REPUBLIC BANCORP INC /KY/ (RBCAA) stock intrinsic value fair value estimate & owner earnings analysis

Republic Bancorp is a Louisville, Kentucky bank holding company controlled by the Trager family. It has two quite different businesses. The larger is a conventional community bank (its Traditional Banking and Warehouse Lending segments) with about $5.2 billion of deposits at the end of 2025 and $5.55 billion at mid-2026, lending on homes, commercial real estate and businesses across Kentucky, southern Indiana, the Cincinnati area, Middle Tennessee and Florida, plus short-term credit lines to mortgage companies nationwide. In 2025 those two segments earned about $72 million of the company's $131 million. The rest comes from the Republic Processing Group: Tax Refund Solutions, which pays out tax refunds and makes interest-free advances against expected refunds through independent tax preparers; Republic Payment Solutions, which handles prepaid card programs; and Republic Credit Solutions, which makes high-cost consumer installment loans and lines of credit nationwide through fintech partners. These specialty units earn very high returns on little capital, but their credit losses are high and they depend on a handful of partners and on bank regulators continuing to allow the products. How we measure earnings. For a bank, deposits and loans are the raw material, so we start from net income rather than operating cash flow, which at a bank swings with loans made for sale. We add back depreciation, deduct the spending needed to keep branches and systems current (about $6 million a year), and replace the accounting loan-loss provision with the losses the bank actually wrote off each year, because the provision is a reserving estimate while write-offs are the real cost. Stock compensation is already charged in net income and is not deducted twice. On that basis owner earnings per share were about $2.51 in 2016 and 2017, $3.80 in 2018, $4.13 in 2019, $4.77 in 2020, $4.54 in 2021, $5.05 in 2022, $5.18 in 2023, $5.72 in 2024 and $6.31 in 2025. Our starting level is the median of 2021 to 2025, about $5.18 per share. We start in 2021 because the consumer lending business and the current shape of the tax business were built out over the preceding years, so earlier figures describe a smaller company. 2025 was flattered by credit reserves being released rather than built. What changed since our previous analysis. The 2025 annual report confirms that the tax business's largest tax-preparer partner, measured by volume, let its contract expire in October 2025 and did not sign up for the 2026 tax season. That partner produced about 61% of the unit's refund-advance fees, about 20% of its refund-transfer revenue, and roughly $13 million of pre-tax profit in 2025, and management says it does not expect to replace that revenue in 2026. That is around $0.50 a share of after-tax earnings removed from the 2025 level. Against that, results for the first half of 2026 held up better than the loss implies: net income was $75.4 million against $78.8 million a year earlier, as the community bank grew net interest income and deposits rose about $350 million in six months. We treat the lost contract as permanent and do not assume a replacement partner, which is why our estimates are lower than before. Our earlier per-share earnings figures also deducted stock compensation twice and are not directly comparable. Base case, about $105 per share. Owner earnings start at about $5.30 in 2026, roughly the five-year median after the lost contract and modestly below what the first half of 2026 suggests. 2025 itself grew about 10%, so starting year one only about 2% above the anchor is deliberately cautious. From there earnings grow about 2.5% a year to about $6.60 by 2035. Two things support that growth. The community bank has grown deposits by around 3 to 4% a year over the past decade, funding modest loan growth from its own capital. And the company has steadily cut its share count, from about 21.1 million diluted shares in 2019 to 19.8 million, while raising its dividend every year. We give no credit for new tax-preparer partners, new fintech lending partners, or a wider margin. After 2035 we hold earnings flat with no further growth. That is justified by the bank's century-long Kentucky deposit franchise, which keeps renewing itself through ordinary lending, and not by anything in the specialty units. Bear case, about $64 per share. This is the one-in-ten outcome. It combines a real credit cycle with the loss of the tax business. For the credit cycle we use the 2008 to 2010 downturn, when US bank loan charge-offs ran at roughly 2.5 to 3 times normal. Here that means the community bank's write-offs rising toward 1% of its roughly $4.5 billion portfolio, and the high-cost consumer book's losses (already running at several times bank-average) roughly doubling while reserves are rebuilt. That cuts owner earnings from about $5.00 to about $2.10 and $1.50 a share in the two worst years. For the tax business, the company has been here before: in 2012 its bank regulator forced it out of refund anticipation loans, then its core tax product. The bear case assumes something similar happens again, or that a second major tax-preparer partner leaves, and that the unit's roughly $28 million of 2025 net income is mostly lost for good. Earnings then recover only to about $3.10 to $4.10 a share, the earning power of the community bank and payments business alone. The company is very well capitalized (total risk-based capital of 17.8% at the end of 2025, with equity about 15% of assets), so it would not need to raise capital at low prices. The bear value sits slightly above tangible book value of about $56 a share. We think that is justified because the community bank alone earned about $64 million in 2025, a double-digit return on the capital it uses, through rising rates and a deposit run on regional banks in 2023. Bull case, about $138 per share. Earnings start near $6.10 in 2026, close to what the first half suggests, as the community bank keeps growing net interest income. They then grow about 4.5% a year to roughly $9.10 by 2035, as the company keeps adding warehouse lines (average committed lines rose to $1.05 billion in 2025 from $938 million), credit losses on the consumer book stay near today's levels, and buybacks continue at their past pace. It does not assume the lost tax partner returns. Debt. As a bank, Republic's borrowings (deposits and Federal Home Loan Bank advances) are part of how it makes money, so we value earnings after interest and do not subtract them separately. Leverage risk sits in the bear case's credit cycle instead. Margin-of-safety price, $62. We are reasonably confident in the earnings level. The community bank has produced steady, rising profits for a decade, and the first half of 2026 shows earnings largely intact after losing the biggest tax partner. The thing we are most likely to be wrong about is the specialty businesses. Tax Refund Solutions and Republic Credit Solutions depend on a few outside partners and on regulators' tolerance for high-cost consumer credit and refund advances. One partner has just left, and a regulator shut the predecessor product in 2012. If both units disappeared and a 2009-style credit cycle hit at the same time, the shares would be worth roughly the bear figure in the low $60s, close to tangible book. The structure would survive: almost no holding-company debt, strong capital, a stable deposit base and a controlling family with a long record of conservative management. At $62 the price is about tangible book for a bank that has compounded book value and dividends steadily, and the dividend was $1.80 a share (2025). The price assumes a three-to-five-year holding period, over which the base case implies that simple growth in book value plus the dividend, with the shares moving toward the base value, works out to about 20% a year. Above that price, the return depends on the specialty units staying intact, which our cases do not assume. Not reconciled: the company does not report owner-earnings-style figures by segment, so the split of the 2026 earnings drop between the lost tax contract and other factors comes from management's estimate of roughly $13 million pre-tax, not from audited segment results.