321 3,878,422 3,668,014 3,777,858
Federal Home Loan Bank stock, at cost 32,067 32,067 32,067 28,208 28,208
Premises and equipment, net 45,605 44,845 44,255 43,962 42,869
Goodwill 16,300 16,300 16,300 16,300 16,300
Other real estate owned 115 167 300 1,362 1,391
Bank owned life insurance 63,356 62,972 62,578 62,185 61,794
Other assets and accrued interest receivable   48,856     52,609     51,604     50,152     49,271  
Total assets $ 5,085,362   $ 4,993,174   $ 4,955,661   $ 4,664,792   $ 4,816,309  
 

Liabilities and Stockholders’ Equity:

Deposits:
Noninterest-bearing $ 1,022,042 $ 1,040,414 $ 1,061,637 $ 1,070,237 $ 971,952
Interest-bearing   2,411,116     2,309,315     2,072,301     2,278,547     2,188,740  
Total deposits 3,433,158 3,349,729 3,133,938 3,348,784 3,160,692
 

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

204,021 173,311 113,334 144,375 173,473
Federal Home Loan Bank advances 737,500 757,500 1,002,500 467,500 802,500
Subordinated note 41,240 41,240 41,240 41,240 41,240
Other liabilities and accrued interest payable   37,019     38,107     37,758     42,229     33,998  
Total liabilities 4,452,938 4,359,887 4,328,770 4,044,128 4,211,903
 

Stockholders’ equity

  632,424     633,287     626,891     620,664     604,406  

Total liabilities and Stockholders’ equity

$ 5,085,362   $ 4,993,174   $ 4,955,661   $ 4,664,792   $ 4,816,309  
 
                   
Average Balance Sheet Data
Quarterly Comparison
Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016
Assets:
Investment securities, including FHLB stock $ 559,381 $ 552,821 $ 597,818 $ 586,621 $ 571,158
Federal funds sold and other interest-earning deposits 229,638 208,688 130,650 184,007 57,950
Loans and fees, including loans held for sale 3,967,211 3,875,420 3,730,379 3,749,738 3,792,902
Total interest-earning assets 4,756,230 4,636,929 4,458,847 4,520,366 4,422,010
Total assets 4,953,134 4,834,653 4,668,048 4,847,700 4,622,760
 

Liabilities and Stockholders’ Equity:

Noninterest-bearing deposits $ 1,045,939 $ 1,052,162 $ 1,063,215 $ 1,132,591 $ 950,020
Interest-bearing deposits 2,383,196 2,249,436 2,224,127 2,212,219 2,197,411

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

271,434 208,160 179,594 218,412 231,817
Federal Home Loan Bank advances 537,326 618,750 500,027 598,167 570,135
Subordinated note 41,240 41,240 41,240 41,240 41,240
Total interest-bearing liabilities 3,233,196 3,117,586 2,944,988 3,070,038 3,040,603

Stockholders’ equity

640,686 633,874 627,940 610,429 604,095
 

 
Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 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
Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016
 
Total interest income(7) $ 56,349 $ 53,725 $ 47,821 $ 60,883 $ 45,903
Total interest expense   5,711     5,418   4,684   4,445   4,258
Net interest income 50,638 48,307 43,137 56,438 41,645
 
Provision for loan and lease losses 6,071 4,221 5,061 12,351 5,004
 
Noninterest income:
Service charges on deposit accounts 3,325 3,395 3,390 3,247 3,338
Net refund transfer fees 171 177 2,770 15,382 121
Mortgage banking income 935 1,102 1,445 1,160 980
Interchange fee income 2,533 2,475 2,547 2,326 2,254
Program fees 1,851 1,597 1,284 1,091 1,102
Increase in cash surrender value of BOLI 384 394 393 391 402
Losses on securities available for sale (136 ) — — — —
Net gains on OREO 254 31 249 142 53
Other   873     1,203   849   1,184   2,235
Total noninterest income   10,190     10,374   12,927   24,923   10,485
 
Noninterest expenses:
Salaries and employee benefits 20,502 20,505 20,015 21,211 16,917
Occupancy and equipment, net 6,518 6,806 5,903 5,967 5,618
Communication and transportation 1,261 1,239 939 1,272 1,282
Marketing and development 1,098 1,677 1,409 1,004 1,005
FDIC insurance expense 328 300 300 450 297
Bank franchise tax expense 652 749 790 2,435 813
Data processing 2,606 1,795 1,695 1,652 1,586
Interchange related expense 931 928 1,071 1,058 1,071
Supplies 565 241 261 527 437
OREO expense 104 55 132 97 148
Legal and professional fees 616 446 596 752 591
FHLB advance prepayment penalty — — — — —
Other   2,964     3,285   2,623   2,514   2,401
Total noninterest expenses   38,145     38,026   35,734   38,939   32,166
 
