Republic Bancorp, Inc. Reports Second Quarter Net Income of $23.9 Million
07/22/2022 - 08:00 AM
LOUISVILLE, Ky. --(BUSINESS WIRE)--
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. $23.9 million $1.20 . Year-to-date net income was $51.8 million $1.9 million 4% , increase from the same period in 2021, resulting in return on average assets (“ROA”) and return on average equity (“ROE”) of 1.64% and 12.21% for the first six months of 2022.
Logan Pichel Republic Bank & Trust Company , commented, “Our second quarter results benefitted from a one-time payment received as a result of concluding our legal issue with Green Dot. That payment helped offset the expected decline in PPP(3) fee income and reductions in mortgage banking and Warehouse Lending revenues resulting from significantly higher interest rates.”
The following chart presents the Company’s second quarter 2022 net income for each operating segment compared to the second quarter of 2021.
NET INCOME
(dollars in thousands)
Three Months Ended Jun. 30 ,
Reportable Segment
2022
2021
$ Change
% Change
Traditional Banking - excluding PPP net income impact*
$
6,657
$
4,396
$
2,261
51
%
Traditional Banking - PPP net income impact*
125
3,437
(3,312)
(96)
Total Traditional Bank
6,782
7,833
(1,051)
(13)
Warehouse Lending
2,405
4,110
(1,705)
(41)
Mortgage Banking
(679)
1,065
(1,744)
(164)
Total Core Bank
8,508
13,008
(4,500)
(35)
Tax Refund Solutions - excluding TRS Transaction items*
2,919
7,928
(5,009)
(63)
Tax Refund Solutions - TRS Transaction items*
9,226
(752)
9,978
NM
Total Tax Refund Solutions*
12,145
7,176
4,969
69
Republic Credit Solutions
3,248
3,738
(490)
(13)
Total Republic Processing Group
15,393
10,914
4,479
41
Total Company
$
23,901
$
23,922
$
(21)
—
*See Footnote 1 for a reconciliation of non-GAAP measures to their most comparable GAAP measures.
Pichel continued, “We are encouraged by the continued growth in the fundamentals of our Traditional Bank , as evidenced by:
+51% growth in net income, excluding PPP(1)
Year-to-date loan growth of $213 million 6% , excluding PPP, with notable growth from our Northern Kentucky /Cincinnati market, our Private, CRE, and Commercial Banking division, and our Corporate Banking division
16-basis-point growth in net interest margin from the first to the second quarter of 2022
Retention of deposit balances and account relationships
Prudent expense control
Pristine credit quality
“Given the strength of our current balance sheet, as well as the many opportunities we continue to see across our various business segments, we are pleased overall with how we are positioned for this operating environment and are optimistic for a strong second half of 2022, and beyond,” concluded Pichel.
The following table highlights Republic’s key metrics for the three and six months ended June 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 July 22, 2022 .
Total Company Financial Performance Highlights
Three Months Ended Jun. 30 ,
Six Months Ended Jun. 30 ,
(dollars in thousands, except per share data)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Income Before Income Tax Expense
$
30,440
$
30,561
$
(121)
—
%
$
66,254
$
64,305
$
1,949
3
%
Net Income
23,901
23,922
(21)
—
51,827
49,975
1,852
4
Diluted EPS
1.20
1.16
0.04
3
2.59
2.41
0.18
7
Return on Average Assets ("ROA")
1.53
%
1.49
%
NA
3
1.64
%
1.57
%
NA
4
Return on Average Equity ("ROE")
11.23
11.27
NA
—
12.21
11.86
NA
3
NA – Not applicable
Results of Operations for the Second Quarter of 2022 Compared to the Second Quarter of 2021
Core Bank (2)
Net income from Core Banking was $8.5 million $13.0 million Core Bank was primarily driven by a $4.4 million $2.4 million $2.4 million $5.3 million PPP-related Traditional Bank net interest 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 long-term interest rates. The increase in non-PPP Traditional Bank net interest income was driven by strong Traditional Bank loan growth coupled with a recent rise in short-term interest rates.
Net Interest Income – Core Bank net interest income was $43.2 million $1.5 million 3% , decrease from the second quarter of 2021. This change was driven primarily by the following:
Traditional Bank , Excluding PPP
Excluding PPP fees and interest(3) , from the second quarter of 2021 to the second quarter of 2022, the Traditional Bank’s net interest income increased $5.3 million 16% , and its net interest margin (“NIM”) expanded 25 basis points to 3.06% . This increase in net interest income and related expansion in NIM resulted primarily from the following:
Increases in the Federal Funds Target Rate (“FFTR”) during 2022 have benefitted the Traditional Bank’s high level of interest-earning cash on its balance sheet, as well as its loan and investment portfolio yields, although to a lesser degree. As a result, the Traditional Bank’s yield on interest-earning assets, excluding PPP, increased 20 basis points from the second quarter of 2021 to the second quarter of 2022.
