Republic Bancorp, Inc. Reports 49% Rise in Fourth Quarter Net Income

Republic Bancorp, Inc. (NASDAQ: RBCAA), headquartered in Louisville, Kentucky, is the holding company of Republic Bank & Trust Company (the “Bank”).

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20200124005014/en/

Republic Bancorp, Inc. (“Republic” or the “Company”) is pleased to report fourth quarter net income of $25.8 million, a 49% increase over the fourth quarter of 2018, resulting in Diluted Earnings per Class A Common Share (“Diluted EPS”) of $1.23. Fiscal year 2019 net income was $91.7 million, an 18% increase from the same period in 2018, resulting in Diluted EPS of $4.39, return on average assets (“ROA”) of 1.64%, and return on average equity (“ROE”) of 12.49%.

Fourth quarter 2019 adjusted net income(1), which excludes one-time benefits from the Company’s November 2019 sale of four branches in Owensboro, Elizabethtown and Frankfort, Kentucky, was $18.8 million, a 9% increase over the same period in 2018, resulting in adjusted Diluted EPS(1) of $0.89. Fiscal year 2019 adjusted net income(1), which excludes the same one-time benefits, was $84.8 million, a 9% increase over 2018, resulting in adjusted Diluted EPS(1) of $4.06, adjusted ROA(1) of 1.51%, and adjusted ROE(1) of 11.55%. These adjusted results, which management believes improve comparability between periods, are considered non-GAAP(1) measures. A reconciliation to comparable GAAP(1) measures is provided in Footnote 1. Also impacting comparability, the income tax expense line item for the fourth quarter and year ended December 31, 2018 contained items that positively impacted the Company’s overall effective tax rate in 2018(2).

Steve Trager, Chairman & CEO of Republic commented, “I am very excited to say that we posted another year of solid growth in net income, with continued strong balance sheet growth and on-going favorable asset quality. We are proud to say that these results reflect our focused balance sheet management strategies, which along with our investments in mortgage-banking talent and technology, positioned us to produce our solid results despite a mixed landscape of conditions for growth opportunities.

“Looking ahead to 2020, we are cautiously optimistic. Our balance sheet and capital levels are well-positioned for an uncertain interest rate environment, while our talent level is second to none. As always, we will rise to meet the challenges in the year ahead with our strong management team and over 1,000 dedicated associates, who are always willing to go the extra mile each and every day in our efforts to make Republic one of the best performing banks in the industry,” concluded Steve Trager.

The following table highlights Republic’s financial performance for the fourth quarters and years ended December 31, 2019 and 2018:

* Results by reportable segment provided near the end of this earnings release.
NA – Not applicable

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

Core Bank(3) – Core Bank net income for the fourth quarter of 2019 increased $7.1 million, or 44%, over the same period in 2018. After-tax benefits from the Company’s branch divestiture in November 2019 included a net gain on divestiture of $6.3 million and a net credit to Provision expense of $711,000, as the Bank relieved reserves for its divested loans. Excluding these one-time benefits, continued growth in net interest income, a lower provision for loan losses (“Provision”), and strong mortgage banking income primarily drove the overall increase in net income. These positive drivers were partially offset by an increase in noninterest expense.

Core Bank net interest income increased $948,000, or 2%, over the fourth quarter of 2018. Growth in net interest income was driven by strong loan growth, as Core Bank average loans increased $481 million, or 12% over average loans for the fourth quarter of 2018. The impact to net interest income resulting from the solid loan growth overcame a 29-basis-point decline in the Core Bank’s net interest margin for the quarter.

