Republic Bancorp, Inc. (NASDAQ: RBCAA), headquartered
in Louisville, Kentucky, is the holding company of Republic Bank
& Trust Company (the “Bank”).
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Republic Bancorp, Inc. (“Republic” or the “Company”) reported
first quarter 2022 net income of $27.9 million, a $1.9 million, or
7% increase over the first quarter of 2021, resulting in Diluted
Earnings per Class A Common Share (“Diluted EPS”) of $1.40. Return
on average assets (“ROA”) and return on average equity (“ROE”) were
1.74% and 13.19% for the first quarter of 2022.
Logan Pichel, President and CEO of Republic Bank & Trust
Company, commented, “Our first quarter operating results reflected
the benefit of Republic Bank’s business-line diversity. Strong loan
and deposit growth within our Traditional Bank, disciplined expense
management, and a solid quarter within our nontraditional business
lines all helped to mitigate the expected revenue declines related
to Paycheck Protection Program (“PPP”) loans and mortgage
banking.
“Within our Traditional Bank, we had another strong quarter of
non-PPP loan growth to piggyback on top of the $96 million of
non-PPP loan growth achieved during the fourth quarter of 2021.
Relative to previous first quarters, our 2022 loan growth was
particularly strong, as loan originations tend to historically lag
during the first quarter timeframe. Overall, the Traditional Bank
grew its non-PPP loan portfolio by $107 million during the first
quarter of 2022 compared to a net decrease of $51 million in
non-PPP loans during the first quarter of 2021. The Traditional
Bank’s Corporate Banking division and its Northern
Kentucky/Cincinnati market were our growth leaders during the first
quarter of 2022, with the Corporate Banking portfolio growing
almost $50 million, or 16%, and the Northern Kentucky/Cincinnati
market growing $28 million, or 7%.
“In addition to loan growth, our Traditional Bank also grew its
total deposits by $94 million, or 2%, for the first quarter of the
year, with noninterest-bearing deposits representing $84 million of
that growth. Thanks in large part to our continued deposit growth,
the Company was able to maintain its cash balances near record
levels, giving us tremendous flexibility in our daily balance sheet
management in the face of rapidly rising interest rates.
“Within our nontraditional business lines, our Tax Refunds
Solutions (“TRS”) segment reached $15.4 million of net income for
the first quarter of 2022. Net income at TRS for the first quarter
of 2022 included a $5.0 million pre-tax termination fee resulting
from the cancellation of the previously announced sale of TRS
assets and operations to Green Dot Corporation. Excluding the
impact of this fee, TRS net income still rose $6.2 million(1), or
114%, over the comparable adjusted net income for the first quarter
of 2021, in large part, due to a lower estimate for Easy Advance
loan losses as compared to the estimate recorded during the first
quarter of last year.
“In mid-March, the Federal Reserve increased the Federal Funds
Target Rate for the first time in nearly three years in order to
respond to inflationary pressures within the economy. Like many, we
believe the Fed will continue to raise this rate multiple times
during 2022, as well as push long-term rates higher by shrinking
its balance sheet as part of a quantitative tightening policy.
Given our strong client relationships and core deposit balances, we
believe the increase in rates should benefit our net interest
income in future quarters,” concluded Pichel.
The following table highlights Republic’s key metrics for the
three months ended March 31, 2022 and 2021. Additional financial
details, including segment-level data, are provided in the
financial supplement to this release. The attached digital version
of this release includes the financial supplement as an appendix.
The financial supplement may also be found as Exhibit 99.2 of the
Company’s Form 8-K filed with the SEC on April 21, 2022.
Total Company Financial
Performance Highlights
Three Months Ended Mar.
