Republic Bancorp Inc. reported a 22% jump in second-quarter net income compared with a year earlier, and growth in its tax-refund business generated more than half its earnings, the company announced Thursday.
Republic, based in Louisville, Ky., is among a handful of bank holding companies that still offer tax-refund services, despite scrutiny from regulators and consumer-protection advocates. The business proved to be a revenue driver for the $3.1 billion-asset company, which beat analysts' expectations for earnings growth in the quarter.
The company reported net income of $8.4 million, or 40 cents a share, up from $6.9 million and 33 cents a year earlier. Hilliard Lyons analyst Ross Demmerle said he had expected profits to be about 30 cents a share. "They blew past my number," he said. "The biggest difference was primarily their tax business."
Republic offers two tax-refund products through partnerships with tax-preparation firms including Jackson Hewitt and Liberty Tax Service: electronic refund checks and tax-refund anticipation loans. Net income from these products rose to $4.2 million in the second quarter, or more than half of net earnings.
Standard banking operations produced about 42% of net income. The company has two bank units — Republic Bank in Port Richey, Fla., and Republic Bank and Trust in Louisville. Revenue from these operations included a $1.5 million addition to the loan-loss provision.
Republic President and Chief Executive Steve Trager said in an interview that higher earnings in the tax-refund business were partly a result of lower product prices. "Customers are a lot more cost-conscious," he said.
Much of the scrutiny is focused on refund-anticipation loans, which pose a higher risk if the Internal Revenue Service refuses to make the refund after the loan is granted. Yet Republic's earnings were largely driven by electronic checks, where the IRS pays the bank right away, posing little risk.
Trager said the anticipation loans make up about 30% of Republic's tax business. It has become more selective about underwriting such loans, which helped loan losses to fall more than expected this year, he said.