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0001104659-08-017492.txt : 20080314
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20080314060643
ACCESSION NUMBER: 0001104659-08-017492
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 23
CONFORMED PERIOD OF REPORT: 20071231
FILED AS OF DATE: 20080314
DATE AS OF CHANGE: 20080314
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: REPUBLIC BANCORP INC /KY/
CENTRAL INDEX KEY: 0000921557
STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022]
IRS NUMBER: 610862051
STATE OF INCORPORATION: KY
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-24649
FILM NUMBER: 08687627
BUSINESS ADDRESS:
STREET 1: REPUBLIC CORPORATE CENTER
STREET 2: 601 WEST MARKET ST
CITY: LOUISVILLE
STATE: KY
ZIP: 40202
BUSINESS PHONE: 5025843600
10-K
1
a08-2554_110k.htm
10-K
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2007
Commission File Number: 0-24649
REPUBLIC BANCORP, INC.
(Exact
name of registrant as specified in its charter)
Kentucky
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|
61-0862051
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer
Identification No.)
|
incorporation or
organization)
|
|
|
|
|
|
601 West Market Street,
Louisville, Kentucky
|
|
40202
|
(Address of principal
executive offices)
|
|
(Zip Code)
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Registrants telephone
number, including area code: (502) 584-3600
Securities registered
pursuant to Section 12(b) of the Act:
Title of each class
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|
Name of each exchange on which
registered
|
Class A Common
Stock
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|
NASDAQ Global Select
Market
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Securities registered
pursuant to Section 12(g) of the Act:
None
(Title
of Class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
o Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act.
o Yes x No
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports),
and (2) has been
subject to such filing requirements for the past 90 days.
|
x Yes o No
|
Indicate by check
mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will
not be contained, to the best of
registrants knowledge, in definitive
proxy or information statements incorporated by reference in
Part III of this
Form 10-K or any amendment to this Form 10-K.
|
|
x
|
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated
filer o
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|
Accelerated
filer x
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Non-accelerated
filer o
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|
Smaller reporting
company o
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
o Yes x No
The aggregate
market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold as
of June 30, 2007 (the last business day of the registrants most recently
completed second fiscal quarter) was approximately $140,409,916 (for purposes
of this calculation, the market value of the Class B Common Stock was
based on the market value of the Class A Common Stock into which it is
convertible).
The number of
shares outstanding of the registrants Class A Common Stock and Class B
Common Stock, as of March 1, 2008 was 17,952,400 and 2,343,637.
DOCUMENTS
INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated
by reference and the Part of the Form 10-K (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) Any annual report to
security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the
Securities Act of 1933. The listed documents should be clearly described for
identification purposes:
Portions
of the Registrants Proxy Statement for the Annual Meeting of Shareholders to
be held April 23, 2008 are incorporated by reference into Part III of
this Form 10-K.
2
Cautionary Statement Regarding Forward-Looking
Statements
This Annual Report on Form 10-K
contains statements relating to future results of Republic Bancorp, Inc.
that are considered forward-looking within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The forward-looking statements are
principally, but not exclusively, contained in Item 1 Business,
Item 1A Risk Factors and Item 7 Managements Discussion and Analysis of Financial Condition and Results
of Operations. These statements relate to, among other things,
expectations concerning credit quality, including but not limited to,
delinquency trends and the adequacy of the allowance for loan losses, business
segments, critical accounting estimates, corporate objectives, the Companys
interest rate sensitivity model and other financial and business matters. These
statements involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements to be materially
different from future results, performance or achievements expressed or implied
by the forward-looking statements. Actual results may differ materially from
those expressed or implied as a result of certain risks and uncertainties,
including, but not limited to, changes in political and economic conditions,
interest rate fluctuations, competitive product and pricing pressures within
the Companys markets, equity and fixed income market fluctuations, personal
and corporate customers bankruptcies, inflation, acquisitions and integrations
of acquired businesses, technological changes, changes in law and regulations,
changes in fiscal, monetary, regulatory and tax policies, monetary
fluctuations, success in gaining regulatory approvals when required, as well as
other risks and uncertainties reported from time to time in the Companys
filings with the Securities and Exchange Commission (SEC). Broadly speaking,
forward-looking statements include:
· projections
of revenue, income, earnings per share, capital expenditures, dividends,
capital structure or other financial items;
· descriptions
of plans or objectives for future operations, products or services;
· forecasts
of future economic performance; and
· descriptions
of assumptions underlying or relating to any of the foregoing.
The Company may make
forward-looking statements discussing managements expectations about:
· future
credit losses and non-performing assets;
· the
adequacy of the allowance for loans losses;
· the
anticipated future cash flows of securitized Refund Anticipation Loans (RALs);
· the
future value of mortgage servicing rights;
· the
impact of new accounting pronouncements;
· future
short-term and long-term interest rate levels and the respective impact on net
interest margin, net interest spread, net income, liquidity and capital;
· legal
and regulatory matters; and
· future
capital expenditures.
Forward-looking
statements discuss matters that are not historical facts. As forward-looking
statements discuss future events or conditions, these statements often include
words such as anticipate, believe, estimate, expect, intend, plan, project,
target, can, could, may, should, will, would, or similar
expressions. Do not rely on forward-looking statements. Forward-looking statements
detail managements expectations regarding the future and are not guarantees.
Forward-looking statements are assumptions based on information known to
management only as of the date the statements are made and management may not
update them to reflect changes that occur subsequent to the date the statements
are made. See additional discussion under the sections titled Item 1 Business, Item 1A Risk Factors
and Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations.
As
used in this report, the terms Republic, the Company, we, our and us
refer to Republic Bancorp, Inc., and, where the context requires, Republic
Bancorp, Inc. and its subsidiaries; and the term the Bank refers to the
Companys subsidiary banks: Republic Bank & Trust Company and Republic
Bank.
4
PART I
Item 1 Business.
Republic Bancorp, Inc. (Republic or the Company)
is a Financial Holding Company (FHC), under the Bank Holding Company Act of
1956, as amended (BHCA), headquartered in Louisville, Kentucky. Republic is
the Parent Company of Republic Bank & Trust Company (RB&T),
Republic Bank, (collectively referred together with RB&T as the Bank),
Republic Funding Company, Republic Invest Co. and Republic Bancorp Capital
Trust. RB&T is a Kentucky chartered commercial banking and trust
corporation, and Republic Bank is a federally chartered thrift institution
based in Florida. Republic Invest Co. includes its subsidiary, Republic Capital
LLC. The consolidated financial statements also include the wholly-owned
subsidiaries of RB&T: Republic Financial Services, LLC, TRS RAL Funding,
LLC and Republic Insurance Agency, LLC. Republic Bancorp Capital Trust is a
Delaware statutory business trust that is a 100%-owned unconsolidated finance
subsidiary of Republic Bancorp, Inc. Incorporated in 1974, Republic became
a bank holding company when RB&T became authorized to conduct commercial
banking business in Kentucky in 1981.
The principal business of Republic is directing,
planning and coordinating the business activities of the Bank. The financial
condition and results of operations of Republic are primarily dependent upon
the operations of the Bank. At December 31, 2007, Republic had total
assets of $3.2 billion, total deposits of $2.0 billion and total stockholders
equity of $249 million. Based on total assets as of December 31, 2007,
Republic ranked as the largest Kentucky-based bank holding company. The
executive offices of Republic are located at 601 West Market Street,
Louisville, Kentucky 40202, telephone number (502) 584-3600. The Companys
website address is www.republicbank.com.
Website
Access to Reports
The Company makes the
annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports, filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, available free of charge through its website,
www.republicbank.com, as soon as reasonably practicable after the Company
electronically files such material with, or furnishes it to, the SEC.
General Business Overview
As of December 31,
2007, the Company was divided into three distinct business operating segments:
Banking, Tax Refund Solutions and Mortgage Banking. As discussed throughout
this document, the Company substantially exited the deferred deposit business
during the first quarter of 2006; therefore, deferred deposit segment
operations, previously reported as a fourth segment, are presented as
discontinued operations. See additional discussion under Footnote 2 Discontinued Operations and Footnote 24 Segment Information of Item 8 Financial
Statements and Supplementary Data.
