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 2023 net income and Diluted Earnings per Class A
Common Share (“Diluted EPS”) of $21.6 million and $1.10 per share,
representing increases of 8% and 9% over the third quarter of
2022.
Logan Pichel, President and CEO of the Bank commented, “I am
proud to report, once again, an increase in our Total Company net
income for the third quarter of 2023 over the third quarter of
2022. Our commitment to our clients, our associates and our
communities combined with our diversified business model, our
strong Core Bank credit quality, and our disciplined expense focus
allow us to continue to produce strong results. The banking
industry continues to face challenges driven by rising interest
rates and an inverted yield curve resulting in a notable shift from
low-cost and no-cost deposits to significantly higher-costing
interest-bearing deposits and borrowings. This has exerted pressure
on net interest margins and deposit balances, but we are confident
in our ability to effectively manage through these industry
challenges.
Our Core Banking operations reported net income of $13.2
million, representing a $1.8 million, or 12%, decrease in net
income from the third quarter of 2022 to the third quarter of 2023.
We were able to increase Total Company net income, however, thanks
to the solid performance of our Republic Processing Group (“RPG”),
which increased its net income for the third quarter of 2023 by
$3.4 million, or 69%, over the third quarter of 2022. It is
challenging environments like this that illustrate the value of our
diversified business model.
Our Core Bank credit quality remained strong as we ended another
quarter with a favorably low delinquency ratio of 0.14% at our Core
Bank. This strong credit quality allows us the ability to diversify
into nontraditional businesses and provides our depositors the
confidence to place their hard-earned money with Republic. Our
focus on credit quality will certainly remain a guiding principle
as we navigate these uncertain times.
We also continued to have disciplined expense control during an
ongoing period of elevated inflation as our Total Company
noninterest expense increased just $1.9 million, or 4%, over the
third quarter of 2022. This increase, however, included $0.9
million of noninterest expense associated with the newly acquired
CBank operations, which was not part of the Company’s operations
during the third quarter of 2022. Our noninterest expenses for the
quarter, excluding the acquired CBank operations, increased just
$1.0 million, or 2%, over the third quarter of 2022. This modest
increase in expenses is something we are proud of, and it will
remain an on-going focus.
Our Core Bank loan portfolio had a 100 basis points increase in
loan yield from the third quarter of 2022 to the third quarter of
2023. With funding costs continuing to rise across the banking
industry, we will continue to work diligently to enhance our loan
yields. We will also continue to seek opportunities to add more
density to our five existing markets. Over the past year, we
executed several key initiatives to strengthen our position in our
markets. Most notably, we completed the CBank acquisition, which
added density to our Northern Kentucky/Cincinnati market, while
also adding a small-dollar equipment finance business, further
expanding our loan portfolio diversification. Additionally, we
opened two new banking centers during the first nine months of
2023, one in our Nashville market and one in our Northern
Kentucky/Cincinnati market, with one new location and one
relocation on the slate for the fourth quarter of 2023, both in our
Nashville market.
Over the past year, we also forged a new partnership with Nest
Egg for consumer financial planning, successfully implemented
on-line business deposit account opening, and reintroduced our
national online deposit gathering capabilities for consumers.
Furthermore, we intensified our focus on commercial and industrial
lending, recognizing the potential it holds for profitable growth.
These steps underscore our commitment to adapt to the evolving
needs of our clients and further diversify our business
capabilities. While we are proud of our results, we look forward to
our future with the belief that the best is yet to come for our
clients, our associates, our communities and our Company,”
concluded Pichel.
The following table highlights Republic’s key metrics for the
three and nine months ended September 30, 2023 and 2022. 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 20,
2023.
Total Company Financial
Performance Highlights
Three Months Ended Sep.
30,
Nine Months Ended Sep.
