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
third quarter 2022 net income of $19.5 million, resulting in
Diluted Earnings per Class A Common Share (“Diluted EPS”) of $0.99.
Year-to-date net income was $71.3 million, a $1.3 million, or 2%,
increase from the same period in 2021, resulting in return on
average assets (“ROA”) and return on average equity (“ROE”) of
1.52% and 11.19% for the nine months ended September 30, 2022.
Logan Pichel, President and CEO of Republic Bank & Trust
Company, commented, “We are very proud of our strong third quarter
earnings. Disciplined overhead expense management and expansion in
our net interest margin were able to substantially offset a
decrease in our nonrecurring PPP(2) revenues and rate-driven
reductions in our Mortgage Banking and Warehouse Lending income. As
a result, we have strengthened our core franchise earnings, which
should continue to benefit us in the future.
“We are particularly pleased with our non-PPP Traditional Bank
loan growth, as we grew this portfolio another $81 million during
the third quarter of 2022, bringing our total growth for the first
nine months of the year to almost $300 million, or 9%. That
year-to-date number includes growth in almost all our geographic
markets and business lines. Loan growth, however, has been
particularly strong during the first nine months of the year in our
Louisville-based Corporate Banking, Private Banking and Commercial
Banking business lines, as well as our Tampa, Florida and Northern
Kentucky/Cincinnati markets. We are excited about the strong
momentum across our Company.
“Our continued success is dependent on the successes of the
communities we serve, and this quarter we learned that we were one
of just seven banks in the U.S. honored with the 2022 Community
Commitment Award from the American Bankers Association Foundation.
We are grateful for this recognition from the preeminent voice of
the banking industry. It creates great pride that they called us an
inspiration for banks nationwide on how to make a difference
through Economic and Community Development programs.
“Finally, our thoughts and prayers go out to all the people in
Florida related to the devastation from Hurricane Ian. While our
Greater Tampa market was spared from the worst of Hurricane Ian, it
did not go unscathed and will take some time to recover from its
effects. Greater Tampa is a strong community, and as always, we
will do our part and be there for the people in this community to
help them rebuild from this terrible event,” concluded Pichel.
The following table highlights Republic’s key metrics for the
three and nine months ended September 30, 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 October 21,
2022.
Total Company Financial
Performance Highlights
Three Months Ended Sep.
30,
Nine Months Ended Sep.
30,
(dollars in thousands, except per share
data)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Income Before Income Tax Expense
$
25,405
$
26,227
$
(822
)
(3
)%
$
91,659
$
90,532
$
1,127
1
%
Net Income
19,483
20,009
(526
)
(3
)
71,310
69,984
1,326
2
Diluted EPS
0.99
0.99
—
—
3.58
3.39
0.19
6
Return on Average Assets ("ROA")
1.28
%
1.27
%
NA
1
1.52
%
1.47
%
NA
3
Return on Average Equity ("ROE")
9.15
9.43
NA
(3
)
11.19
11.04
NA
1
NA – Not applicable
Results of Operations for the Third
Quarter of 2022 Compared to the Third Quarter of
2021
Core Bank(1)
Net income from Core Banking was $15.0 million for the third
quarter of 2022 compared to $15.5 million for the third quarter of
2021. An increase of $11.7 million in pre-tax non-PPP Traditional
Bank net interest income was a strong, positive driver to the Core
Bank’s earnings for the quarter and helped to offset pre-tax
declines of $5.5 million in PPP loan revenue, $4.1 million of
Mortgage Banking income, and $3.3 million of net interest income
within the Warehouse Lending (“Warehouse”) segment. The decreases
in both Warehouse and Mortgage Banking income were driven by a
reduction in demand across the nation for home mortgage refinancing
following a dramatic rise in long-term interest rates during the
first nine months of 2022.
Net Interest Income – Core Bank net interest income was $49.7
million for the third quarter of 2022, a $2.8 million, or 6%, net
increase from the third quarter of 2021. This increase was driven
primarily by the following:
Traditional Bank,
Excluding PPP
Excluding PPP(2) loan fees and interest, the
Traditional Bank’s net interest income increased $11.7 million, or
34%, and its net interest margin (“NIM”) expanded 75 basis points
to 3.62% from the third quarter of 2021 to the third quarter of
2022. This increase in net interest income and related expansion in
NIM resulted primarily from the Company’s balance sheet management
strategies, which benefited from increases in the Federal Funds
Target Rate (“FFTR”). Notable changes in specific categories
included the following:
- Average interest-earning cash was $921 million with a
weighted-average yield of 0.16% during the third quarter of 2021
compared to $724 million with a weighted-average yield of 2.31% for
the third quarter of 2022.