5
Net income, total assets
and net interest margin by segment for the years ended December 31, 2007,
2006 and 2005 are presented below:
Year Ended December 31, 2007 (in thousands)
|
|
Banking
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|
Tax Refund
Solutions
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|
Mortgage
Banking
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|
Total
Continuing
Operations
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|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
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|
$
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21,090
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$
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2,805
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|
$
|
1,018
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$
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24,913
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|
$
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|
|
Total
assets
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2,886,104
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274,889
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4,366
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3,165,359
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|
Net
interest margin
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|
2.99
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%
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17.23
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%
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2.94
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%
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3.17
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%
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Year Ended December 31, 2006 (in thousands)
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Banking
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Tax Refund
Solutions
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Mortgage
Banking
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|
Total
Continuing
Operations
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|
Discontinued
Operations
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|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
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|
$
|
22,793
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|
$
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4,668
|
|
$
|
655
|
|
$
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28,116
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|
$
|
235
|
|
Total assets
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3,044,983
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|
205
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|
1,599
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3,046,787
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|
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|
Net interest margin
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|
3.02
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%
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60.50
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%
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3.46
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%
|
3.22
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 (in thousands)
|
|
Banking
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|
Tax Refund
Solutions
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|
Mortgage
Banking
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|
Total
Continuing
Operations
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|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
23,730
|
|
$
|
5,531
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|
$
|
817
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|
$
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30,078
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$
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4,987
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|
Total assets
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2,721,221
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1,770
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|
6,617
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2,729,608
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5,948
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Net interest
margin
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|
3.07
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%
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108.39
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%
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3.61
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%
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3.42
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%
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(I) Banking
As
of December 31, 2007, Republic had a total of 40 full-service banking
centers with 34 located in Kentucky, three in southern Indiana and three in
metropolitan Tampa, Florida. RB&Ts primary market areas are located in
metropolitan Louisville, central Kentucky, northern Kentucky and southern
Indiana. Louisville, the largest city in Kentucky, is the location of Republics
headquarters, as well as 19 banking centers. RB&Ts central Kentucky market
includes 13 banking centers in the following Kentucky cities: Bowling Green
(1); Elizabethtown (1); Frankfort (2); Georgetown (1); Lexington, the second
largest city in Kentucky (5); Owensboro (2); and Shelbyville (1). RB&Ts
northern Kentucky market includes banking centers in Covington and Fort Wright.
RB&T also has banking centers located in Floyds Knobs, Jeffersonville and
New Albany, Indiana. Republic Bank has locations in New Port Richey, Port
Richey and Palm Harbor, Florida. The Company has plans to open additional
banking centers in Crestwood, Florence, and Independence, Kentucky and one
additional banking center in Florida, all within the next year.
Banking
related operating revenues are derived primarily from interest earned from the
Banks loan and investment securities portfolios and fee income from loans,
deposits and other banking products. The Bank has historically extended credit
and provided general banking services through its banking center network to
individuals and businesses. The Bank principally markets its banking products
and services through the following delivery channels:
Mortgage Lending The Bank
generally retains adjustable rate residential real estate loans with fixed
terms up to ten years. These loans are originated through the Banks retail
banking center network. Fixed rate residential real estate loans that are sold
into the secondary market, and their accompanying servicing rights, which may
be either sold or retained, are included as a component of the Companys Mortgage Banking segment and are discussed below and
throughout this document.
Commercial Lending Commercial
loans are primarily real estate secured and are generated through banking
centers in the Banks market areas. The Bank makes commercial loans to a
variety of industries and promotes this business through focused calling
programs in order to broaden relationships by providing business customers with
loan, deposit and treasury management services.
6
Consumer Lending Traditional
consumer loans made by the Bank include home improvement and home equity loans,
as well as secured and unsecured personal loans. With the exception of home
equity loans, which are actively marketed in conjunction with single family
first lien mortgage loans, other traditional consumer loan products are not
actively promoted in the Banks markets.
Treasury Management Services The Bank
provides various deposit products designed for business customers located
throughout its market areas. Lockbox processing, remote deposit capture,
business online banking, account reconciliation and Automated Clearing House (ACH)
processing are additional services offered to businesses through the Treasury
Management Department. The Premier First
product is the Banks premium money market sweep account designed for business
customers.
Internet Banking The Bank
expands its market penetration and service delivery by offering customers
Internet banking services and products through its website,
www.republicbank.com.
Other Banking Services The Bank
also provides trust, title insurance and other financial institution related
products and services.
(II) Tax Refund Solutions (TRS)
RB&T is one of a
limited number of financial institutions that facilitates the payment of
federal and state tax refunds through tax-preparers located throughout the U.S.
RB&T facilitates the payment of these tax refunds through three primary
products: Refund Anticipation Loans (RALs), Electronic Refund Checks (ERCs)
and Electronic Refund Deposits (ERDs). RB&T offers RALs for those
taxpayers who apply and qualify. These RALs are repaid when the taxpayers
refunds are electronically received by RB&T from the government. For those
taxpayers who wish to receive their funds electronically via an ACH, RB&T
will provide an ERC or an ERD to the taxpayer. An ERC/ERD is issued, or paid,
to the taxpayer after RB&T has received the tax refund from the federal or
state government.
See additional discussion
regarding TRS under the following: Item 1A Risk Factors, under the sections
titled Results of Operations and Critical Accounting Policies and Estimates,
in Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations and Footnote 5 Securitization and Footnote 24 Segment
Information of Item 8 Financial Statements and Supplementary Data.
(III) Mortgage Banking
Mortgage banking
activities primarily include 15, 20 and 30-year fixed rate real estate loans
that are sold into the secondary market. Since 2003, the Bank has historically
retained servicing on substantially all loans sold into the secondary market.
Administration of loans with the servicing retained by the Bank includes
collecting principal and interest payments, escrowing funds for taxes and
insurance and remitting payments to the secondary market investors. A fee is
received by the Bank for performing these standard servicing functions.
See additional discussion
regarding mortgage banking under the sections titled: Item 1A Risk Factors
and Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations and Footnote 6 Mortgage Banking Activities and Footnote
24 Segment Information of Item 8 Financial Statements and Supplementary
Data.
Employees
As
of December 31, 2007, Republic had 727 full-time equivalent employees (FTEs).
Altogether, the Company had 693 full-time and 68 part-time employees. None of
the Companys employees are subject to a collective bargaining agreement, and
Republic has never experienced a work stoppage. The Company believes that its
employee relations have been and continue to be good.
Competition
The
Bank actively competes with several local and regional retail and commercial
banks, credit unions and mortgage companies for deposits, loans and other
banking related financial services. There is intense competition in the Companys
markets from other financial institutions, as well as other non-bank companies
that engage in similar activities. Some of the Companys competitors are not
subject to the same degree of regulatory review and restrictions that apply to
the Company and the Bank. In addition, the Bank must compete with much larger
financial institutions that have greater financial resources than the Bank that
aggressively compete for market share in Kentucky, southern Indiana and
metropolitan Tampa, Florida. These competitors attempt to gain market share
through their financial product mix, pricing strategies and banking center
locations.
7
Legislative
developments related to interstate branching and banking in general, by
providing large banking institutions easier access to a broader marketplace,
can act to create more pressure on smaller financial institutions to
consolidate. The Bank also competes with insurance companies, consumer finance
companies, investment banking firms and mutual fund managers. Retail
establishments compete for certain loans by offering credit cards and retail
installment contracts for the purchase of goods and merchandise. It is
anticipated that competition from both bank and non-bank entities will continue
to remain strong in the foreseeable future.
Supervision
and Regulation
RB&T
is a Kentucky chartered commercial banking and trust corporation and as such,
it is subject to supervision and regulation by the Federal Deposit Insurance
Corporation (FDIC) and the Kentucky Office of Financial Institutions.
Republic Bank is a federally chartered thrift institution and as such, it is
subject to supervision and regulation by the Office of Thrift Supervision (OTS)
and secondarily by the FDIC, as the deposit insurer. All deposits, subject to
regulatory prescribed limitations, held by the Bank are insured by the FDIC.
Such supervision and regulation subjects the Bank to restrictions,
requirements, potential enforcement actions and periodic examination by the
FDIC, the OTS and Kentucky banking regulators. The Federal Reserve Bank (FRB)
regulates the Company with monetary policies and operational rules that
directly affect the Bank. The Company is also a member of the Federal Home Loan
Bank (FHLB) System and, with respect to deposit insurance, a member of the
Deposit Insurance Fund (DIF) managed by the FDIC.
The
Company files reports with the FRB, FDIC and OTS concerning business activities
and financial condition. In addition, the Bank must obtain regulatory approval
prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. These regulatory agencies
conduct periodic examinations to review the Companys safety and soundness and
compliance with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities under which a bank or
thrift can engage and is intended primarily to provide protection for the DIF
and the Companys depositors. Regulators have extensive discretion in
connection with their supervisory and enforcement authority and examination
policies, including policies that can materially impact the classification of
assets and the establishment of adequate loan loss reserves. Any change in
regulatory requirements and policies, whether by the FRB, the FDIC, the OTS or
state or federal legislation, could have a material adverse impact on the
Company and Company operations.
Regulators
have broad enforcement powers over bank holding companies and banks, including,
but not limited to, the power to mandate or restrict particular actions,
activities, or divestitures, impose substantial fines and other penalties for
violations of laws and regulations, issue cease and desist or removal orders,
seek injunctions, publicly disclose such actions and prohibit unsafe or unsound
practices. In addition, Republics non-banking subsidiaries also could be
subject to regulation by other agencies.
Certain
regulatory requirements applicable to the Company are referred to below or
elsewhere in this document. The description of statutory provisions and
regulations applicable to banks, thrifts and their holding companies set forth
in this document does not purport to be a complete description of such statutes
and regulations and their effect on the Company and is qualified in its
entirety by reference to the actual laws and regulations.
The
Company
The
Company is a bank holding company that has elected and presently maintains the
status of a FHC, subject to certain restrictions attributable to its Community
Reinvestment Act (CRA) rating under the BHCA. The BHCA and other federal laws
subject banks and FHCs to particular restrictions on the types of activities in
which they may engage, and to a range of supervisory requirements and
activities, including regulatory enforcement actions for violations of laws and
regulations. FHC statutes also compel the Company to maintain specified capital
ratios, examination ratings and management ratings with respect to its
operations.