30,
(dollars in thousands, except per share
data)
2023
2022
$ Change
% Change
2023
2022
$ Change
% Change
Income Before Income Tax Expense
$
27,072
$
25,966
$
1,106
4
%
$
89,694
$
93,357
$
(3,663)
(4)
%
Net Income
21,571
19,896
1,675
8
70,715
72,593
(1,878)
(3)
Diluted EPS
1.10
1.01
0.09
9
3.60
3.65
(0.05)
(1)
Return on Average Assets ("ROA")
1.36
%
1.31
%
NA
4
1.51
%
1.55
%
NA
(3)
Return on Average Equity ("ROE")
9.61
9.32
NA
3
10.58
11.37
NA
(7)
NA – Not applicable
Results of Operations for the Third quarter of 2023 Compared
to the Third quarter of 2022
Core Bank(1)
Net income for the Core Bank was $13.2 million for the third
quarter of 2023 compared to $15.0 million for the third quarter of
2022. As further outlined in the following discussion, a small
increase in net interest income was more than offset by an increase
in provision expense and a modest increase in noninterest expense,
driving an overall decline in Core Bank net income from the third
quarter of 2022 to the third quarter of 2023.
Net Interest Income – Core Bank net interest income was $50.0
million for the third quarter of 2023, a $275,000, or 1%, increase
from the third quarter of 2022. The Core Bank’s net interest margin
(“NIM”) decreased from 3.54% during the third quarter of 2022 to
3.43% during the third quarter of 2023.
The small increase in net interest income at the Core Bank from
the third quarter of 2022 to the third quarter of 2023 is a
continuing change in trend from early 2023, when the Core Bank’s
net interest income was much higher on a
period-over-same-period-last-year basis. The on-going drivers of
this change in trend, which began to emerge during the first
quarter of 2023, is a reduction in interest-earning cash balances
combined with an on-going shift in funding mix away from
noninterest-bearing deposit balances to higher-costing,
interest-bearing deposits and Federal Home Loan Bank Advances. As a
result of these factors, the Core Bank’s yield on its interest
earning assets increased 137 basis points from the third quarter of
2022 to the third quarter of 2023, while the cost of its
interest-bearing liabilities increased 240 basis points over the
same periods.
Further detailing this change in net interest income and NIM
between the third quarter of 2022 and the third quarter of 2023
were the following:
- Average outstanding Warehouse balances declined from $474
million during the third quarter of 2022 to $423 million for the
third quarter of 2023. Committed Warehouse lines of credit declined
from $1.2 billion to $1.0 billion from September 30, 2022 to
September 30, 2023, while average usage rates for Warehouse lines
were 42% and 38%, respectively, during the third quarters of 2023
and 2022.
- Traditional Bank average loans grew from $3.7 billion with a
weighted-average yield of 4.22% during the third quarter of 2022 to
$4.4 billion with a weighted average yield of 5.18% during the
third quarter of 2023. Loan growth remained particularly strong
within the Traditional Bank during the first nine months of 2023,
with the acquisition of CBank adding approximately $217 million to
the Traditional Bank’s average loans during the third quarter of
2023.
- Average investments were $772 million with a weighted-average
yield of 2.75% during the third quarter of 2023 compared to $695
million with a weighted-average yield of 1.88% for the third
quarter of 2022. As part of its overall interest rate risk
management strategy, the Core Bank generally maintains an
investment portfolio with a shorter overall duration as compared to
its peers. This strategy is generally favorable to net interest
income in a rising interest rate environment.
- The Core Bank’s average noninterest-bearing deposits decreased
from $1.7 billion during the third quarter of 2022 to $1.4 billion
for the third quarter of 2023. This decrease in average
noninterest-bearing deposits was primarily funded through a
decrease in interest-earning cash balances and an increase in FHLB
borrowings.
- The Core Bank’s weighted-average cost of interest-bearing
liabilities increased from 0.35% during the third quarter of 2022
to 2.75% for the third quarter of 2023. Further segmenting the Core
Bank’s interest-bearing liabilities:
- The weighted-average cost of total interest-bearing deposits
increased from 0.26% during the third quarter of 2022 to 2.08% for
the third quarter of 2023. In addition, average interest-bearing
deposits grew $198 million from the third quarter of 2022 to the
third quarter of 2023.
- The average balance of FHLB borrowings increased from $20
million for the third quarter of 2022 to $442 million for the third
quarter of 2023. In addition, the weighted-average cost of these
borrowings increased from 1.91% to 4.85% for the same time periods.