Average non-PPP Traditional Bank loans grew from $3.3 billion $3.6 billion
Traditional Bank , PPP
The Core Bank recognized $167,000 of fees and interest on its PPP portfolio during the second quarter of 2022 compared to $4.6 million $4.4 million 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 June 30, 2022 , total PPP loans of $15 million $738 million $350,000 of PPP fee income left to be recognized over the remaining lives of the loans.
Warehouse Lending
Net interest income within the Core Bank’s Warehouse segment decreased $2.4 million 39% , from the second quarter of 2021 to the second quarter of 2022. Overall, average outstanding Warehouse balances declined from $727 million $579 million 3.48% during the second quarter of 2021 to 2.69% during the second quarter of 2022. Committed Warehouse lines of credit remained at $1.4 billion June 30, 2021 to June 30, 2022 , while average usage rates for Warehouse lines were 41% and 51% , respectively, during the second quarters of 2022 and 2021.
In general, the decline in net interest income within Warehouse Lending was driven largely by a sharp rise in long-term interest rates during the first half of 2022, which led to a decrease in mortgage refinancing demand, a sharp drop in Warehouse line usage, and an overall decrease in outstanding Warehouse balances. In addition, Warehouse’s net interest margin was negatively impacted during the second quarter of 2022, as many adjustable rate Warehouse lines remained below their interest rate floors. These interest rate floors, which benefitted Warehouse’s net interest margin significantly during 2020 and 2021 when market rates declined to historical lows, negatively impacted its net interest margin during the first half of 2022, as its cost of funding rose while its loan yield remained relatively stable. The negative impact of these floors is expected to diminish in the near term as interest rates on many Warehouse lines are expected to begin exceeding their floors during the third quarter of 2022, assuming currently projected FFTR increases come to fruition.
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 Jun. 30 ,
Three Months Ended Jun. 30 ,
Reportable Segment
2022
2021
Change
2022
2021
Change
Traditional Banking - excluding PPP
$
38,991
$
33,696
$
5,295
3.06
%
2.81
%
0.25
%
Traditional Banking - PPP
167
4,582
(4,415)
NM
NM
NM
Warehouse Lending
3,886
6,324
(2,438)
2.69
3.48
(0.79)
Mortgage Banking*
153
140
13
NM
NM
NM
Total Core Bank
$
43,197
$
44,742
$
(1,545)
3.02
3.03
(0.01)
Average Loan Balances
Period-End Loan Balances
(dollars in thousands)
Three Months Ended Jun. 30 ,
Jun. 30 ,
Reportable Segment
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Traditional Banking - excluding PPP
$
3,603,093
$
3,302,374
$
300,719
9
%
$
3,658,933
$
3,348,161
$
310,772
9
%
Traditional Banking - PPP
16,668
349,643
(332,975)
(95)
14,657
250,933
(236,276)
(94)
Warehouse Lending
578,676
727,091
(148,415)
(20)
596,678
840,155
(243,477)
(29)
Mortgage Banking*
10,189
28,740
(18,551)
(65)
8,491
32,401
(23,910)
(74)
Total Core Bank
$
4,208,626
$
4,407,848
$
(199,222)
(5)
$
4,278,759
$
4,471,650
$
(192,891)
(4)
*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 $88,000 for the second quarter of 2022 compared to a net credit of $142,000 for the second quarter of 2021. The net credit during the second quarter of 2022 was primarily driven by the following:
The Core Bank recorded a credit to the Provision of $1.4 million
The Core Bank recorded a credit to the Provision of $234,000 during the second quarter of 2022 resulting from formula reserves applied to a decrease in outstanding Warehouse balances from $690 million March 31, 2022 to $597 million June 30, 2022 .
Offsetting the above, the Core Bank recorded a net charge to the Provision of $1.5 million $106 million PPP Traditional Bank loans from March 31, 2022 to June 30, 2022 .
The credit to the Core Bank Provision during the second quarter of 2021 generally reflected an improving economy following the lifting of many pandemic-related restrictions. As of June 30, 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 resulting from inflation not seen in the United States since the early 1980s.
As a percentage of total loans, the Core Bank’s Allowance increased from 1.16% as of June 30, 2021 to 1.20% as of June 30, 2022 . The table below provides a view of the Company’s percentage of Allowance-to-total-loans by reportable segment.