31,
(dollars in thousands, except per share
data)
2022
2021
$ Change
% Change
Income Before Income Tax Expense
$
35,814
$
33,744
$
2,070
6
%
Net Income
27,926
26,053
1,873
7
Diluted EPS
1.40
1.25
0.15
12
Return on Average Assets ("ROA")
1.74
%
1.65
%
NA
5
Return on Average Equity ("ROE")
13.19
12.46
NA
6
NA – Not applicable
Results of Operations for the First
Quarter of 2022 Compared to the First Quarter of
2021
Core Bank(2)
Net income from Core Banking was $7.6 million for the first
quarter of 2022 compared to $16.5 million for the first quarter of
2021. The decrease in net income at the Core Bank was primarily
driven by a $5.7 million reduction in PPP loan fees and interest, a
$2.3 million decline in net interest income from the Warehouse
Lending segment (“Warehouse”), and a $4.5 million decrease in
Mortgage Banking income. The decreases in both Warehouse and
Mortgage Banking income were driven by a reduction in industry-wide
demand for home mortgage refinancing following a dramatic rise in
longer-term interest rates.
The following chart presents net income by segment for the first
quarter of 2022 compared to the first quarter of 2021.
NET INCOME
(dollars in thousands)
Three Months Ended Mar.
31,
Reportable Segment
2022
2021
$ Change
% Change
Traditional Banking - excluding PPP
revenue (tax effected)
$
3,509
$
3,087
$
422
14
%
Traditional Banking - PPP revenue (tax
effected)
862
5,351
(4,489)
(84)
Total Traditional Bank
4,371
8,438
(4,067)
(48)
Warehouse Lending
3,073
4,566
(1,493)
(33)
Mortgage Banking
160
3,517
(3,357)
(95)
Total Core Bank
7,604
16,521
(8,917)
(54)
Tax Refund Solutions
15,377
5,409
9,968
184
Republic Credit Solutions
4,945
4,123
822
20
Total RPG
20,322
9,532
10,790
113
Total Company
$
27,926
$
26,053
$
1,873
7
Net Interest Income – Core Bank net interest income was $40.9
million for the first quarter of 2022, a $7.4 million, or 15%,
decrease from the first quarter of 2021. This decrease was driven
primarily by the following:
- The Core Bank recognized $955,000 of fees and interest on its
PPP(3) portfolio during the first quarter of 2022 compared to $6.7
million of similar fees and interest during the first quarter of
2021. The $5.7 million decrease in PPP fees and interest primarily
highlighted the short-term nature of the PPP, as approximately 97%
of all fees and interest eligible to be collected under the program
by the Core Bank were collected during 2020 and 2021. As of March
31, 2022, total PPP loans of $18 million remained on the Core
Bank’s balance sheet out of the original $738 million originated
during 2020 and 2021, with less than $500,000 of PPP fee income
left to be recognized.
- Excluding PPP fees and interest(3), Traditional Bank net
interest income increased 2%, or $789,000, from the first quarter
of 2021, while the Traditional Bank’s net interest margin declined
from 3.14% for the first quarter of 2021 to 2.84% for the first
quarter of 2022. The increase in net interest income, excluding the
impact of PPP, was driven by solid loan growth, as average non-PPP
Traditional Bank loans grew $184 million, or 6%, from the first
quarter of 2021 to the first quarter of 2022. The decline in the
Traditional Bank’s net interest margin was substantially driven by
the Company’s internal Funds Transfer Pricing methodology related
to TRS, and the timing of cash received for tax refunds during 2022
as compared to 2021.
- Net interest income within the Core Bank’s Warehouse segment
decreased $2.3 million, or 33%, from the first quarter of 2021 to
the first quarter of 2022, driven by decreases in both average
outstanding balances and net interest margin. Overall average
outstanding Warehouse balances declined from $790 million during
the first quarter of 2021 to $585 million for the first quarter of
2022, as home-mortgage refinancing dipped from all-time record
highs during 2020 and early 2021. The Warehouse net interest margin
moderated 34 basis points from 3.43% during the first quarter of
2021 to 3.09% during the first quarter of 2022, as competitive
forces began driving down the contractual interest rates on the
Company’s Warehouse lines during the third quarter of 2021.
Committed Warehouse lines-of-credit remained at $1.4 billion from
March 31, 2021 to March 31, 2022, while average usage rates for
Warehouse lines were 42% and 55%, respectively, during the first
quarters of 2022 and 2021.
The following tables present by reportable segment the overall
changes in the Core Bank’s net interest income and net interest
margin, as well as average and period-end loan balances:
Net Interest Income
Net Interest Margin
(dollars in thousands)
Three Months Ended Mar.
31,
Three Months Ended Mar.