Income before income tax expense 16,612 16,434 15,269 30,071 14,960
 
Income tax expense:
Income tax expense - TCJA(1) 6,326 — — — —
Income tax expense - Other   5,448     5,728   5,198   10,054   4,960
Total income tax expense   11,774     5,728   5,198   10,054   4,960
 
Net income $ 4,838   $ 10,706 $ 10,071 $ 20,017 $ 10,000
 

 
Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 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
Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016
Per Share Data:
 
Basic weighted average shares outstanding 21,149 21,153 21,151 20,915 20,926
Diluted weighted average shares outstanding 21,258 21,236 21,230 20,996 20,941
 
Period-end shares outstanding:
Class A Common Stock 18,607 18,618 18,618 18,615 18,615
Class B Common Stock 2,243 2,243 2,243 2,243 2,245
 
Book value per share(8) $ 30.33 $ 30.36 $ 30.05 $ 29.76 $ 28.97
Tangible book value per share(8) 29.27 29.29 28.98 28.68 27.89
 

Earnings per share (“EPS”):

Basic EPS - Class A Common Stock $ 0.23 $ 0.51 $ 0.48 $ 0.97 $ 0.48
Basic EPS - Class B Common Stock 0.21 0.47 0.44 0.88 0.44
Diluted EPS - Class A Common Stock 0.23 0.51 0.48 0.96 0.48
Diluted EPS - Class B Common Stock 0.21 0.47 0.44 0.88 0.44
 
Cash dividends declared per Common share:
Class A Common Stock $ 0.220 $ 0.220 $ 0.220 $ 0.209 $ 0.209
Class B Common Stock 0.200 0.200 0.200 0.190 0.190
 
Performance Ratios:
 
Return on average assets 0.39 % 0.89 % 0.86 % 1.65 % 0.87 %
Return on average equity 3.02 6.76 6.42 13.12 6.62
Efficiency ratio(9) 63 65 64 48 62
Yield on average interest-earning assets(7) 4.74 4.63 4.29 5.39 4.15
Cost of average interest-bearing liabilities 0.71 0.70 0.64 0.58 0.56
Cost of average deposits(10) 0.35 0.31 0.28 0.22 0.22
Net interest spread(7) 4.03 3.93 3.65 4.81 3.59
Net interest margin - Total Company(7) 4.26 4.17 3.87 4.99 3.77
Net interest margin - Core Bank(3) 3.72 3.68 3.46 3.33 3.42
 
Other Information:
 
End of period FTEs(11) - Total Company 997 970 976 973 938
End of period FTEs - Core Bank 915 896 904 901 869
Number of full-service banking centers 44 45 45 45 44
 

 
Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 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
Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016
Credit Quality Asset Balances:
 
Nonperforming Assets - Total Company:
Loans on nonaccrual status $ 14,118 $ 15,475 $ 15,467 $ 16,793 $ 15,892
Loans past due 90-days-or-more and still on accrual   956     906     335     203     167  
Total nonperforming loans 15,074 16,381 15,802 16,996 16,059
OREO   115     167     300     1,362     1,391  
Total nonperforming assets - Total Company $ 15,189   $ 16,548   $ 16,102   $ 18,358   $ 17,450  
 
Nonperforming Assets - Core Bank(3):
Loans on nonaccrual status $ 14,118 $ 15,475 $ 15,467 $ 16,793 $ 15,892
Loans past due 90-days-or-more and still on accrual   19     55     33     81     85  
Total nonperforming loans 14,137 15,530 15,500 16,874 15,977
OREO   115     167     300     1,362     1,391  
Total nonperforming assets - Core Bank $ 14,252   $ 15,697   $ 15,800   $ 18,236   $ 17,368  
 
Delinquent Loans:
Delinquent loans - Core Bank $ 8,460 $ 7,756 $ 6,844 $ 5,952 $ 6,821
Delinquent loans - RPG(5)   5,641     4,270     2,169     10,211     2,137  
Total delinquent loans - Total Company $ 14,101   $ 12,026   $ 9,013   $ 16,163   $ 8,958  
 