As noted above, this increase in the average balance of borrowings
was generally driven by a period-to-period decline in average
deposit balances and an increase in average loan balances.
- Average interest-earning cash was $177 million with a
weighted-average yield of 5.41% during the third quarter of 2023
compared to $728 million with a weighted-average yield of 2.29% for
the third quarter of 2022. The decline in average cash balances was
driven generally by a decrease in average deposit balances in
combination with an increase in average loans for the same
periods.
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
2023
2022
Change
2023
2022
Change
Traditional Banking
$
47,409
$
46,562
$
847
2.72
%
3.63
%
(0.91)
%
Warehouse Lending
2,467
3,011
(544
)
2.68
2.54
0.14
Mortgage Banking*
84
112
(28
)
NM
NM
NM
Total Core Bank
$
49,960
$
49,685
$
275
2.73
3.54
(0.81)
Average Loan Balances
Period-End Loan
Balances
(dollars in thousands)
Three Months Ended Sep.
30,
Sep. 30,
Sep. 30,
Reportable Segment
2023
2022
$ Change
% Change
2023
2022
$ Change
% Change
Traditional Banking
$
4,442,702
$
3,717,639
$
725,063
20
%
$
4,496,743
$
3,745,028
$
751,715
20
%
Warehouse Lending
423,141
473,923
(50,782
)
(11)
457,033
442,238
14,795
3
Mortgage Banking*
3,883
6,259
(2,376
)
(38)
2,711
2,912
(201
)
(7)
Total Core Bank
$
4,869,726
$
4,197,821
$
671,905
16
$
4,956,487
$
4,190,178
$
766,309
18
*Includes loans held for sale
NM – Not meaningful
Provision for Expected Credit Loss Expense – The Core Bank’s
Provision(2) was a net charge of $1.4 million during the third
quarter of 2023 compared to a net credit of $1.1 million for the
third quarter of 2022.
The net charge during the third quarter of 2023 was primarily
driven by the following:
- The Core Bank recorded a net charge to the Provision of $1.6
million during the third quarter of 2023 related to general formula
reserves applied to $101 million of Traditional Bank loan growth
for the quarter.
- The Core Bank recorded a net credit to the Provision of
$203,000 resulting from general formula reserves applied to an $82
million decline in outstanding Warehouse balances for the
quarter.
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 of $155 million during the third quarter.
- 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 a percentage of total loans, the Core Bank’s Allowance(2)
decreased to 1.17% as of September 30, 2023. The table below
provides a view of the Company’s percentage of
Allowance-to-total-loans by reportable segment.
As of Sep. 30, 2023
As of Sep. 30, 2022
Quarterly Change
(dollars in thousands)
Allowance
Allowance
Allowance
Reportable Segment
Gross Loans
Allowance
to Loans
Gross Loans
Allowance
to Loans
to Loans
% Change
Traditional Bank
$
4,496,743
$
56,931
1.27
%
$
3,747,940
$
49,231
1.31
%
(0.04)
%
(3)
%
Warehouse Lending
457,033
1,143
0.25
442,238
1,105
0.25
—
—
Total Core Bank
4,953,776
58,074
1.17
4,190,178
50,336
1.20
(0.03)
(3)
Tax Refund Solutions
354
1
0.28
295
—
—
0.28
—
Republic Credit Solutions
126,969
16,501
13.00
98,977
14,583
14.73
(1.73)
(12)
Total Republic Processing Group
127,323
16,502
12.96
99,272
14,583
14.69
(1.73)
(12)
Total Company
$
5,081,099
$
74,576
1.47
%
$
4,289,450
$
64,919
1.51
%
(0.04)
%
(3)
%
ACLL Roll-Forward
Three Months Ended September
30,
2023
2022
(dollars in thousands)
Beginning
Charge-
Ending
Beginning
Charge-
Ending
Reportable Segment
Balance
Provision
offs
Recoveries
Balance
Balance
Provision
offs
Recoveries
Balance
Traditional Bank
$
55,567
$
1,567
$
(332
)
$
129
$
56,931
$
49,727
$
(683
)
$
(353
)
$
540
$
49,231
Warehouse Lending
1,346
(203
)
—
—
1,143
1,491
(386
)
—
—
1,105
Total Core Bank
56,913
1,364
(332
)
129
58,074
51,218
(1,069
)
(353
)
540
50,336