- Average investments grew from $556 million with a
weighted-average yield of 1.39% during the third quarter of 2021 to
$695 million with a weighted-average yield of 1.88% for the third
quarter of 2022.
- Average non-PPP Traditional Bank loans grew from $3.3 billion
with a weighted-average yield of 4.00% during the third quarter of
2021 to $3.7 billion with a weighted average yield of 4.22% during
the third quarter of 2022.
Traditional Bank,
PPP
The Core Bank recognized $184,000 of fees and
interest on its PPP portfolio during the third quarter of 2022
compared to $5.7 million of similar fees and interest during the
third quarter of 2021. The $5.5 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
recognized under the program by the Core Bank were recognized
during 2020 and 2021. As of September 30, 2022, total PPP loans of
$8 million remained on the Core Bank’s balance sheet out of the
original $738 million originated during 2020 and 2021.
Warehouse
Lending
Net interest income within the Warehouse
segment decreased $3.3 million, or 52%, from the third quarter of
2021 to the third quarter of 2022, driven by decreases in both
average outstanding balances and net interest margin. Overall
average outstanding Warehouse balances declined from $717 million
during the third quarter of 2021 to $474 million for the third
quarter of 2022, driven largely by the sharp rise in long-term
interest rates during 2022, which depressed mortgage-refinancing
demand and resulted in a sharp drop in Warehouse line usage.
In addition, the Warehouse net interest
margin decreased 97 basis points from 3.51% during the third
quarter of 2021 to 2.54% during the third quarter of 2022. The
decline in the Warehouse net interest margin occurred as its
funding costs, as charged through the Company’s
funds-transfer-pricing methodology, generally rose in tandem with
the increase in short-term interest rates during the year, while
its yield increases were delayed until the adjustable rates on its
clients’ lines of credit surpassed their contractual interest rate
floors. These interest rate floors benefited Warehouse’s net
interest margin substantially during 2020 and 2021 when market
rates declined to historical lows but have produced margin
compression since the onset of the FFTR increases during 2022.
The following tables present by reportable segment the overall
changes in the Core Bank’s net interest income, net interest
margin, as well as average and period-end loan balances:
Net Interest Income
Net Interest Margin
(dollars in thousands)
Three Months Ended Sep.
30,
Three Months Ended Sep.
30,
Reportable Segment
2022
2021
Change
2022
2021
Change
Traditional Banking - excluding PPP
$
46,378
$
34,629
$
11,749
3.62
%
2.87
%
0.75
%
Traditional Banking - PPP
184
5,668
(5,484
)
NM
NM
NM
Warehouse Lending
3,011
6,291
(3,280
)
2.54
3.51
(0.97
)
Mortgage Banking*
112
253
(141
)
NM
NM
NM
Total Core Bank
$
49,685
$
46,841
$
2,844
3.54
3.25
0.29
Average Loan Balances
Period-End Loan
Balances
(dollars in thousands)
Three Months Ended Sep.
30,
Sep. 30,
Reportable Segment
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Traditional Banking - excluding PPP
$
3,705,177
$
3,343,126
$
362,051
11
%
$
3,740,085
$
3,350,117
$
389,968
12
%
Traditional Banking - PPP
12,462
185,931
(173,469
)
(93
)
7,855
126,271
(118,416
)
(94
)
Warehouse Lending
473,923
717,036
(243,113
)
(34
)
442,238
750,682
(308,444
)
(41
)
Mortgage Banking*
6,259
29,959
(23,700
)
(79
)
2,912
32,401
(29,489
)
(91
)
Total Core Bank
$
4,197,821
$
4,276,052
$
(78,231
)
(2
)
$
4,193,090
$
4,259,471
$
(66,381
)
(2
)
*Includes loans held for sale NM – Not
meaningful
Provision for Expected Credit Loss Expense – The Core Bank’s
Provision(3) was a net credit of $1.1 million during the third
quarter of 2022 compared to a net credit of $267,000 for the third
quarter of 2021. The net credit during the third quarter of 2022
was primarily driven by the following:
- The Core Bank recorded a net credit to the Provision of $1.7
million during the third quarter of 2022 substantially related to
the favorable payoff of one large, classified loan.