 
Credit Quality Ratios - Total Company:
 
Nonperforming loans to total loans 0.38 % 0.41 % 0.40 % 0.46 % 0.42 %
Nonperforming assets to total loans (including OREO) 0.38 0.42 0.41 0.49 0.46
Nonperforming assets to total assets 0.30 0.33 0.32 0.39 0.36
Allowance for loan and lease losses to total loans 1.07 1.02 0.97 1.14 0.86
Allowance for loan and lease losses to nonperforming loans 284 245 240 249 205
Delinquent loans to total loans(6)(12) 0.35 0.30 0.23 0.44 0.24
Net charge-offs to average loans (annualized) 0.35 0.20 1.02 0.31 0.27
 
Credit Quality Ratios - Core Bank:
 
Nonperforming loans to total loans 0.36 % 0.40 % 0.40 % 0.46 % 0.42 %
Nonperforming assets to total loans (including OREO) 0.36 0.40 0.41 0.50 0.46
Nonperforming assets to total assets 0.28 0.32 0.32 0.40 0.36
Allowance for loan and lease losses to total loans 0.77 0.76 0.76 0.76 0.74
Allowance for loan and lease losses to nonperforming loans 213 190 189 166 175
Delinquent loans to total loans 0.21 0.20 0.18 0.16 0.18
Net charge-offs to average loans (annualized) 0.06 0.03 0.05 0.02 0.09
 

Republic Bancorp, Inc. Financial Information
Fourth Quarter 2017 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 December 31, 2017, the Company was divided into five distinct 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 the “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute the 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 2016 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

Fourth Quarter 2017 Earnings Release (continued)

 

Segment information for the three months and years ended December 31, 2017 and 2016 follows:

 
    Three Months Ended December 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 $ 39,333 $ 4,460 $ 91 $ 43,884 $ 18 $ 6,736 $ 6,754 $ 50,638
 
Provision for loan and lease losses 1,312 (114 ) — 1,198 (228 ) 5,101 4,873 6,071
 
Net refund transfer fees — — — — 171 — 171 171
Mortgage banking income — — 935 935 — — — 935
Program fees — — — — 73 1,778 1,851 1,851
Losses on securities available for sale (136 ) — — (136 ) — — — (136 )
Other noninterest income   6,970     10     87     7,067     12     290     302     7,369  
Total noninterest income 6,834 10 1,022 7,866 256 2,068 2,324 10,190
 
Total noninterest expenses   31,085     944     1,418     33,447     3,600     1,098     4,698     38,145  
 
Income (loss) before income tax expense 13,770 3,640 (305 ) 17,105 (3,098 ) 2,605 (493 ) 16,612
 
Income tax expense (benefit) - TCJA(1) 5,115 181 (702 ) 4,594 — 1,732 1,732 6,326
Income tax expense (benefit) - Other   4,403     1,331     (106 )   5,628     (1,125 )   945     (180 )   5,448  
Total income tax expense (benefit)   9,518     1,512     (808 )   10,222     (1,125 )   2,677     1,552     11,774  
 
Net income (loss) $ 4,252   $ 2,128   $ 503   $ 6,883   $ (1,973 ) $ (72 ) $ (2,045 ) $ 4,838  
 
Segment period-end assets $ 4,470,932 $ 525,246 $ 11,115 $ 5,007,293 $ 12,450 $ 65,619 $ 78,069 $ 5,085,362
 
Net interest margin 3.76 % 3.41 % NM 3.72 % NM NM NM 4.26 %
 
 
Three Months Ended December 31, 2016
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 $ 32,413 $ 5,160 $ 52 $ 37,625 $ 18 $ 4,002 $ 4,020 $ 41,645
 
Provision for loan and lease losses 1,881 (189 ) — 1,692 (133 ) 3,445 3,312 5,004
 
Net refund transfer fees — — — — 121 — 121 121
Mortgage banking income — — 980 980 — — — 980
Program fees — — — — 36 1,066 1,102 1,102
Other noninterest income   6,710     4     148     6,862     13     1,407     1,420     8,282  
Total noninterest income 6,710 4 1,128 7,842 170 2,473 2,643 10,485
 
Total noninterest expenses   26,809     985     1,112     28,906     2,672     588     3,260     32,166  
 