31,
Reportable Segment
2022
2021
Change
2022
2021
Change
Traditional Banking
$
36,148
$
41,102
$
(4,954)
2.90
%
3.47
%
(0.57)
%
Warehouse Lending
4,515
6,772
(2,257)
3.09
3.43
(0.34)
Mortgage Banking*
204
409
(205)
NM
NM
NM
Total Core Bank
$
40,867
$
48,283
$
(7,416)
2.92
3.46
(0.54)
Average Loan Balances
Period-End Loan
Balances
(dollars in thousands)
Three Months Ended Mar.
31,
Mar. 31,
Reportable Segment
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Traditional Banking
$
3,520,173
$
3,670,205
$
(150,032)
(4)
%
$
3,570,786
$
3,655,967
$
(85,181)
(2)
%
Warehouse Lending
584,519
790,244
(205,725)
(26)
690,200
865,844
(175,644)
(20)
Mortgage Banking*
18,810
39,462
(20,652)
(52)
13,302
63,636
(50,334)
(79)
Total Core Bank
$
4,123,502
$
4,499,911
$
(376,409)
(8)
$
4,274,288
$
4,585,447
$
(311,159)
(7)
*Includes loans held for sale
NM – Not meaningful
Provision for Expected Credit Loss Expense – The Core Bank’s
Provision(4) was a net credit of $81,000 for the first quarter of
2022 compared to a net credit of $247,000 for the first quarter of
2021. The net credit during the first quarter of 2022 was primarily
driven by a decline in formula reserves resulting from lower
outstanding Warehouse balances partially offset by increased
formula reserves tied to strong Traditional Bank loan growth during
the quarter. The credit to the Provision during the first quarter
of 2021 generally reflected an improving economy following the
lifting of many pandemic-related restrictions. As of March 31,
2022, while the Core Bank’s credit metrics remained solid, the
Company’s Allowance(4) remained generally elevated compared to
historical levels due to continued economic uncertainty.
As a percentage of total loans, the Core Bank’s Allowance
increased from 1.14% as of March 31, 2021 to 1.20% as of March 31,
2022. The table below provides a view of the Company’s percentage
of Allowance-to-total-loans by reportable segment.
As of Mar. 31, 2022
As of Mar. 31, 2021
Year-over-Year Change
(dollars in thousands)
Allowance
Allowance
Allowance
Reportable Segment
Gross Loans
Allowance
to Loans
Gross Loans
Allowance
to Loans
to Loans
% Change
Traditional Bank, Less PPP
$
3,552,510
$
49,616
1.40
%
$
3,272,856
$
49,387
1.51
%
(0.11)
%
(7)
%
Plus: Paycheck Protection Program
18,276
—
383,111
—
Traditional Bank
$
3,570,786
$
49,616
1.39
3,655,967
49,387
1.35
0.04
3
Warehouse Lending
690,200
1,725
0.25
865,844
2,165
0.25
—
—
Total Core Bank
4,260,986
51,341
1.20
4,521,811
51,552
1.14
0.06
5
Tax Refund Solutions
41,607
8,370
20.12
36,473
16,029
43.95
(23.83)
(54)
Republic Credit Solutions
87,650
11,945
13.63
108,309
7,755
7.16
6.47
90
Total Republic Processing Group
129,257
20,315
15.72
144,782
23,784
16.43
(0.71)
(4)
Total Company
$
4,390,243
$
71,656
1.63
$
4,666,593
$
75,336
1.61
0.02
1
The table below presents the Core Bank’s credit quality
metrics:
Quarters Ended:
Years Ended:
Mar. 31,
Mar. 31,
Dec. 31,
Dec. 31,
Dec. 31,
Core Banking Credit Quality
Ratios
2022
2021
2021
2020
2019
Nonperforming loans to total loans
0.40
%
0.49
%
0.47
%
0.50
%
0.54
%
Nonperforming assets to total loans
(including OREO)
0.44
0.53
0.51
0.56
0.54
Delinquent loans* to total loans
0.14
0.19
0.17
0.21
0.30
Net charge-offs (recoveries) to average
loans
0.01
0.03
0.01
0.03
0.11
(Quarterly rates annualized)
OREO = Other Real Estate Owned
*Loans 30-days-or-more past due
Noninterest Income – Core Bank noninterest income was $9.9
million during the first quarter of 2022, a decrease of $4.1
million, or 29%, from the first quarter of 2021. The decrease in
noninterest income was driven primarily by the following:
- A significant rise in long-term interest rates during the first
quarter of 2022, led to a significant slowdown in the origination
and subsequent sale of mortgage loans into the secondary market for
the Core Bank. As a result, Mortgage Banking income decreased from
$7.2 million during the first quarter of 2021 to $2.7 million for
the first quarter of 2022. For the first quarter of 2022, the Core
Bank sold $119 million in secondary market loans and achieved an
average cash-gain-as-a-percent-of-loans-sold during the quarter of
2.29%. During the first quarter of 2021, however, long-term
interest rates were still near historical lows driving secondary
market loan sales of $204 million with comparable
cash-gain-as-a-percent-of-loans-sold of 3.95%.