Bank
Acquisitions by Banks and FHCs Republic is required to obtain the
prior approval of the FRB under the BHCA before it may, among other things,
acquire all or substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if after such acquisition it would own
or control, directly or indirectly, more than 5% of any class of the voting
shares of such bank. In approving bank acquisitions by bank holding companies,
the FRB is required to consider the financial and managerial resources and
future prospects of the bank holding company and the bank involved, the
convenience and needs of the communities to be served and various competitive
factors. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below. Consideration of convenience and needs
issues includes the parties performance under the CRA. Under the CRA, all
financial institutions have a continuing and affirmative obligation consistent
with safe and sound operation to help meet the credit needs of their entire
communities, including low to moderate income neighborhoods.
8
Under
the BHCA, so long as it is at least adequately capitalized and adequately
managed, Republic may purchase a bank, subject to regulatory approval, located
inside or outside the states of Kentucky or Florida. Similarly, an adequately
capitalized and adequately managed bank holding company located outside of
Kentucky or Florida may purchase a bank located inside Kentucky or Florida,
subject to appropriate regulatory approvals. In either case, however, state law
restrictions may be placed on the acquisition of a state bank that has been in
existence for a limited amount of time, or would result in specified
concentrations of deposits. For example, Kentucky law prohibits a bank holding
company from acquiring control of banks located in Kentucky, if the holding
company would then hold more than 15% of the total deposits of all federally
insured depository institutions in Kentucky.
Financial
Activities The activities permissible for bank
holding companies and their affiliates were substantially expanded by the
Gramm-Leach-Bliley Act (GLBA), effective March, 2000. The GLBA permits bank
holding companies that qualify as, and elect to be FHCs, to engage in a broad
range of financial activities, including underwriting, dealing in and making a
market in securities, insurance underwriting and agency activities without
geographic or other limitation, as well as merchant banking. To maintain its
status as a FHC, the Company and all of its affiliated depository institutions
must be well-capitalized, well-managed, and have at least a satisfactory CRA
rating.
FHC
regulators approve certain activities as financial in nature or incidental to
financial activities, as well as define the procedures and requirements that
allow a FHC to request the FRBs approval to conduct a financial activity, or
an activity that is complementary to a financial activity. The Company is
required to obtain prior FRB approval in order to engage in the financial
activities identified in the GLBA or FRB regulations. In addition, if any of
its depository institution subsidiaries ceases to be well-capitalized or
well-managed, and compliance is not achieved within 180 days, the Company may be
forced to cease conducting business as a FHC by divesting either its
non-banking financial activities or its bank activities. Moreover, the
Hart-Scott-Rodino Act antitrust filing requirements may apply to certain
non-bank acquisitions.
Subject
to certain exceptions, insured state banks are permitted to control or hold an
interest in a financial subsidiary that engages in a broader range of
activities (such as securities underwriting) than are permissible for national
banks to engage in directly, subject to any restrictions imposed on a bank
under the laws of the state under which it is organized. Conducting financial
activities through a bank subsidiary can impact capital adequacy and regulatory
restrictions may apply to affiliate transactions between the bank and its
financial subsidiaries.
Safe
and Sound Banking Practice The FRB does not permit bank holding
companies to engage in unsafe and unsound banking practices. The FDIC, the
Kentucky Office of Financial Institutions and the OTS have similar restrictions
with respect to the Bank.
Source
of Strength Under FRB policy, a bank holding
company is expected to act as a source of financial strength to each of its
banking subsidiaries and to commit resources for their support. Such support
may restrict the Companys ability to pay dividends, and may be required at
times when, absent this FRB policy, a holding company may not be inclined to
provide it. As noted below, a bank holding company may also be required to
guarantee the capital restoration plan of an undercapitalized banking
subsidiary and cross-guarantee provisions, as described below, generally apply
to the Company. In addition, any capital loans by the Company to its bank
subsidiaries are subordinate in right of payment to deposits and to certain
other indebtedness of the bank subsidiary. In the event of a bank holding
companys bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of subsidiary banks will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
The
USA Patriot Act The USA Patriot Act was signed into
law in October, 2001. The USA Patriot Act gives the federal government new
powers to address terrorist threats through enhanced domestic security
measures, expanded surveillance powers, increased information sharing, and
broadened anti-money laundering requirements. By way of amendments to the Bank
Secrecy Act, the USA Patriot Act takes measures intended to encourage
information sharing among bank regulatory agencies and law enforcement bodies.
Among other requirements, the USA Patriot Act requires banks to establish
anti-money laundering programs, to adopt procedures and controls to detect and
report money laundering, and to comply with certain enhanced recordkeeping
obligations with respect to correspondent accounts of foreign banks. Compliance
with these new requirements has not had a material effect on the Companys
operations.
9
The
Bank
The
Kentucky and federal banking statutes prescribe the permissible activities in
which a Kentucky bank or federal savings institution may engage and where those
activities may be conducted. Kentuckys statutes contain a super parity
provision that permits a well-rated Kentucky banking corporation to engage in
any banking activity in which a national or state bank operating in any other
state or a federal savings association meeting the qualified thrift lender test
and operating in any state could engage, provided it first obtains a legal
opinion from counsel specifying the statutory or regulatory provisions that
permit the activity.
Branching
Kentucky law generally permits a Kentucky chartered bank to establish a
branch office in any county in Kentucky. A Kentucky bank may also, subject to
regulatory approval and certain restrictions, establish a branch office outside
of Kentucky. Well-capitalized Kentucky banks that have been in operation at
least three years and that satisfy certain criteria relating to, among other
things, their composite and management ratings, may establish a branch in
Kentucky without the approval of the Executive Director of the Kentucky Office
of Financial Institutions, upon notice to the Kentucky Office of Financial Institutions
and any other state bank with its main office located in the county where the
new branch will be located. Branching by all other banks requires the approval
of the Executive Director of the Kentucky Office of Financial Institutions, who
must ascertain and determine that the public convenience and advantage will be
served and promoted and that there is a reasonable probability of the
successful operation of the branch. In any case, the transaction must also be
approved by the FDIC, which considers a number of factors, including financial
history, capital adequacy, earnings prospects, character of management, needs
of the community and consistency with corporate powers. An out of state bank is
permitted to establish branch offices in Kentucky only by merging with a
Kentucky bank. De novo branching into Kentucky
by an out of state bank is not permitted. This difficulty for out of state
banks to branch into Kentucky may limit the ability of a Kentucky bank to
branch into many states, as several states have reciprocity requirements for
interstate branching.
Under
federal regulations, Republic Bank may establish and operate branches in any
state within the U.S. with the prior approval of the OTS. Highly rated federal
savings associations that satisfy certain regulatory requirements may establish
branches without prior OTS approval, provided the federal savings association
publishes notice of its establishment of a new branch, the federal savings
association notifies the OTS of the establishment of the branch, and no person
files a comment with the OTS opposing the proposed branch.
Restrictions
on Affiliate Transactions Transactions between
the Bank and its affiliates, including the Company, are subject to Section 23A
of the Federal Reserve Act. In general, Section 23A imposes limits on the
amount of such transactions, and also requires certain levels of collateral for
loans to affiliated parties. It also limits the amount of advances to third
parties, which are collateralized by the securities or obligations of the
Company or its subsidiaries.
Affiliate
transactions are also subject to Section 23B of the Federal Reserve Act
which generally requires that certain transactions between the Bank and its
affiliates be on terms substantially the same, or at least as favorable to the
Bank, as those prevailing at the time for comparable transactions with the Bank
and other non-affiliated persons.
The
FRB promulgated Regulation W to implement Sections 23A and 23B. That regulation
contains the foregoing restrictions and also addresses derivative transactions,
overdraft facilities and other transactions between a bank and its non-bank
affiliates.
Restrictions
on Distribution of Subsidiary Bank Dividends and Assets
Banking regulators may declare a dividend payment to be unsafe and unsound
even if the Bank continues to meet its capital requirements after the dividend.
Dividends paid by RB&T provide substantially all of the Companys operating
funds. Regulatory requirements serve to limit the amount of dividends that may
be paid by the Bank. Under federal regulations, the Bank cannot pay a dividend
if, after paying the dividend, the Bank would be undercapitalized.
Under
Kentucky and federal banking regulations, the dividends the Bank can pay during
any calendar year are generally limited to its profits for that year, plus its
retained net profits for the two preceding years, less any required transfers
to surplus or to fund the retirement of preferred stock or debt, absent
approval of the respective state or federal banking regulators. Management does
not anticipate any restrictions on dividends to the Company from the Bank in
the foreseeable future. In addition, Republic Bank must notify the OTS thirty
days before declaring any dividend payable to the Company. The Company has not
paid dividends from Republic Bank and does not anticipate doing so in the near
future.