Income (loss) before income tax expense 10,433 4,368 68 14,869 (2,351 ) 2,442 91 14,960
Income tax expense (benefit)   3,282     1,624     24     4,930     (855 )   885     30     4,960  
Net income (loss) $ 7,151   $ 2,744   $ 44   $ 9,939   $ (1,496 ) $ 1,557   $ 61   $ 10,000  
 
Segment period-end assets $ 4,169,557 $ 584,916 $ 17,453 $ 4,771,926 $ 13,575 $ 30,808 $ 44,383 $ 4,816,309
 
Net interest margin 3.41 % 3.50 % NM 3.42 % NM NM NM 3.77 %
 

                               

Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 Earnings Release (continued)

 
Year Ended December 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 $ 142,823 $ 17,533 $ 346 $ 160,702 $ 15,197 $ 22,621 $ 37,818 $ 198,520
 
Provision for loan and lease losses 3,923 (150 ) — 3,773 6,535 17,396 23,931 27,704
 
Net refund transfer fees — — — — 18,500 — 18,500 18,500
Mortgage banking income — — 4,642 4,642 — — — 4,642
Program fees — — — — 176 5,648 5,824 5,824
Losses on securities available for sale (136 ) — — (136 ) — — — (136 )
Other noninterest income   27,588     37     279     27,904     164   1,516   1,680   29,584  
Total noninterest income 27,452 37 4,921 32,410 18,840 7,164 26,004 58,414
 
Total noninterest expenses   124,637     3,392     4,765     132,794     14,491   3,559   18,050   150,844  
 
Income before income tax expense 41,715 14,328 502 56,545 13,011 8,830 21,841 78,386
 
Income tax expense (benefit) - TCJA(1) 5,115 181 (702 ) 4,594 — 1,732 1,732 6,326
Income tax expense - Other   13,087     5,240     176     18,503     4,721   3,204   7,925   26,428  
Total income tax expense (benefit)   18,202     5,421     (526 )   23,097     4,721   4,936   9,657   32,754  
 
Net income $ 23,513   $ 8,907   $ 1,028   $ 33,448   $ 8,290 $ 3,894 $ 12,184 $ 45,632  
 
Segment period-end assets $ 4,470,932 $ 525,246 $ 11,115 $ 5,007,293 $ 12,450 $ 65,619 $ 78,069 $ 5,085,362
 
Net interest margin 3.55 % 3.53 % NM 3.55 % NM NM NM 4.32 %
 
 
Year Ended December 31, 2016
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 $ 121,692 $ 16,529 $ 200 $ 138,421 $ 6,607 $ 11,026 $ 17,633 $ 156,054
 
Provision for loan and lease losses 3,448 497 — 3,945 2,772 7,776 10,548 14,493
 
Net refund transfer fees — — — — 19,240 — 19,240 19,240
Mortgage banking income — — 6,882 6,882 — — — 6,882
Program fees — — — — 210 2,834 3,044 3,044
Other noninterest income   26,090     18     360     26,468     189   1,686   1,875   28,343  
Total noninterest income 26,090 18 7,242 33,350 19,639 4,520 24,159 57,509
 
Total noninterest expenses   108,360     3,142     4,688     116,190     11,701   2,216   13,917   130,107  
 
Income before income tax expense 35,974 12,908 2,754 51,636 11,773 5,554 17,327 68,963
Income tax expense   11,015     4,798     964     16,777     4,270   2,013   6,283   23,060  
Net income $ 24,959   $ 8,110   $ 1,790   $ 34,859   $ 7,503 $ 3,541 $ 11,044 $ 45,903  
 
Segment period-end assets $ 4,169,557 $ 584,916 $ 17,453 $ 4,771,926 $ 13,575 $ 30,808 $ 44,383 $ 4,816,309
 
Net interest margin 3.26 % 3.59 % NM 3.30 % NM NM NM 3.65 %
 

       

Republic Bancorp, Inc. Financial Information

Fourth Quarter 2017 Earnings Release (continued)

 

(1)

Upon enactment of the Tax Cuts and Jobs Act (“TCJA”) on December 22, 2017, the Company recorded a charge to income tax expense of $6.3 million due to the remeasurement of its deferred tax assets and liabilities at a 21% corporate tax rate. The amount recorded is based on a reasonable estimate using currently available information. The Company has up to one year to adjust this amount for new information received.

 

(2)

GAAP – U.S. Generally Accepted Accounting Principles.