The following tables present the overall changes in the Core Bank’s adjusted(1) and unadjusted net interest income, net interest margin, as well as average and period-end loan balances by reportable segment:

*Includes loans held for sale
** A reconciliation of these non-GAAP measures to comparable GAAP measures is provided in Footnote 1 of this earnings release.
NM – Not meaningful

*Includes loans held for sale
** A reconciliation of these non-GAAP measures to comparable GAAP measures is provided in Footnote 1 of this earnings release.
NM – Not meaningful

The primary drivers of the changes in the Core Bank’s net interest income and net interest margin for the fourth quarter of 2019, as compared to similar measures for the fourth quarter of 2018, were as follows:

Traditional Banking

Excluding divested branches, the Traditional Bank’s net interest income increased $699,000 and was positively impacted by growth in average commercial real estate loans of $94 million and average commercial & industrial loans of $66 million. Such loan growth overcame net interest margin compression of 13 basis points.

The quarter-over-quarter margin compression within the Traditional Banking segment was primarily driven by the following factors:

• The net interest margin compressed partially due to decreased value from the Traditional Bank’s noninterest-bearing funding sources. The difference between the Traditional Banking segment’s net interest margin and net interest spread was 10 basis points during the fourth quarter of 2019 compared to 17 basis points during the fourth quarter of 2018, with the differential representing the decreased value to the net interest margin of noninterest-bearing deposits and stockholders’ equity. The decrease in this value resulted from a 12 basis-point decline in the yield on the Traditional Banking segment’s interest-earning assets from period to period.

• In addition to the decline in the yield of Traditional Bank’s interest earning assets, the segment was also negatively impacted by the flat U.S. Treasury yield curve during the period in which short-term and long-term U.S. Treasury yields remained similar to each other. As is generally the case with all banks, the Traditional Bank’s asset yields and liability funding costs are substantially determined by the shape of the U.S. Treasury yield curve. As a result, the Traditional Bank continued to experience market-based pressures during the quarter to reduce its new loan yields, which are generally tied to longer-term rates, more than any decreases it was able to attain from its incremental funding costs. Management expects margin compression challenges to remain in the future as long as the overall U.S. Treasury yield curve remains flat or inverted.

Warehouse Lending

Warehouse Lending (“Warehouse”) loans experienced exponential growth, with outstanding average balances increasing from $454 million during the fourth quarter of 2018 to $816 million during the fourth quarter of 2019 due to increased client line usage. As a result, quarter over quarter net interest income for the segment increased $1.1 million despite compression in the Warehouse segment’s net interest margin.

The Core Bank’s Provision decreased $2.7 million from the fourth quarter of 2018 to a net credit of $1.4 million for the fourth quarter of 2019. The primary difference in the Provision between the two periods was a one-time, pre-tax $900,000 credit to the Provision that the Company recorded with the final settlement of its branch divestiture. Excluding the impact of the branch divestiture, the Core Bank’s Provision decreased from $1.3 million for the fourth quarter of 2018 to a net credit of $481,000 for the fourth quarter of 2019. A decline in Core Bank period-end balances during the fourth quarter of 2019 compared to growth in those balances during the same period in 2018 primarily drove the decrease in the Provision. Core bank spot balances, excluding divested loans, decreased $251 million during the fourth quarter of 2019 primarily due to a $256 million decline in Warehouse period-end balances.

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

Core Bank noninterest income was $18.2 million for the fourth quarter of 2019, an increase of $9.4 million from the fourth quarter of 2018. Core Bank noninterest income for the fourth quarter of 2019 included a pre-tax $7.9 million net gain resulting from the final settlement of the Company’s branch divestiture. Driving the remainder of the increase in noninterest income was a $1.4 million rise in mortgage banking income, as the Company’s on-going investment in its Consumer Direct channel and processing capacity enabled it to take advantage of a favorable rate environment. As a result, secondary market loans originated from period to period increased $65 million and the Bank’s pipeline of secondary market loans in process from December 31, 2018 to December 31, 2019 increased $18 million.