As of Jun. 30, 2022
As of Jun. 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
$
3,658,933
$
49,727
1.36
%
$
3,348,161
$
49,362
1.47
%
(0.11)
%
(7)
%
Plus: Paycheck Protection Program
14,657
—
250,933
—
Traditional Bank
$
3,673,590
$
49,727
1.35
3,599,094
49,362
1.37
(0.02)
(1)
Warehouse Lending
596,678
1,491
0.25
840,155
2,100
0.25
—
—
Total Core Bank
4,270,268
51,218
1.20
4,439,249
51,462
1.16
0.04
3
Tax Refund Solutions
149
—
—
23
—
—
—
—
Republic Credit Solutions
91,816
13,231
14.41
114,949
8,829
7.68
6.73
88
Total Republic Processing Group
91,965
13,231
14.39
114,972
8,829
7.68
6.71
87
Total Company
$
4,362,233
$
64,449
1.48
$
4,554,221
$
60,291
1.32
0.16
12
The table below presents the Core Bank’s credit quality metrics:
Quarters Ended:
Years Ended:
Jun. 30 ,
Mar. 31 ,
Dec. 31 ,
Dec. 31 ,
Dec. 31 ,
Core Banking Credit Quality Ratios
2022
2022
2021
2020
2019
Nonperforming loans to total loans
0.38
%
0.40
%
0.47
%
0.50
%
0.54
%
Nonperforming assets to total loans (including OREO)
0.42
0.44
0.51
0.56
0.54
Delinquent loans* to total loans
0.13
0.14
0.17
0.21
0.30
Net charge-offs to average loans
—
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 $2.7 million 22% , from the second quarter of 2021. The decrease in noninterest income was driven primarily by the following:
A significant and rapid rise in long-term interest rates during 2022 led to a significant slowdown in the origination and subsequent sale of mortgage loans into the secondary market for the Core Bank . As of June 30, 2022 , the 30-year mortgage rate was hovering near levels not generally seen since 2008. As a result, Mortgage Banking income decreased from $4.2 million $1.8 million Core Bank sold $68 million 2.85% . During the second quarter of 2021, however, with long-term mortgage interest rates substantially lower, secondary market loan sales were $176 million 2.85% .
Additionally, the Core Bank’s Other Noninterest Income for the second quarter of 2021 included a $399,000 non-recurring gain recognized from the sale of a former banking center property in Hudson, Florida .
Noninterest Expense – Core Bank noninterest expense was $42.2 million $41.0 million 3% . The increase in noninterest income was driven primarily by the following:
Salaries and Benefits expense increased $817,000 , or 3% , to $25.0 million
Other noninterest expense increased $744,000 , or 25% , to $3.7 million
Meals, Entertainment, and Travel expenses increased $309,000 , with in-person community outreach and business related travel increasing toward pre-pandemic levels during 2022.
Provision for losses on off-balance sheet commitments increased $141,000 , driven primarily by an increase in the Bank’s committed but unused lines of credit during the previous 12 months.
Republic Processing Group (5)
The Republic Processing Group (“RPG”) reported net income of $15.4 million $10.9 million (1) for the second quarter of 2022, which excludes a previously disclosed $13.0 million Republic Bank & Trust Company (“RB&T”), as well as $699,000 in related expenses, was $6.2 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 $12.1 million $7.2 million
TRS recorded $13.0 million $699,000 in related expenses, resulting from the previously disclosed legal-settlement payment to RB&T. This second quarter 2022 legal-settlement payment to RB&T was in addition to the related $5.0 million SEC on June 3, 2022 .
Partially offsetting the above, TRS recorded a $6.1 million June 30 th of each year, with first quarter loss estimates trued-up to actual charge-offs incurred through a second quarter Provision charge or credit. EAs collected during the second half of each year are recorded as recoveries of previously charged-off loans.
$564,000 , increasing its weighted average net EA loss rate from an estimated 2.67% as of March 31, 2022 to 2.85% as of June 30, 2022 . During the second quarter of 2021, TRS trued-up its first quarter EA loss estimate with a credit to the Provision of $5.8 million 6.41% as of March 31, 2021 to 4.10% as of June 30, 2021 . The significant true-up credit to the Provision during the second quarter of 2021 resulted primarily from a higher volume of loan payments received by the Company during the second quarter, exceeding the conservative estimates originally made by the Company during the first quarter of 2021 when the tax season experienced a two-week delay to its start.