- The Core Bank recorded a net credit to the Provision of
$386,000 during the third quarter of 2022 resulting from general
formula reserves applied to a decline in outstanding Warehouse
balances from $597 million as of June 30, 2022 to $442 million as
of September 30, 2022.
- Offsetting the above, the Core Bank recorded a net charge to
the Provision of $974,000 during the third quarter of 2022
resulting primarily from general formula reserves applied to $81
million of growth in non-PPP Traditional Bank loans from June 30,
2022 to September 30, 2022.
As of September 30, 2022, while its credit metrics remained
solid, the Core Bank’s Allowance remained generally elevated
compared to historical levels due to continued economic uncertainty
resulting from continued inflation.
As a percentage of total loans, the Core Bank’s Allowance(3)
decreased from 1.22% as of September 30, 2021 to 1.20% as of
September 30, 2022. The table below provides a view of the
Company’s percentage of Allowance-to-total-loans by reportable
segment.
As of Sep. 30, 2022
As of Sep. 30, 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
$
3,740,085
$
49,231
1.32
%
$
3,350,117
$
49,487
1.48
%
(0.16
)%
(11
)%
Plus: Paycheck Protection Program
7,855
—
126,271
—
Traditional Bank
$
3,747,940
$
49,231
1.31
3,476,388
49,487
1.42
(0.11
)
(8
)
Warehouse Lending
442,238
1,105
0.25
750,682
1,877
0.25
—
—
Total Core Bank
4,190,178
50,336
1.20
4,227,070
51,364
1.22
(0.02
)
(2
)
Tax Refund Solutions
295
—
—
25
—
—
—
—
Republic Credit Solutions
98,977
14,583
14.73
116,711
11,660
9.99
4.74
47
Total Republic Processing Group
99,272
14,583
14.69
116,736
11,660
9.99
4.70
47
Total Company
$
4,289,450
$
64,919
1.51
$
4,343,806
$
63,024
1.45
0.06
4
The table below presents the Core Bank’s credit quality
metrics:
Quarters Ended:
Years Ended:
Sep. 30,
Jun. 30,
Mar. 31,
Dec. 31,
Dec. 31,
Dec. 31,
Core Banking Credit Quality
Ratios
2022
2022
2022
2021
2020
2019
Nonperforming loans to total loans
0.39
%
0.38
%
0.40
%
0.47
%
0.50
%
0.54
%
Nonperforming assets to total loans
(including OREO)
0.43
0.42
0.44
0.51
0.56
0.54
Delinquent loans* to total loans
0.10
0.13
0.14
0.17
0.21
0.30
Net charge-offs (recoveries) to average
loans
(0.02
)
—
0.01
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 $9.5
million during the third quarter of 2022, a decrease of $4.0
million, or 30%, from the third quarter of 2021. The decrease in
noninterest income was driven primarily by a reduction in Mortgage
Banking income of $4.1 million for the quarter.
The decrease in Mortgage banking income for the quarter was
caused by a large and rapid rise in long-term interest rates during
the first nine months of 2022, which led to a significant slowdown
in the origination of mortgage loans to be sold into the secondary
market. As of September 30, 2022, the 30-year mortgage rate was
hovering near levels not generally seen since 2008. As a result,
the Core Bank sold only $39 million in secondary market loans and
achieved an average cash-gain-as-a-percent-of-loans-sold of 2.23%
during the third quarter of 2022 compared to sales of $182 million
with comparable cash-gain-as-a-percent-of-loans-sold of 2.82%
during the third quarter of 2021.
Noninterest Expense – Core Bank noninterest expense was $40.6
million for the third quarter of 2022 compared to $40.2 million for
the third quarter of 2021, an increase of 1%. Notable changes
within noninterest expense categories were as follows:
- Other noninterest expense increased by $776,000, or 31%. Meals,
Entertainment, and Travel expenses as well as Freight and Office
Supplies, all together, increased $400,000, as banking activities
for these categories increased nearer to pre-pandemic levels, in
combination with inflationary pressures on their costs.
- Salaries and Benefits expense decreased a net $332,000, or 1%,
to $23.7 million for the third quarter of 2022. The most notable
changes within this category were as follows:
- Estimated bonus expense decreased $1.1 million from the third
quarter of 2021 to the third quarter of 2022, as the September 30,
2022 bonus accrual balance was reduced to bring it in-line with the
current expected payouts for the year; while Commissions related to
mortgage originations decreased by $680,000 due to the previously
discussed slowdown in mortgage origination volume.