- Partially offsetting the decrease in Mortgage Banking income
was a $353,000 increase in Service Charges on Deposits, generally
driven by a 1% increase in the number of Core Bank deposit accounts
from March 31, 2021 to March 31, 2022 in combination with the
continuing loosening of restrictions related to the COVID
pandemic.
Noninterest Expense – Core Bank noninterest expense was $41.9
million for the first quarter of 2022 compared to $41.5 million for
the first quarter of 2021, an increase of only 1%. While Core Bank
noninterest expenses were up slightly compared to the first quarter
of 2021, a notable change for the quarter was a $294,000 decrease
in Salaries and Benefits driven by a reduction of 35 Core Bank
full-time-equivalent employees from March 31, 2021 to March 31,
2022. The lower headcount from March of 2021 also contributed to a
decrease in associate health care benefits for the quarter.
Republic Processing
Group(5)
The Republic Processing Group (“RPG”) reported net income of
$20.3 million for the first quarter of 2022 compared to $9.5
million for the same period in 2021. RPG adjusted net income(1) for
the first quarter of 2022, which excludes the previously discussed
$5.0 million pre-tax contract termination fee paid to the Bank, was
$16.5 million.
Tax Refund Solutions (“TRS”)
The TRS segment derives substantially all of its revenues during
the first and second quarters of the year. TRS recorded net income
of $15.4 million for the first quarter of 2022 compared to $5.4
million for the same period in 2021. The following primarily drove
the increase in TRS’s net income for the quarter:
- TRS recorded a net charge to the Provision for Easy Advance
(“EA”) loans of $8.3 million, or 2.67% of its $311 million in EAs
originated during the first quarter of 2022 compared to a net
charge to the Provision of $16.0 million, or 6.41% of its $250
million of EAs originated during the first quarter of 2021. The
$7.7 million decrease in Provision for the first quarter of 2022
was primarily due to better projected payment expectations for the
EA program overall compared to the same period in 2021, as well as
a revised 2022 contract that limits TRS’s losses for EA loans made
through one of its large service providers. EAs are only originated
during the first two months of each year, with all uncollected EAs
charged off by June 30th of each year. EAs collected during the
second half of each year are recorded as recoveries of previously
charged-off loans. TRS’s loss rate as of June 30, 2021 was 4.10% of
total originations and TRS finished 2021 with an EA loss rate of
2.69% of total EAs originated. Including the positive impact of the
previously discussed loss cap, TRS’s current reserve indicates an
expected weighted average loss rate of 2.67% as of June 30,
2022.
- As previously disclosed, Green Dot Corporation (“Green Dot”)
paid the Bank a contract termination fee of $5.0 million during the
first quarter of 2022 after the Bank provided Green Dot a notice of
termination of the May 2021 Asset Purchase Agreement (the “Purchase
Agreement”) for the sale of substantially all of the Bank's TRS
assets and operations to Green Dot (the “Sale Transaction”). The
Bank continues to pursue other legal remedies against Green Dot
related to the Sale Transaction.
Republic Credit Solutions
(“RCS”)
Net income at RCS increased to $4.9 million for the first
quarter of 2022 from $4.1 million for the first quarter of 2021.