For the 2022 and 2021 tax seasons, the following table presents information regarding EA originations, actual charge-offs, first quarter Provision estimates, and second quarter Provision true-ups:
(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
Actual EA losses incurred compared to loss estimates ($):
Actual losses recognized for the first six months ended June 30 ,
(b)
$
8,879
$
10,226
$
(1,347
)
First quarter Provision estimate made during three months ended March 31 ,
(c)
8,315
16,019
(7,704
)
Second quarter Provision true-up for three months ended June 30 ,
(d)
$
564
$
(5,793
)
$
6,357
EA actual losses incurred compared to loss estimates (%):
Actual losses recognized for the first six months ended June 30 ,
(b)/(a)
2.85
%
4.09
%
(1.24
)%
First quarter Provision estimate made during three months ended March 31 ,
(c)/(a)
2.67
6.41
(3.74
)
Second quarter Provision true-up for three months ended June 30 ,
(d)/(a)
0.18
%
(2.32
)
%
2.50
%
TRS’s Net Refund Transfer (“RT”) fees decreased $2.0 million 33% , from $5.9 million $4.0 million 8% overall decrease in RT volume from the 2021 to the 2022 tax season, with 4% of that decrease driven by the loss of one of TRS’s tax providers following the announcement of the now-cancelled May 2021 Asset Purchase Agreement. Also impacting the decrease in net RT fees from the second quarter of 2021 to the second quarter of 2022 was the previously mentioned two-week delay in the 2021 tax season, which pushed a greater percentage of RT volume into the second quarter of 2021.
Republic Credit Solutions (“RCS”)
Net income at RCS decreased to $3.2 million $3.7 million
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 $6.1 billion 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 significant, unusual items. 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 Jun. 30 ,
Reportable Segment
2022
2021
$ Change
% Change
Income Before Income Tax Expense:
Traditional Banking - GAAP
$
8,429
$
9,388
$
(959
)
(10
)%
Less: Net interest income from PPP fees and interest
167
4,582
(4,415
)
(96
)
Traditional Banking - Non-GAAP
$
8,262
$
4,806
$
3,456
72
TRS - GAAP
$
15,610
$
9,502
$
6,108
64
%
Less: Noninterest income related to TRS Transaction*
13,000
—
13,000
NM
Add: Noninterest expense related to TRS Transaction*
699
1,000
(301
)
NM
TRS - Non-GAAP
$
3,309
$
10,502
$
(7,193
)
(68
)
RPG - GAAP
$
19,784
$
14,470
$
5,314
37
%
Less: Noninterest income related to TRS Transaction*
13,000
—
13,000
NM
Add: Noninterest expense related to TRS Transaction*
699
1,000
(301
)
NM
RPG - Non-GAAP
$
7,483
$
15,470
$
(7,987
)
(52
)
Net Income:
Traditional Banking - GAAP
$
6,782
$
7,833
$
(1,051
)
(13
)%
Less: Impact of net interest income from PPP fees and interest
125
3,437
(3,312
)
(96
)
Traditional Banking - Non-GAAP
$
6,657
$
4,396
$
2,261
51
TRS - GAAP
$
12,145
$
7,176
$
4,969
69
%
Less: Noninterest income related to TRS Transaction* (tax effected)
9,750
—
9,750
NM
Add: Noninterest expense related to TRS Transaction* (tax effected)
524
752
(228
)
NM
TRS - Non-GAAP
$
2,919
$
7,928
$
(5,009
)
(63
)
RPG - GAAP
$
15,393
$
10,914
$
4,479
41
%
Less: Noninterest income related to TRS Transaction* (tax effected)
9,750
—
9,750
NM
Add: Noninterest expense related to TRS Transaction* (tax effected)
524
752
(228
)
NM
RPG - Non-GAAP
$
6,167
$
11,666
$
(5,499
)
(47
)
*The TRS Transaction relates to the now-cancelled May 13, 2021 Asset Purchase Agreement for the sale of substantially all of TRS assets and operations. During the second quarter of 2022, RB&T received a pre-tax $13 million $699,000 of related expenses in relation to the TRS Transaction. During the second quarter of 2021, RB&T incurred $1.0 million
NM – Not meaningful
(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 P aycheck P rotection P rogram
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 Jun. 30 ,
Three Months Ended Jun. 30 ,
Three Months Ended Jun. 30 ,
(dollars in thousands)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
2022
2021
% Change
Traditional Banking - GAAP
$
39,158
$
38,278
$
880
2
%
$
5,121,492
$
5,149,602
$
(28,110
)
(1
)%
3.06
%
2.97
%
0.09
%
Less: Impact of PPP fees and interest
167
4,582
(4,415
)
(96
)
16,668
349,643
(332,975
)
(95
)
—
0.16
(0.16
)
Traditional Banking ex PPP fees and interest - non-GAAP
$
38,991
$
33,696
$
5,295
16
$
5,104,824
$
4,799,959
$
304,865
6
3.06
2.81
0.25
(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/20220722005009/en/
Republic Bancorp, Inc.
Kevin Sipes
Source: Republic Bancorp, Inc.