Tax Refund Solutions
—
(1,967
)
—
1,968
1
—
(1,296
)
—
1,296
—
Republic Credit Solutions
15,289
4,333
(3,340
)
219
16,501
13,231
4,008
(2,922
)
266
14,583
Total Republic Processing Group
15,289
2,366
(3,340
)
2,187
16,502
13,231
2,712
(2,922
)
1,562
14,583
Total Company
$
72,202
$
3,730
$
(3,672
)
$
2,316
$
74,576
$
64,449
$
1,643
$
(3,275
)
$
2,102
$
64,919
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
2023
2023
2023
2022
2021
2020
Nonperforming loans to total loans
0.37
%
0.34
%
0.34
%
0.37
%
0.47
%
0.50
%
Nonperforming assets to total loans
(including OREO)
0.39
0.37
0.38
0.40
0.51
0.56
Delinquent loans* to total loans
0.14
0.12
0.12
0.14
0.17
0.21
Net charge-offs to average loans
0.02
0.01
0.01
0.00
0.01
0.03
(Quarterly rates annualized)
OREO = Other Real Estate Owned
*Loans 30-days-or-more past due at the
time the second contractual payment is past due.
Noninterest Expense – As previously noted, the Core Bank’s
noninterest expense was $41.8 million for the third quarter of 2023
compared to $40.7 million for the third quarter of 2022, an
increase of $1.1 million, or 3% for the quarter. Noninterest
expenses for the third quarter of 2023 included $913,000 of expense
associated with the former CBank operations, which was acquired in
March 2023. Noninterest expense for the Core Bank’s legacy
operations, increased a modest $207,000, or 1%, from the third
quarter of 2022 to the third quarter of 2023.
Republic Processing Group(3)
The Republic Processing Group (“RPG”) reported net income of
$8.4 million for the third quarter of 2023 compared to $5.0 million
for the same period in 2022. Net interest income within the TRS
segment was up $2.8 million from the third quarter of 2022 to the
third quarter of 2023. The prepaid card product component of TRS
drove a $3 million increase to net interest income for the segment,
with an increase in the product’s applied yield to its
noninterest-bearing funds driving the growth.
Republic Bancorp, Inc. (the “Company”) is the parent company of
Republic Bank & Trust Company (the “Bank”). The Bank currently
has 47 banking centers in communities in five metropolitan
statistical areas (“MSAs”) across five states: 22 banking centers
located in the Louisville MSA in Louisville, Prospect, Shelbyville,
and Shepherdsville in Kentucky, and Floyds Knobs, Jeffersonville,
and New Albany in Indiana; six centers in the Lexington MSA in
Georgetown and Lexington in Kentucky; eight banking centers in the
Cincinnati MSA in Kenwood, Norwood and West Chester in Ohio, and
Bellevue, Covington, Crestview Hills, and Florence in Kentucky;
seven centers in the Tampa MSA in Largo, New Port Richey, St.
Petersburg, Seminole, Tampa, and Temple Terrace in Florida; and
four banking centers in the Nashville MSA in Cool Springs, Green
Hills, Murfreesboro and Spring Hill, Tennessee. In addition, the
Bank has one loan production office in St. Louis, Missouri. The
Bank offers internet banking at www.republicbank.com. As of
September 30, 2023, the Company had approximately $6.4 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, 2022. 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)
Provision – Provision for Expected Credit
Loss Expense
Allowance – Allowance for Credit Losses on
Loans
(3)
Republic Processing Group operations
consist of the TRS and Republic Credit Solutions (“RCS”)
segments.
NM – Not meaningful
NA – Not applicable
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version on businesswire.com: https://www.businesswire.com/news/home/20231020204624/en/
Republic Bancorp, Inc. Kevin Sipes Executive Vice President
& Chief Financial Officer (502) 560-8628
Republic Bancorp (NASDAQ:RBCAA)
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