- Offsetting the above, Employee Benefit expense increased a net
$660,000 driven by an $842,000 increase in healthcare claims.
- Base salaries and wages increased a net $229,000, or 1%, as the
additional cost of annual merit increases was substantially offset
by a 50-count reduction in full-time equivalent employees.
Republic Processing
Group(4)
The Republic Processing Group (“RPG”) reported net income of
$4.5 million for the third quarter of 2022, matching net income for
the same period in 2021. The Tax Refund Solutions (“TRS”) segment,
which recorded net income of $934,000 for the third quarter of 2022
compared to $1.3 million for the same period in 2021, was the most
notable segment driving the net income of RPG for the quarter. The
$391,000 decrease in net income for TRS was primarily driven by the
following:
- More in-line with historical norms, TRS recorded a $1.3 million
credit to the Provision during the third quarter of 2022 related to
its Easy Advances, representing 41 basis points of EA originated
during 2022. This figure compares to a $2.2 million credit to the
Provision for the same period in 2021, representing 90 basis points
of EAs originated during 2021. The EA recovery rate during the
third quarter of 2021 was generally better than historical norms
and driven by delays in tax return processing by the IRS during the
first half of the year for certain types of tax returns that
required further taxpayer communication and verification. This
information is further displayed in the table below:
(dollars in thousands)
2022 Tax Season
2021 Tax Season
2022/2021 Change
EAs originated during the first two
months of the year
(a)
$
311,207
$
250,045
$
61,162
EA net charge-offs (recoveries)
recorded ($):
EA net losses recognized for the nine
months ended September 30,
(b)
$
7,583
$
7,984
$
(401
)
Provision expense recorded during the six
months ended June 30,
(c)
8,879
10,226
(1,347
)
Provision true-up/EA (recoveries) for the
three months ended September 30,
(d)
$
(1,296
)
$
(2,242
)
$
946
EA net charge-offs (recoveries)
recorded (%):
EA net losses recognized for the nine
months ended September 30,
(b)/(a)
2.44
%
3.19
%
(0.75
)%
Provision expense recorded during the six
months ended June 30,
(c)/(a)
2.85
4.09
(1.24
)
Provision true-up/EA (recoveries) for the
three months ended September 30,
(d)/(a)
(0.41
)%
(0.90
)%
0.49
%
- In addition, net RT revenue decreased $687,000 from the third
quarter of 2021 to the same period in 2022, as RT volume decreased
3% from period to period. This period-to-period decline was driven
partially by the loss of one of TRS’s tax providers following the
announcement of the now-cancelled May 2021 Asset Purchase
Agreement.
- Offsetting the decreases to income above, TRS’s net interest
income increased $1.4 million from the third quarter of 2021 to the
same period in 2022 resulting from a higher crediting rate applied
through the Company’s funds-transfer-pricing methodology to TRS’s
prepaid card deposits offered through its Republic Payment
Solutions division.
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 $6.0 billion in assets and is headquartered in
Louisville, Kentucky. The Company’s Class A Common Stock is listed
under the symbol “RBCAA” on the NASDAQ Global Select Market.
Republic Bank. It’s just easier here. ®
Forward-Looking Statements
This press release contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. The forward-looking statements in the preceding paragraphs
are based on our current expectations and assumptions regarding our
business, the future impact to our balance sheet and income
statement resulting from changes in interest rates, the 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)
“Core Bank” or “Core Banking” operations consist of the
Traditional Banking, Warehouse Lending, and Mortgage Banking
segments.
(2)
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 Sep.
30,
Three Months Ended Sep.
30,
Three Months Ended Sep.
30,
(dollars in thousands)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
2022
2021
% Change
Traditional Banking - GAAP
$
46,562
$
40,297
$
6,265
16
%
$
5,136,395
$
5,006,198
$
130,197
3
%
3.63
%
3.22
%
0.41
%
Less: Impact of PPP fees and interest
184
5,668
(5,484
)
(97
)
12,462
185,931
(173,469
)
(93
)
0.01
0.35
(0.34
)
Traditional Banking ex PPP fees and
interest - non-GAAP
$
46,378
$
34,629
$
11,749
34
$
5,123,933
$
4,820,267
$
303,666
6
3.62
2.87
0.75
(3)
Provision – Provision for Expected Credit Loss Expense
Allowance – Allowance for Credit Losses on
Loans
(4)
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/20221021005004/en/
Republic Bancorp, Inc. Kevin Sipes Executive Vice President
& Chief Financial Officer (502) 560-8628
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