10
Deposit
Insurance Assessments The Federal Deposit
Insurance Reform Act of 2005 and The Federal Deposit Insurance Reform
Conforming Amendments Act of 2005 signed by the President in February, 2006
(the Act) revised the laws governing federal deposit insurance by providing
for changes that included: merging the Bank Insurance Fund (BIF) and the
Savings Association Insurance Fund (SAIF) into the DIF effective March 31,
2006; coverage for certain retirement accounts increased to $250,000 effective April 1,
2006; allows for deposit insurance coverage on individual accounts to be
indexed for inflation beginning in 2010; gives the FDIC more discretion in
managing deposit insurance assessments; and allows eligible institutions a
one-time initial assessment credit. Under the Act, the FDIC was authorized to
revise the previous assessment system. Insurance premiums are now based on a
number of factors including the risk of loss that insured institutions pose to
the DIF. The legislation replaced the prior minimum 1.25% reserve ratio for the
insurance funds with a range for the new insurance funds reserve ratio between
1.15% and 1.50% depending on projected losses, economic changes and assessment
rates at the end of a calendar year, abolished the rule prohibiting the
FDIC from charging the banks in the lowest risk category when the reserve ratio
premiums is more than 1.25% and does not limit the FDIC to changing assessment
rates bi-annually.
The FDIC announced a new rule in November, 2006
regarding the risk based assessment system for the premiums paid by each bank.
Under this risk-based system, the FDIC evaluates an institutions supervisory
ratings for all insured institutions, financial ratios for most institutions,
and long-term debt issuer ratings for certain large institutions. The pricing
structure for 2007 set rates with the minimum premium starting at 0.05% of
insured deposits. Certain credits were allowed against 2007 premiums for
certain eligible institutions with premium assessments prior to 1996.
Management expects premium costs to be between 0.05% and 0.07% for 2008,
reduced by applicable credits.
Cross-Guarantee Provisions The Federal Deposit Insurance Act
contains a cross-guarantee provision which generally makes commonly controlled
insured depository institutions liable to the FDIC for any losses incurred in
connection with the failure of any sister depository institution.
Consumer Laws and Regulations In addition to the laws and regulations
discussed herein, the Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in their transactions with
banks. While the discussion set forth in this document is not exhaustive, these
laws and regulations include the Truth in Lending Act, the Truth in Savings
Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act,
the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act,
the Fair Housing Act and the Fair and Accurate Transactions Act, among others.
These laws and regulations mandate certain disclosure requirements and regulate
the manner in which financial institutions must deal with consumers when
accepting deposits or originating loans. Certain laws also limit the Banks
ability to share information with affiliated and unaffiliated entities. The
Bank is required to comply with all applicable consumer protection laws and regulations
as part of its ongoing business operations.
Code of Ethics The Company adopted a code of ethics that applies to all employees, including the Companys principal executive, financial and accounting officers. A copy of the Companys code of ethics is available on the Companys website. The Company intends to disclose information about any amendments to, or waivers from, the code of ethics that are required to be disclosed under applicable SEC regulations by providing appropriate information on the Companys website. If at any time the code of ethics is not available on the Companys website, the Company will provide a copy of it free of charge upon written request.
Qualified Thrift Lender Test Federal law requires thrift institutions to meet the qualified thrift lender test (QTL), as detailed in 12 U.S.C. §1467a(m). The QTL measures the proportion of a thrift institutions assets invested in loans or securities supporting residential construction and home ownership. Under the QTL, a thrift institution is required to either qualify as a domestic building and loan association under the Internal Revenue Code or maintain at least 65% of its portfolio assets (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain qualified thrift investments (primarily residential mortgages and related investments, including certain mortg
age backed securities) in at least nine months out of each 12-month period. Qualified thrift investments include (i) housing-related loans and investments, (ii) obligations of the FDIC, (iii) loans to purchase or construct churches, schools, nursing homes and hospitals, (iv) consumer loans, (v) shares of stock issued by any FHLB, and (vi) shares of stock issued by the Federal Home Loan Mortgage Corporation (FHLMC) or the Federal National Mortgage Association (FNMA). Recent legislation has expanded the extent to which education loans, credit card loans and small business loans may be considered qualified thrift investments. Portfolio assets consist of total assets minus (a) goodwill and other intangible assets, (b) the value of properties used by the savings institution to conduct its business, and (c) certain liquid assets in an amount not exceeding 20% of total assets. If Republic Bank fails to remain qualified under the QTL, i
t must either convert to a commercial bank charter or be subject to restrictions specified under OTS regulations. A savings institution may re-qualify under the QTL if it thereafter complies with the QTL. A savings institution also may satisfy the QTL test by qualifying as a domestic building and loan association as defined in the Internal Revenue Code. At December 31, 2007, Republic Bank exceeded the QTL requirements.
11
Federal Home Loan Bank System The Bank is a member of the FHLB System, which consists of twelve regional FHLBs subject to supervision and regulation by the Federal Housing Finance Board. The FHLBs provide a central credit facility primarily for its member institutions. As a member of the FHLB, the Bank is required to acquire and hold shares of capital stock in the FHLB in an amount at least equal to 1% of the aggregate unpaid principal of its home mortgage loans, home purchase contracts, and similar obligations at the beginning of each year, or 1/20th of its advances (borrowings) from the FHLB, whichever is greater. As of December 31, 2007, the Bank
was in compliance with this requirement.
Capital Adequacy Requirements
Capital Guidelines The FRB, FDIC and OTS have substantially
similar risk based and leverage ratio guidelines for banking organizations,
which are intended to ensure that banking organizations have adequate capital
related to the risk levels of assets and off balance sheet instruments. Under
the risk based guidelines, specific categories of assets are assigned different
risk weights based generally on the perceived credit risk of the asset. These
risk weights are multiplied by corresponding asset balances to determine a risk
weighted asset base. The guidelines require a minimum total risk based capital
ratio of 8.0%, of which at least 4.0% is required to consist of Tier I capital
elements (generally, common shareholders equity, minority interests in the
equity accounts of consolidated subsidiaries, non cumulative perpetual
preferred stock, less goodwill and certain other intangible assets). Total
capital is the sum of Tier I and Tier II capital. Tier II capital generally may
consist of limited amounts of subordinated debt, qualifying hybrid capital
instruments, other preferred stock, loan loss reserves and unrealized gains on
certain equity securities. As of December 31, 2007, the Companys ratio of
Tier I capital to total risk-weighted assets was 13.29% and its ratio of total
capital to total risk weighted assets was 13.90%. As of December 31, 2007,
RB&Ts ratio of Tier I capital to total risk weighted assets was 11.66% and
its ratio of total risk based capital to total risk weighted assets was 13.41%.
Republic Banks Tier I capital to total risk weighted assets was 22.89% and its
ratio of total risk based capital to total risk weighted assets was 23.70% at December 31,
2007.
In addition to the risk
based capital guidelines, the FRB utilizes a leverage ratio as an additional
tool to evaluate the capital adequacy of bank holding companies. The leverage
ratio is a companys Tier I capital divided by its average total consolidated
assets (less goodwill and certain other intangible assets). Certain highly
rated bank holding companies may maintain a minimum leverage ratio of 3.0%, but
other bank holding companies may be required to maintain a leverage ratio of up
to 200 basis points above the regulatory minimum. As of December 31, 2007,
the Companys leverage ratio was 8.75%. The FDICs leverage guidelines require
state banks to maintain Tier I capital of no less than 5% of average total
assets, except in the case of certain highly rated banks for which the
requirement is 3% of average total assets. As of December 31, 2007,
RB&T and Republic Banks leverage ratios were 7.66% and 16.59%,
respectively.
The federal banking
agencies risk based and leverage ratios represent minimum supervisory ratios
generally applicable to banking organizations that meet certain specified
criteria, assuming that they have the highest regulatory capital rating.
Banking organizations not meeting these criteria are required to operate with
capital positions above the minimum ratios. FRB guidelines also provide that
banking organizations experiencing internal growth or making acquisitions may
be expected to maintain strong capital positions above the minimum supervisory
levels, without significant reliance on intangible assets. The FDIC may
establish higher minimum capital adequacy requirements if, for example, a bank
has previously warranted special regulatory attention or, among other factors,
has a high susceptibility to interest rate risk.
Corrective
Measures for Capital Deficiencies The banking regulators are required to take prompt
corrective action with respect to capital deficient institutions. Agency
regulations define, for each capital category, the levels at which institutions
are well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Under these regulations, a
well-capitalized bank has a total risk based capital ratio of 10% or higher; a
Tier I risk based capital ratio of 6% or higher; a leverage ratio of 5% or
higher; and is not subject to any written agreement, order or directive
requiring it to maintain a specific capital level for any capital measure. An
adequately capitalized bank has a total risk-based capital ratio of 8% or
higher; a Tier I risk-based capital ratio of 4% or higher; a leverage ratio of
4% or higher (3% or higher if the bank was rated a CAMEL 1 in its most recent
examination report and is not experiencing significant growth); and does not
meet the criteria for a well-capitalized bank. A bank is undercapitalized if it
fails to meet any one of the ratios required to be adequately capitalized.
Undercapitalized
institutions are required to submit a capital restoration plan, which must be
guaranteed by the holding company of the institution. In addition, agency
regulations contain broad restrictions on certain activities of
undercapitalized institutions including asset growth, acquisitions, branch
establishment, and expansion into new lines of business. With certain
exceptions, an insured depository institution is prohibited from making capital
distributions, including dividends, and is prohibited from paying management
fees to control persons if the institution would be undercapitalized after any
such distribution or payment. A banks capital classification will also affect
its ability to accept brokered deposits. Under banking regulations, a bank may
not lawfully accept, roll over or renew brokered deposits, unless it is either
well-capitalized or it is adequately capitalized and receives a waiver from the
regulator.