 

(3)

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

 

(4)

Core deposits, a non-GAAP measure, are total deposits excluding time deposits greater than or equal to $250,000, all brokered deposits and all RPG deposits. Core deposits are intended to include those deposits that are more stable and lower cost and that reprice more slowly than other deposits when interest rates rise. The following table reconciles noninterest-bearing and interest-bearing deposits in accordance with GAAP to core deposits:

               
 
(dollars in thousands) Dec. 31, 2017 Dec. 31, 2016

$ Change

% Change
 
Noninterest-bearing deposits - GAAP $ 1,022,042 $ 971,952 $ 50,090 5 %
Less: Noninterest-bearing deposits - RPG   33,505   28,493   5,012 18
Core noninterest-bearing deposits - Non-GAAP (a) $ 988,537 $ 943,459 $ 45,078 5
 
Interest-bearing deposits - GAAP $ 2,411,116 $ 2,188,740 $ 222,376 10 %
Less: Time deposits, $250,000 and over 77,891 37,200 40,691 109
Less: Brokered money market accounts 373,242 360,597 12,645 4
Less: Brokered certificates of deposit 46,089 28,666 17,423 61
Less: Interest-bearing deposits - RPG   1,641   —   1,641 NM
Core interest-bearing deposits - Non-GAAP (b) $ 1,912,253 $ 1,762,277 $ 149,976 9 %
 
Total core deposits - Non-GAAP (a+b) $ 2,900,790 $ 2,705,736 $ 195,054 7
 
     

(5)

 

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

 

(6)

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.

 

(7)

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 was $9.4 million and $5.9 million for the quarters ended December 31, 2017 and 2016. The amount of loan fee income included in total interest income was $46.2 million and $24.2 million for the years ended December 31, 2017 and 2016.

 

The amount of loan fee income included in total interest income per quarter was as follows: $9.4 million (quarter ended December 31, 2017); $9.1 million (quarter ended September 30, 2017); $6.4 million (quarter ended June 30, 2017); $21.3 million (quarter ended March 31, 2017); and $5.9 million (quarter ended December 31, 2016).

 

Interest income for Easy Advances (“EAs”) is composed entirely of loan fees. The loan fees disclosed above included EA fees of $14.2 million and $5.2 million for the years ended December 31, 2017 and 2016. EAs are only offered during the first two months of each year.

 

(8)

The following table provides a reconciliation of total stockholders’ equity in accordance with GAAP to tangible stockholders’ equity in accordance with applicable regulatory requirements, a non-GAAP measure. The Company provides the tangible book value per share, another 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) Dec. 31, 2017 Sep. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016
 

Total stockholders’ equity - GAAP (a)

$ 632,424 $ 633,287 $ 626,891 $ 620,664 $ 604,406
Less: Goodwill 16,300 16,300 16,300 16,300 16,300
Less: Mortgage servicing rights 5,044 5,128 5,159 5,158 5,180
Less: Core deposit intangible   858     911     964     1,017     1,070  

Tangible stockholders’ equity - Non-GAAP (c)

$ 610,222   $ 610,948   $ 604,468   $ 598,189   $ 581,856  
 
Total assets - GAAP (b) $ 5,085,362 $ 4,993,174 $ 4,955,661 $ 4,664,792 $ 4,816,309
Less: Goodwill 16,300 16,300 16,300 16,300 16,300
Less: Mortgage servicing rights 5,044 5,128 5,159 5,158 5,180
Less: Core deposit intangible   858     911     964     1,017     1,070  
Tangible assets - Non-GAAP (d) $ 5,063,160   $ 4,970,835   $ 4,933,238   $ 4,642,317   $ 4,793,759  
 

Total stockholders’ equity to total assets - GAAP (a/b)

12.44 % 12.68 % 12.65 % 13.31 % 12.55 %

Tangible stockholders’ equity to tangible assets - Non-GAAP (c/d)

12.05 % 12.29 % 12.25 % 12.89 % 12.14 %
 
Number of shares outstanding (e)   20,850     20,861     20,861     20,858     20,860  
 
Book value per share - GAAP (a/e) $ 30.33 $ 30.36 $ 30.05 $ 29.76 $ 28.97
Tangible book value per share - Non-GAAP (c/e) 29.27 29.29 28.98 28.68 27.89
 
     

(9)

 

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.

 

(10)

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.

 

(11)

FTEs – Full-time-equivalent employees.

 

(12)

Delinquent loans for the RPG segment included $8.4 million of EAs at March 31, 2017. EAs were only offered during the first two months of 2017 and 2016. 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