Core Bank noninterest expense was $37.1 million for the fourth quarter of 2019 compared to $34.5 million for the fourth quarter of 2018. 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 $1.2 million for the fourth quarter of 2019 compared to a net credit of $75,000 for the fourth quarter of 2018. The increase in incentive compensation primarily reflected higher mortgage commissions during the fourth quarter of 2019 resulting from increased mortgage banking production. Excluding the impact of the change in incentive compensation expense, noninterest expense increased $964,000, or 3%, for the fourth quarter of 2019, as compared to the fourth quarter of 2018 and was primarily driven by the following:

• Salaries and employee benefits expense increased $340,000, or 2%, with costs for 29 additional Core Bank full-time-equivalent employees from December 31, 2018 to December 31, 2019 partially offset by reductions in equity compensation expense and employee benefits expense.

• The Core Bank’s noninterest expense during the fourth quarter of 2019 was positively impacted by a $265,000 reduction in FDIC insurance costs, as the Bank was able to apply its Small Bank Assessment Credits against its most recent FDIC insurance premium payment. The Bank has just over one quarter’s worth of credits it can apply to future FDIC insurance premiums.

Republic Processing Group(5)

The Republic Processing Group (“RPG”) reported net income of $2.6 million for the fourth quarter of 2019 compared to $1.2 million for the same period in 2018. The positive increase in net income at RPG for the quarter was primarily driven by a $1.2 million increase in net income for its Republic Credit Solutions (“RCS”) segment.

RCS’s increase in net income was primarily driven by a $1.5 million reduction in Provision expense for its line-of-credit product resulting from a decline in the product’s annualized historical loss rate combined with a year-to-year decrease in outstanding balances.

Branch Divestiture(1)

In July 2019, the Bank entered into a definitive agreement to sell its four banking centers located in the Kentucky cities of Owensboro, Elizabethtown, and Frankfort to Limestone Bank (“Limestone”), a subsidiary of Limestone Bancorp, Inc. The agreement provided that Limestone acquire loans, with balances of approximately $128 million as of November 15, 2019 (the “Closing Date”), and assume deposits with balances of approximately $132 million as of the Closing Date, associated with the four banking centers.

In addition to the sale of loans and assumption of deposits, Limestone also acquired substantially all of the fixed assets of these locations, which had a book value of $1.3 million as of the Closing Date. Based on the Closing Date deposits, the all-in blended premium for the transaction was 6.1% of the total deposits transferred. The final calculated premium was based on the trailing 10-day average amount of the deposits as of the closing date, as well as the branch location for the deposits.

Republic Bancorp, Inc. (the “Company”) is the parent company of Republic Bank & Trust Company (the “Bank”). The Bank currently has 42 full-service banking centers and two loan production offices throughout five states: 28 banking centers in 8 Kentucky communities – Covington, Crestview Hills, Florence, Georgetown, Lexington, Louisville, Shelbyville, and Shepherdsville; three banking centers in southern Indiana – Floyds Knobs, Jeffersonville, and New Albany; seven banking centers in six Florida communities (Tampa MSA) – Largo, New Port Richey, St. Petersburg, Seminole, Tampa, and Temple Terrace, and one loan production office in Oldsmar; two banking centers in two Tennessee communities (Nashville MSA) – Cool Springs and Green Hills, and one loan production office in Brentwood; and two banking centers in two Ohio communities (Cincinnati MSA) – Norwood and West Chester. 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 $5.6 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 yield curve, the ability to develop products and strategies in order to meet the Company’s long-term strategic goals, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Actual results could differ materially based upon factors disclosed from time to time in the Company’s filings with the U.S. Securities and Exchange Commission, including those factors set forth as “Risk Factors” in the Company’s Annual Report on Form 10-K for the period ended December 31, 2018 and Quarterly Report on Form 10-Q for the period ended September 30, 2019. The Company undertakes no obligation to update any forward-looking statements, except as required by applicable law.

Republic Bancorp, Inc. Financial Information
Fourth Quarter 2019 Earnings Release
(all amounts other than per share amounts, number of employees, and number of banking centers are expressed in thousands unless otherwise noted)

Republic Bancorp, Inc. Financial Information
Fourth Quarter 2019 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)

Republic Bancorp, Inc. Financial Information
Fourth Quarter 2019 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)

Republic Bancorp, Inc. Financial Information
Fourth Quarter 2019 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)