12
If a banking institutions
capital decreases below acceptable levels, banking regulatory enforcement
powers become more enhanced. A significantly undercapitalized institution is
subject to mandated capital raising activities, restrictions on interest rates
paid and transactions with affiliates, removal of management and other
restrictions. Banking regulators have limited discretion in dealing with a
critically undercapitalized institution and are normally required to appoint a
receiver or conservator. Banks with risk based capital and leverage ratios
below the required minimums may also be subject to certain administrative
actions, including the termination of deposit insurance upon notice and
hearing, or a temporary suspension of insurance without a hearing in the event
the institution has no tangible capital.
In addition, a bank
holding company that elects to be treated as a FHC may face significant
consequences if its banks fail to maintain the required capital and management
ratings, including entering into an agreement with the FRB which imposes
limitations on its operations and may even require divestitures. Such possible
ramifications may limit the ability of a bank subsidiary to significantly
expand or acquire less than well-capitalized and well-managed institutions.
More specifically, the FRBs regulations require a FHC to notify the FRB within
15 days of becoming aware that any depository institution controlled by the
company has ceased to be well-capitalized or well-managed. If the FRB
determines that a FHC controls a depository institution that is not
well-capitalized or well-managed, the FRB will notify the FHC that it is not in
compliance with applicable requirements and may require the FHC to enter into
an agreement acceptable to the FRB to correct any deficiencies. Until such
deficiencies are corrected, the FRB may impose any limitations or conditions on
the conduct or activities of the FHC and its affiliates that the FRB determines
are appropriate, and the FHC may not commence any additional activity or
acquire control of any company under Section 4(k) of the BHC Act
without prior FRB approval. Unless the period of time for compliance is
extended by the FRB, if a FHC fails to correct deficiencies in maintaining its
qualification for FHC status within 180 days of entering into an agreement with
the FRB, the FRB may order divestiture of any depository institution controlled
by the company. A company may comply with a divestiture order by ceasing to
engage in any financial or other activity that would not be permissible for a
bank holding company that has not elected to be treated as a FHC.
Under the Federal Deposit
Insurance Corporation Improvement Act (FDICIA), each federal banking agency
has prescribed, by regulation, non-capital safety and soundness standards for
institutions under its authority. These standards cover internal controls,
information systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation, fees and benefits, such
other operational and managerial standards as the agency determines to be
appropriate, and standards for asset quality, earnings and stock valuation. An
institution which fails to meet these standards must develop a plan acceptable
to the agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. Management believes that the Bank
currently satisfies all such standards.
Legislative Initiatives
The U.S. Congress and
state legislative bodies continually consider proposals for altering the
structure, regulation and competitive relationships of financial institutions.
It cannot be predicted whether, or in what form, any of these potential
proposals or regulatory initiatives will be adopted, the impact the proposals
will have on the financial institutions industry or the extent to which the
business or financial condition and operations of the Company and its
subsidiaries may be affected.
Statistical Disclosures
The statistical disclosures required by Item 1 Business are located under Item 7 Managements
Discussion and Analysis of Financial Condition and Results of Operations.
13
Item 1A. Risk Factors.
FACTORS THAT MAY AFFECT FUTURE RESULTS
There are factors, many
beyond the Companys control, which may significantly change the results or
expectations of the Company. Some of these factors are described below in the
sections titled Company Factors and Industry Factors, however, many are described in the other
sections of this Annual Report on Form 10-K.
Company Factors
The Companys accounting policies
and estimates are critical components of the Companys presentation of its
financial statements. Management must exercise judgment in selecting and
adopting various accounting policies and in applying estimates. Actual outcomes
may be materially different than amounts previously estimated. Management has identified five
accounting policies as being critical to the presentation of the Companys
financial statements. These policies are described under Item 7 Managements Discussion and Analysis of Financial Condition and Results
of Operations under the section titled Critical
Accounting Policies and Estimates and relate to the following:
· Allowance for loan losses
· Mortgage servicing rights
· Refund Anticipation Loan (RAL)
securitization and valuation of residual
· Income tax accounting
· Goodwill and other intangible assets
The
Companys lines of business and products not typically associated with
traditional banking expose the Companys earnings to additional risks and
uncertainties. In
addition to traditional banking and mortgage banking products, the Company
provides RALs and Overdraft Honor deposit accounts. The following details
specific risk factors related to these lines of business:
· RALs represent a significant
business risk, and if the Company terminated the business it would materially
impact the earnings of the Company. Tax Refund Solutions (TRS) offers bank products to
facilitate the payment of tax refunds for customers that electronically file
their tax returns. The Company is one of only a few financial institutions in
the U.S. that provides this service to taxpayers. Under this program, the
taxpayer may receive a RAL, or an Electronic Refund Check or Electronic Refund
Deposit (ERC/ERD). In return, the Company charges a fee for the service.
During 2007, net income
from the Companys TRS business segment accounted for approximately 11% of the
Companys total net income. Various governmental and consumer groups have, from
time to time, questioned the fairness of the RAL program and have accused this
industry of charging excessive/usurious rates of interest, via the fee, and
engaging in predatory lending practices. Consumer groups have also claimed that
customers are not adequately advised that a RAL is a loan product and that
alternative, less expensive means of obtaining tax refund proceeds may be
available. Actions of these groups and
others could result in regulatory, governmental or legislative action or
material litigation against the Company. Exiting this line of business, either
voluntarily or involuntarily, would significantly reduce the Companys
earnings.
See the
sections titled Results of Operations and Critical Accounting Policies and
Estimates in Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations, as well as Footnote 5 Securitization
and Footnote 24 Segment Information of Item 8 Financial Statements and
Supplementary Data for additional discussion regarding TRS.
· The TRS business segment
represents a significant operational risk, and if the Company were unable to
properly service the anticipated growth in the business it could materially
impact the earnings of the Company. On September 19, 2007, Republic Bank &
Trust Company (RB&T) entered into a three year Program Agreement with
Jackson Hewitt Inc. (JHI) and a three year Technology Services Agreement with
Jackson Hewitt Technology Services LLC (JHTSL) related to RB&Ts RAL and
ERC/ERD products. JHI and JHTSL are subsidiaries of Jackson Hewitt Tax Service
Inc., which provides computerized preparation of federal, state and local
individual income tax returns in the U.S. through a nationwide network of
franchised and company-owned tax offices operating under the brand name Jackson
Hewitt Tax Service®.
14
The Program and Technology Service Agreements are effective for TRS
first quarter 2008 RAL and ERC/ERD tax season and provide for TRS to be the
exclusive provider of RAL and ERC/ERD products for a select group of Jackson
Hewitt Tax Service offices. During 2007, the select group of Jackson Hewitt Tax
Services offices that will begin making TRS products available during 2008
produced approximately 70% of the total number of RAL and ERC/ERD products
generated by TRS with others during 2007.
In addition to the new business expected to be acquired through the
Jackson Hewitt relationship, the Company also anticipates significant growth
through its independent tax-preparer base as well. Material growth in the TRS
business segment requires a significant increase in technology and employees to
service the new business. In order to process the new business, the Company
must implement and test new systems, as well as train new employees.
Significant operational problems could cause the Company to incur higher than
normal credit losses. Significant operational problems could also cause a
material portion of the Companys tax-preparer base to switch to a competitor
bank to process their bank product transactions, significantly reducing the
Companys projected revenue without a corresponding decrease in expenses.
See the
sections titled Results of Operations and Critical Accounting Policies and
Estimates in Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations, as well as Footnote 5 Securitization
and Footnote 24 Segment Information of Item 8 Financial Statements and
Supplementary Data for additional discussion regarding TRS.
· RALs represent a significant
compliance and regulatory risk, and if the Company fails to comply with all
statutory and regulatory requirements it could have a material negative impact
on the Companys earnings. Federal and state laws and regulations govern numerous matters relating
to the offering of RALs. Failure to comply with disclosure requirements such as
Regulation B, Fair Lending and Regulation Z, Truth in Lending, or with laws
relating to the permissibility of interest rates and fees charged could have a
material negative impact on the Companys earnings.
See the
sections titled Results of Operations and Critical Accounting Policies and
Estimates in Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations, as well as Footnote 5 Securitization
and Footnote 24 Segment Information of Item 8 Financial Statements and
Supplementary Data for additional discussion regarding TRS.
· RALs represent a significant
liquidity risk. Significantly overestimating or underestimating the Companys
liquidity need for the upcoming tax season could have a material negative
impact on the Companys overall earnings. Funding for the RAL liquidity
requirements may also cost more than the Companys current estimates. The Companys liquidity risk increases
significantly during the first quarter of each year due to the RAL program. The
Company has committed to the electronic filers and tax-preparer base that it
will make RALs available to their customers under the terms of its contracts
with them. This requires the Company to estimate liquidity needs for the RAL
program well in advance of the tax season. If management materially
overestimates the need for liquidity during the tax season, a significant
expense could be incurred without an offsetting revenue stream. If management
materially underestimates the need for liquidity during the tax season, the
Bank could experience a significant shortfall of capital needed to fund RALs
and could potentially be required to stop originating new RALs.