The increase in RCS’s net income primarily resulted from a $9
million rise in outstanding balances for RCS’s line-of-credit
products from March 31, 2021 to March 31, 2022.
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 throughout five states:
twenty-eight banking centers in eight 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; two banking centers in two Tennessee communities
(Nashville MSA) – Cool Springs and Green Hills; and two banking
centers in two Ohio communities (Cincinnati MSA) – Norwood and West
Chester. The Bank offers internet banking at www.republicbank.com.
The Company has $6.3 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, other
future conditions, and the impact of the COVID pandemic. 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, 2021. The Company undertakes no obligation to update
any forward-looking statements, except as required by applicable
law.
Footnotes:
(1)
The following table provides a
reconciliation of financial measures in accordance with GAAP to the
Company’s adjusted results, which are non-GAAP measures that
exclude the impact of a contract termination fee paid to the Bank
during the first quarter of 2022. Management uses these non-GAAP
measures to evaluate the on-going performance of the Company.
Non-GAAP measures are not formally defined by GAAP or codified in
the federal banking regulations, and other entities may use
calculation methods that differ from those used by the Company.
NON-GAAP RECONCILIATION BY
SEGMENT
(dollars in thousands)
Three Months Ended Mar.
31,
Reportable Segment
2022
2021
$ Change
% Change
Income Before Income Tax
Expense:
TRS - GAAP
$
20,283
$
7,179
$
13,104
183
%
Less: Noninterest income from contract
termination fee
5,000
—
5,000
NM
TRS - Non-GAAP
$
15,283
$
7,179
$
8,104
113
RPG - GAAP
$
26,789
$
12,672
$
14,117
111
%
Less: Noninterest income from contract
termination fee
5,000
—
5,000
NM
RPG - Non-GAAP
$
21,789
$
12,672
$
9,117
72
Net Income:
TRS - GAAP
$
15,377
$
5,409
$
9,968
184
%
Less: Impact of noninterest income from
contract termination fee
3,791
—
3,791
NM
TRS - Non-GAAP
$
11,586
$
5,409
$
6,177
114
RPG - GAAP
$
20,322
$
9,532
$
10,790
113
%
Less: Impact of noninterest income from
contract termination fee
3,791
—
3,791
NM
RPG - Non-GAAP
$
16,531
$
9,532
$
6,999
73
(2)
“Core Bank” or “Core Banking” operations
consist of the Traditional Banking, Warehouse Lending, and Mortgage
Banking segments.
(3)
PPP – The U.S. Small Business
Administration’s Paycheck Protection Program
The Company earns lender fees and 1.0%
coupon interest on its PPP portfolio. Due to the short-term nature
of the PPP, management believes Traditional Bank net interest
income excluding PPP fees and interest is a more appropriate
measure to analyze the Traditional Bank’s net interest income and
net interest margin. The following table reconciles Traditional
Bank net interest income and net interest margin to Traditional
Bank net interest income and net interest margin excluding PPP fees
and interest, a non-GAAP measure.
Net Interest Income
Interest-Earning
Assets
Net Interest Margin
Three Months Ended Mar.
31,
Three Months Ended Mar.
31,
Three Months Ended Mar.
31,
(dollars in thousands)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
2022
2021
% Change
Traditional Banking - GAAP
$
36,148
$
41,102
$
(4,954)
(12)
%
$
4,984,524
$
4,740,971
$
243,553
5
%
2.90
%
3.47
%
(0.57)
%
Less: Impact of PPP fees and interest
955
6,698
(5,743)
(86)
30,601
364,765
(334,164)
(92)
0.06
0.33
(0.27)
Traditional Banking ex PPP fees and
interest - non-GAAP
$
35,193
$
34,404
$
789
2
$
4,953,923
$
4,376,206
$
577,717
13
2.84
3.14
(0.30)
(4)
Provision – Provision for Expected Credit
Loss Expense
Allowance – Allowance for Credit Losses on
Loans
(5)
Republic Processing Group operations
consist of the Tax Refund Solutions and Republic Credit Solutions
segments.
NM – Not meaningful
NA – Not applicable
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220421005087/en/
Republic Bancorp, Inc. Kevin Sipes Executive Vice President
& Chief Financial Officer (502) 560-8628
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