In addition to the new business expected to be acquired through the
Jackson Hewitt relationship, the Company also expects significant growth
through its independent tax-preparer customer base as well. The Company expects
its 2008 RAL program to require significantly more liquidity than prior tax
seasons. Management intends to utilize a securitization structure once again in
2008 to fund a significant portion of the RAL portfolio. Given a general lack
of liquidity currently in the credit markets, the Company may not be able to
obtain all of its necessary funding from the securitization structure with
terms acceptable to the Company. If the Company cannot obtain all of its
necessary funding from the securitization structure, it would be forced to obtain
additional funding from other sources such as brokered deposits and lines of
credit and may need to draw on holding company lines of credit to provide
capital to RB&T. These sources must ideally be established well in advance
of the tax season in order to ensure their availability, and also their timing
and short-term duration may cause the Company to incur significant additional
funding costs.
See the
sections titled Results of Operations and Critical Accounting Policies and
Estimates in Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations, as well as Footnote 5 Securitization
and Footnote 24 Segment Information of Item 8 Financial Statements and
Supplementary Data for additional discussion regarding TRS.
15
· RALs represent a significant
credit risk, and if the Company is unable to collect a significant portion of
its RALs it would materially impact the earnings of the Company. There is credit risk associated with a
RAL because the money is disbursed to the customer prior to the Company
receiving the customers refund from the Internal Revenue Service (IRS). The
Company collects substantially all of its payments related to RALs from the
IRS. Losses generally occur on RALs because the Company does not receive
payment from the IRS due to reasons such as taxpayer or tax-preparer fraud,
taxpayer or tax-preparer errors on returns, and tax debts not disclosed to the
Company, among other reasons.
Historically at
TRS, credit losses related to RALs within a given calendar year have ranged
from a low of 0.49% to a high of 1.70% of total RALs originated (including
retained and securitized RALs). During 2007, the Company incurred $6.6 million
in gross losses associated with RALs both retained on balance sheet by the
Company and securitized by the Company. Losses as a percent of total RALs
originated (including retained and securitized RALs) during 2007 were 1.14%.
In addition to the
new business expected to be acquired through the Jackson Hewitt relationship,
the Company also expects significant growth through its independent
tax-preparer base as well. Although the Company expects losses to track within
historical levels in terms of percentage of total loans originated, management
cannot guarantee any range of losses associated with the RAL business. Losses
significantly above historical levels could have a material negative impact on
the Companys overall earnings.
See the
sections titled Results of Operations and Critical Accounting Policies and
Estimates in Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations, as well as Footnote 5 Securitization
and Footnote 24 Segment Information of Item 8 Financial Statements and
Supplementary Data for additional discussion regarding TRS.
· RB&T has substantial risk in
connection with the RAL securitization. A residual
represents the retained interest created in a securitization and typically
represents the first loss position. Residuals are not typically rated by
nationally recognized rating agencies. In a securitization transaction, the
Company may recognize a gain on sale resulting from the related residual in the
securitized loans when it sells the assets. The value assigned to the residual
depends upon certain assumptions made regarding the future performance of the
securitized loan portfolio, including the level of credit losses. If actual
credit losses differ from the original assumptions, the value of the residual
may decrease materially, possibly resulting in a charge against future earnings.
Decreases in the value of the residual in the securitization due to higher than
expected credit losses could have a material adverse effect on the Companys
business, financial condition and results of operations.
See the
sections titled Results of Operations and Critical Accounting Policies and
Estimates in Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations, as well as Footnote 5 Securitization
and Footnote 24 Segment Information of Item 8 Financial Statements and
Supplementary Data for additional discussion regarding TRS.
· The Companys Overdraft
Honor program represents a significant business risk, and if the Company
terminated the program it would materially impact the earnings of the Company.
There can be no assurance that the Companys regulators, or others, will not
impose additional limitations on this program or prohibit the Company from
offering the program. The Companys Overdraft Honor program permits eligible customers to
overdraft their checking accounts up to a predetermined dollar amount for the
Banks customary overdraft fee(s). Generally, to be eligible for the Overdraft
Honor program, customers must qualify for one of the Companys traditional
checking products when the account is opened and remain in that product for 30
days; have deposits of at least $500; and have had no overdrafts or returned
deposited items. Once the eligibility requirements have been met, the client is
eligible to participate in the Overdraft Honor program. If an overdraft occurs,
the Company may pay the overdraft, at its discretion, up to $500 (an account in
good standing after two years is eligible for up to $1,000). Under regulatory
guidelines, customers utilizing the Overdraft Honor program may remain in
overdraft status for no more than 45 days. Generally, an account that is
overdrawn for 60 consecutive days is closed and the balance is charged off.
Overdraft balances from
deposit accounts, including those overdraft balances resulting from the Companys
Overdraft Honor program, are recorded as a component of loans on the Companys
balance sheet.
The Company assesses two
types of fees related to overdrawn accounts, a fixed per item fee and a fixed
daily charge for being in overdraft status. The per item fee for this service
is not considered an extension of credit, but rather is considered a fee for
paying checks when sufficient funds are not otherwise available. As such, it is
classified on the income statement in service charges on deposits as a
component of non interest income along with per item fees
16
assessed to customers not
in the Overdraft Honor program. A substantial majority of the per item fees in
service charges on deposits relates to customers in the Overdraft Honor
program. The daily fee assessed to the client for being in overdraft status is
considered a loan fee and is thus included in interest income on loans.
The Company earns a
substantial majority of its fee income related to this program from the per
item fee it assesses its customers for each insufficient funds check or
electronic debit presented for payment. Both the per item fee and the daily fee
assessed to the account resulting from its overdraft status, if computed as a
percentage of the amount overdrawn, results in a high rate of interest when
annualized and are thus considered excessive by some consumer groups. The total
per item fees included in service charges on deposits for 2007 and 2006 were
$13.7 million and $12.1 million. The total daily overdraft charges included in
interest income for 2007 and 2006 were $2.7 million and $2.1 million.
Additional limitations or elimination, or adverse modifications to this
program, either voluntary or involuntary, would significantly reduce Company
earnings.
The Company owns $35 million of securities which
the Company believes have an elevated level of credit risk and are extremely
illiquid. Nationally,
residential real estate values have declined. These declines in value, coupled
with the reduced ability of homeowners to refinance or repay their residential
real estate obligations, have led to elevated delinquencies and losses in
residential real estate loans. Many of these loans have previously been
securitized and sold to investors as corporate mortgage backed or other
corporate mortgage-related securities. The Company owns $35 million in
corporate mortgage backed and other corporate mortgage-related securities.
These securities are not guaranteed by government agencies. Approximately $24
million of these securities are rated AAA by Standard & Poors (S&P)
and are backed by Alternative A first lien mortgage loans. The remaining $11
million are asset backed securities with an insurance wrap or guarantee.
These asset backed securities are AA rated by S&P. Due to current market
conditions, all of these assets are extremely illiquid, and as such, the market
value is unable to be reasonably estimated due to the volatility in the
mortgage industry. The average life of these securities is estimated to be
approximately five years. At this time, management intends to hold these
securities until maturity and does not believe the Company will incur any loss
of principal. Further deterioration in the real estate markets and/or deterioration
in the financial condition of the insurance company providing the wrap could
produce a loss of principal in the future. As of the date of this filing, none
of these securities have been downgraded by the applicable rating agency. See additional discussion under Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations and Footnote 3 Securities
of Item 8 Financial Statements and Supplementary Data.
Mortgage banking activities would be significantly
adversely impacted by rising long-term interest rates. Changes in interest rates can impact the
gain on sale of loans, loan origination fees and loan servicing fees, which
account for a significant portion of mortgage banking income. A decline in
interest rates generally results in higher demand for mortgage products, while
an increase in rates generally results in reduced demand. If demand increases,
mortgage banking income will be positively impacted by more gains on sale;
however, the valuation of existing mortgage servicing rights will decrease and
may result in a significant impairment. Moreover, a decline in demand for
mortgage banking products could also adversely impact other programs/products
such as home equity lending, title insurance commissions and service charges on
deposit accounts. See additional discussion about this product
under Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations and Footnote 6 Mortgage Banking Activities and
Footnote 24 Segment Information of Item 8 Financial Statements and
Supplementary Data.
The Companys stock generally has
a low average daily trading volume, which limits a shareholders ability to
quickly accumulate or quickly sell large numbers of shares of Republics stock
without causing wide price fluctuations. Republics stock price can fluctuate widely in
response to a variety of factors, such as actual or anticipated variations in
the Companys operating results, recommendations by securities analysts,
operating and stock price performance of other companies, news reports, results
of litigation, regulatory actions or changes in government regulations, among
other factors. A low average daily stock trading volume can lead to significant
price swings even when a relatively small number of shares are being traded.
The Companys insiders hold
voting rights that give them significant control over matters requiring
stockholder approval. The Companys Chairman, President, and Vice
Chairman hold
substantial amounts of the Companys Class A Common Stock and Class B
Common Stock. Each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to ten votes. This
group generally votes together on matters presented to stockholders for
approval. Consequently, other stockholders ability to influence the Companys
actions through their vote may be limited and the non-insider stockholders may
not have sufficient voting power to approve a change in control even if a
significant premium is being offered for their shares. The Company cannot
assure you that majority stockholders will vote their shares in accordance with
your interests.
17
Industry Factors
Fluctuations
in interest rates may negatively impact the Companys banking business. Republics core source of income from
operations consists of net interest income, which is equal to the difference
between interest income received on interest-earning assets (typically loans
and investment securities) and the interest expenses incurred in connection
with interest-bearing liabilities (typically deposits and borrowing sources).
These rates are highly sensitive to many factors beyond the Companys control,
including general economic conditions, both domestic and foreign, and the
monetary and fiscal policies of various governmental and regulatory
authorities. Republics net interest income can be affected significantly by
changes in market interest rates. Changes in interest rates may reduce Republics
net interest income as the difference between interest income and interest
expense declines. As a result, Republic has adopted asset and liability
management policies to minimize potential adverse effects of changes in
interest rates on net interest income, primarily by altering the mix and
maturity of loans, investments and funding sources. However, even with these
policies in place, changes in interest rates could negatively impact the
Companys results of operations or financial position.
An increase in interest
rates could also have a negative impact on Republics results of operations by
reducing the ability of customers to repay their outstanding loans, which could
not only result in increased loan defaults, foreclosures and charge offs, but
may also likely necessitate further increases to Republics allowance for loan
losses.
The Company is significantly
impacted by the regulatory, fiscal and monetary policies of federal and state
governments which could negatively impact the Companys liquidity position and
earnings. These policies can materially affect the value of the Companys
financial instruments and can also adversely affect the Companys customers and
their ability to repay their outstanding loans. Also, failure to comply with
laws, regulations or policies, or adverse examination findings, could result in
significant penalties, negatively impact operations, or result in other
sanctions against the Company.
The Board of Governors of
the Federal Reserve Bank (FRB) regulates the supply of money and credit in
the U.S. Its policies determine, in large part, the Companys cost of funds for
lending and investing and the return the Company earns on these loans and
investments, all of which impact net interest margin.
The Company and the Bank
are heavily regulated at both the federal and state levels. This regulatory
oversight is primarily intended to protect depositors, the DIF and the banking
system as a whole, not the shareholders of the Company. Changes in policies,
regulations and statutes, or the interpretation thereof, could significantly
impact the product offerings of Republic causing the Company to terminate or
modify its product offerings in a manner that could materially adversely affect
the earnings of the Company.
Federal and state
laws and regulations govern numerous matters including changes in the ownership
or control of banks and bank holding companies, maintenance of adequate capital
and the financial condition of a financial institution, permissible types,
amounts and terms of extensions of credit and investments, permissible
non-banking activities, the level of reserves against deposits and restrictions
on dividend payments. Various federal and state regulatory agencies possess
cease and desist powers, and other authority to prevent or remedy unsafe or
unsound practices or violations of law by banks subject to their regulations.
The FRB possesses similar powers with respect to bank holding companies. These,
and other restrictions, can limit in varying degrees, the manner in which
Republic conducts its business.
Republic
is subject to regulatory capital adequacy guidelines, and if the Company fails
to meet these guidelines the Companys financial condition may be adversely
affected. Under
regulatory capital adequacy guidelines, and other regulatory requirements,
Republic and the Bank must meet guidelines that include quantitative measures
of assets, liabilities and certain off balance sheet items, subject to
qualitative judgments by regulators about components, risk weightings and other
factors. If Republic fails to meet these minimum capital guidelines and other
regulatory requirements, Republics financial condition will be materially and
adversely affected. Republics failure to maintain well-capitalized status
under its regulatory framework, or well-managed under regulatory exam procedures,
or regulatory violations, could compromise Republics status as a Financial
Holding Company and related eligibility for a streamlined review process for
acquisition proposals and limit the ability of the Company to offer certain
financial products.
The Companys financial condition
and earnings could be negatively impacted to the extent the Company relies on
information that is false, misleading or inaccurate. The Company relies on the accuracy and
completeness of information provided by vendors, customers and other parties.
In deciding whether to extend credit, including RALs, or enter into
transactions with other parties, the Company relies on information furnished
by, or on behalf of, customers or entities related to those customers.
18
Defaults
in the repayment of loans may negatively impact the Company. When borrowers default on obligations
of one or more of their loans, it may result in lost principal and interest
income and increased operating expenses, as a result of the increased
allocation of management time and resources to the subsequent collection
efforts. In certain situations where collection efforts are unsuccessful or
acceptable work out arrangements cannot be reached or performed, the Company
may have to charge off loans, either in part or in whole.
Prepayment
of loans may negatively impact Republics business. The Companys customers may prepay the
principal amount of their outstanding loans at any time. The speeds at which
such prepayments occur, as well as the size of such prepayments, are within the
Companys customers discretion. If customers prepay the principal amount of
their loans, and the Company is unable to lend those funds to other customers
or invest the funds at the same or higher interest rates, Republics interest
income will be reduced. A significant reduction in interest income would have a
negative impact on Republics results of operations and financial condition.
Item 1B. Unresolved Staff Comments.
None
Item 2. Properties.
The
Companys executive offices, principal support and operational functions are
located at 601 West Market Street in Louisville, Kentucky. Republic has 34
banking centers located in Kentucky, three banking centers in southern Indiana and
three in the metropolitan Tampa area.
19
The
location of Republics facilities, their respective approximate square footage
and their form of occupancy are as follows:
|
|
Square
|
|
Owned (O)/
|
|
Bank
Offices
|
|
Footage
|
|
Leased
(L)
|
|
|
|
|
|
|
|
Kentucky
Banking Centers:
|
|
|
|
|
|
|
|
|
|
|
|
Louisville
Metropolitan Area
|
|
|
|
|
|
2801 Bardstown
Road, Louisville
|
|
5,000
|
|
L
|
(1)
|
601 West Market
Street, Louisville
|
|
57,000
|
|
L
|
(1)
|
661 South
Hurstbourne Parkway, Louisville
|
|
42,000
|
|
L
|
(1)
|
9600 Brownsboro
Road, Louisville
|
|
33,000
|
|
L
|
(1)
|
5250 Dixie
Highway, Louisville
|
|
5,000
|
|
O/L
|
(2)
|
10100 Brookridge
Village Boulevard, Louisville
|
|
5,000
|
|
O/L
|
(2)
|
9101 U.S.
Highway 42, Prospect
|
|
3,000
|
|
O/L
|
(2)
|
11330 Main
Street, Middletown
|
|
6,000
|
|
O/L
|
(2)
|
3902
Taylorsville Road, Louisville
|
|
4,000
|
|
O/L
|
(2)
|
3811 Ruckriegel
Parkway, Louisville
|
|
4,000
|
|
O/L
|
(2)
|
5125 New Cut
Road, Louisville
|
|
4,000
|
|
O/L
|
(2)
|
4808 Outer Loop,
Louisville
|
|
4,000
|
|
O/L
|
(2)
|
438 Highway 44
East, Shepherdsville
|
|
4,000
|
|
O/L
|
(2)
|
4921 Brownsboro
Road, Louisville
|
|
2,000
|
|
L
|
|
3950 Kresge Way,
Suite 108, Louisville
|
|
1,000
|
|
L
|
|
3726 Lexington
Road, Louisville
|
|
4,000
|
|
L
|
|
2028 West
Broadway, Suite 105, Louisville
|
|
3,000
|
|
L
|
|
220 Abraham
Flexner Way, Suite 100, Louisville
|
|
1,000
|
|
L
|
|
1420 Poplar
Level Road, Louisville
|
|
3,000
|
|
O
|
|
6401 Claymont Crossing,
Crestwood
|
|
4,000
|
|
L
|
(3)
|
|
|
|
|
|
|
Lexington
|
|
|
|
|
|
3098 Helmsdale
Place
|
|
5,000
|
|
O/L
|
(2)
|
3608 Walden
Drive
|
|
4,000
|
|
O/L
|
(2)
|
651 Perimeter
Drive
|
|
4,000
|
|
L
|
|
2401 Harrodsburg
Road
|
|
6,000
|
|
O
|
|
641 East Euclid
Avenue
|
|
3,000
|
|
O
|
|
|
|
|
|
|
|
Northern
Kentucky
|
|
|
|
|
|
535 Madison
Avenue, Covington
|
|
4,000
|
|
L
|
|
1945 Highland
Pike, Fort Wright
|
|
3,000
|
|
L
|
|
8513 U.S.
Highway 42, Florence
|
|
3,000
|
|
L
|
(3)
|
2043 Centennial
Boulevard, Independence
|
|
2,000
|
|
L
|
(3)
|
|
|
|
|
|
|
Frankfort
|
|
|
|
|
|
100 Highway 676
|
|
3,000
|
|
O/L
|
(2)
|
1001 Versailles
Road
|
|
4,000
|
|
O
|
(5)
|
|
|
|
|
|
|
Owensboro
|
|
|
|
|
|
3500 Frederica
Street
|
|
5,000
|
|
O
|
|
3332 Villa Point
Drive, Suite 101
|
|
2,000
|
|
L
|
|
|
|
|
|
|
|
Bowling
Green, 1700
Scottsville Road
|
|
5,000
|
|
O
|
|
|
|
|
|
|
|
Elizabethtown, 1690 Ring Road
|
|
6,000
|
|
O
|
|
|
|
|
|
|
|
Georgetown, 430 Connector Road
|
|
4,000
|
|
O/L
|
(2)
|
|
|
|
|
|
|
Shelbyville, 1614 Midland Trail
|
|
4,000
|
|
O/L
|
(2)
|
20
|
|
Square
|
|
Owned (O)/
|
|
Bank Offices
|
|
Footage
|
|
Leased (L)
|
|
|
|
|
|
|
|
Southern
Indiana Banking Centers
|
|
|
|
|
|
|
|
|
|
|
|
3001 Charlestown
Crossing Way, Suite 5, New Albany
|
|
2,000
|
|
L
|
|
3141 Highway 62,
Jeffersonville
|
|
4,000
|
|
O
|
|
4571 Duffy Road,
Floyds Knobs
|
|
4,000
|
|
O/L
|
(2)
|
|
|
|
|
|
|
Florida
Banking Centers
|
|
|
|
|
|
|
|
|
|
|
|
9037 U.S.
Highway 19, Port Richey
|
|
8,000
|
|
O
|
|
5043 U.S.
Highway 19, New Port Richey
|
|
1,000
|
|
L
|
|
34650 U.S.
Highway 19, Palm Harbor
|
|
6,000
|
|
L
|
|
9100 Hudson
Avenue, Hudson
|
|
|
|
O
|
(3)
|
3611 Little
Road, Trinity
|
|
|
|
O
|
(4)
|
|
|
|
|
|
|
Support
and Operations
|
|
|
|
|
|
|
|
|
|
|
|
125 South Sixth
Street, Louisville
|
|
6,000
|
|
L
|
|
(1) Locations are leased from Bernard M. Trager,
Chairman, or from a partnership in which Bernard M. Trager and Steven E.
Trager, President and Chief Executive Officer and A. Scott Trager, Vice
Chairman, are partners. See additional discussion included under Item 13 Certain
Relationships and Related Transactions, and Director Independence.
(2) The banking centers at these locations are owned by
Republic; however, the banking center is located on land that is leased through
long-term agreements with third parties.
(3) Location is scheduled to open in 2008.
(4) Location is scheduled to open in 2009.
(5) Location was closed in February, 2008.
21
Item 3. Legal Proceedings.
In the ordinary course of
operations, Republic and the Bank are defendants in various legal proceedings.
In the opinion of management, there is no proceeding or litigation pending or,
to the knowledge of management, in which an adverse decision could result in a
material adverse change in the business or consolidated financial position of
Republic or the Bank.
In
regard to Tax Refund Solutions (TRS), a competing financial institution that,
like the Company, offers tax refund products is defending a lawsuit in the
State of California relating to the enforceability of cross-collection
provisions contained in its Refund Anticipation Loan (RAL) contracts with its
customers. The case is styled Canieva Hood, et al. v. Santa Barbara Bank &
Trust and was filed in the Santa Barbara Superior Court (Case No. 1156354)
(the Hood case).
Various
RAL product providers, including the Company, have entered into agreements with
other RAL providers to facilitate the cross-collection of unpaid RALs from
prior tax years. The Company was not named as a defendant directly in the Hood
case. However, the competing banking defendant joined the Company, as well as
other financial institutions, as parties to the litigation pursuant to
indemnity provisions of the cross-collection contracts between the competing
banking defendant and various other RAL product providers.
Although
the trial court initially dismissed the Hood case on federal preemption
grounds, the dismissal was overturned on appeal. The Hood case is now
proceeding with various motions and pleadings, including a motion for
certification of a plaintiff class.
The
Company believes that the inclusion of cross-collection provisions in RAL
contracts will continue to be controversial. These provisions may result in
further litigation exposure as some consumer advocate groups have shown a
willingness to challenge the enforceability of RAL cross-collection contract
provisions.
Item
4. Submission of Matters to a Vote of
Security Holders.
No matters were submitted to a vote of
security holders during the fourth quarter of 2007.
PART II
Item 5. Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
and Dividend Information
Republics Class A
Common Stock is traded on The NASDAQ Global Select Stock Market® (NASDAQ)
under the symbol RBCAA. The following table sets forth the high and low
market value of the Class A Common Stock and the dividends declared on Class A
Common Stock and Class B Common Stock during 2007 and 2006. All per share
data has been restated to reflect stock dividends.
2007
|
|
|
|
Market Value
|
|
Dividend
|
|
Quarter Ended
|
|
High
|
|
Low
|
|
Class A
|
|
Class B
|
|
March 31st
|
|
$
|
23.94
|
|
$
|
20.01
|
|
$
|
0.0943
|
|
$
|
0.0857
|
|
June 30th
|
|
22.61
|
|
16.08
|
|
0.1100
|
|
0.1000
|
|
September 30th
|
|
18.23
|
|
14.32
|
|
0.1100
|
|
0.1000
|
|
December 31st
|
|
18.00
|
|
14.33
|
|
0.1100
|
|
0.1000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Market Value
|
|
Dividend
|
|
Quarter Ended
|
|
High
|
|
Low
|
|
Class A
|
|
Class B
|
|
March 31st
|
|
$
|
19.62
|
|
$
|
17.33
|
|
$
|
0.0798
|
|
$
|
0.0726
|
|
June 30th
|
|
20.16
|
|
17.50
|
|
0.0943
|
|
0.0857
|
|
September 30th
|
|
21.04
|
|
18.17
|
|
0.0943
|
|
0.0857
|
|
December 31st
|
|
24.05
|
|
19.52
|
|
0.0943
|
|
0.0857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
There
is no established public trading market for the Companys Class B Common
Stock. At February 15, 2008, the Class A Common Stock was held by 746
shareholders of record and the Class B Common Stock was held by 143
shareholders of record. The Company intends to continue its historical practice
of paying quarterly cash dividends, however, there is no assurance by the Board
of Directors that such dividends will continue to be paid in the future. The
payment of dividends in the future is dependent upon future income, financial
position, capital requirements, the discretion and judgment of the Board of
Directors and other considerations. The payment of dividends is subject to the
regulatory restrictions described in Footnote 15 Stockholders
Equity and Regulatory Capital Matters of Item 8 Financial Statements and Supplementary Data.
Republic
has made available to its employees participating in its 401(k) plan the
opportunity, at the employees sole discretion, to invest funds held in their
accounts under the plan in shares of Class A Common Stock of Republic.
Shares are purchased by the independent trustee, administering the plan, from
time to time in the open market in brokers transactions. As of December 31,
2007, the trustee held 222,546 shares of Class A Common Stock and 4,973
shares of Class B Common Stock on behalf of the plan.
Details of Republics Class A
Common Stock purchases during the fourth quarter of 2007 are included in the
following table:
Period
|
|
Total Number of
Shares
Purchased
|
|
Average Price
Paid per Share
|
|
Total Number of
Shares
Purchased
as Part of Publicly
Announced Plans or
Programs
|
|
Maximum
Number of Shares
that May Yet Be
Purchased
Under the Plan or
Programs
|
|
|
|
|
|
|
|
|
|
|
|
Oct. 1
Oct. 31
|
|
|
|
$
|
|
|
|
|
|
|
Nov. 1
Nov. 30
|
|
|
|
|
|
|
|
|
|
Dec. 1
Dec. 31
|
|
3,321
|
*
|
16.95
|
|
1,500
|
|
|
|
Total
|
|
3,321
|
|
$
|
16.95
|
|
1,500
|
|
103,053
|
|
*
Includes 1,821 shares repurchased by the Company in connection with
stock option exercises.
During 2007, the
Company repurchased 527,361 shares and there were 42,226 shares exchanged for
stock option exercises. During the second quarter of 2007, the Companys Board
of Directors approved the repurchase of an additional 300,000 shares from time
to time, if market conditions are deemed favorable to the Company. The
repurchase program will remain effective until the number of shares authorized
is repurchased or until Republics Board of
Directors terminates the program. As of December 31, 2007, the
Company had 103,053 shares which could be repurchased under the current stock
repurchase programs.
During 2007,
Republic issued approximately 6,000 shares of Class A Common Stock upon
conversion of shares of Class B Common Stock by shareholders of Republic
in accordance with the share-for-share conversion provision option of the Class B
Common Stock. The exemption from registration of the newly issued Class A
Common Stock relied upon was Section (3)(a)(9) of the Securities Act
of 1933.
There were no
equity securities of the registrant sold without registration during the
quarter covered by this report.
23
STOCK PERFORMANCE GRAPH
The
following stock performance graph does not constitute soliciting material and
should not be deemed filed or incorporated by reference into any other Company
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent the Company specifically incorporates the performance
graph by reference therein.
The following graph sets forth the cumulative total shareholder return
(assuming reinvestment of dividends) on Republics Class A Common Stock as
compared to the NASDAQ Bank Stocks Index and the Standard & Poors (S&P)
500. The graph covers the period beginning December 31, 2002 and ending December 31,
2007. The calculation of cumulative total return assumes an initial investment
of $100 in Republics Class A Common Stock and the NASDAQ Bank Stocks
Index and the S&P 500 on December 31, 2002. The stock price
performance shown on the graph below is not necessarily indicative of future
stock price performance.
|
|
December 31,
2002
|
|
December 31,
2003
|
|
December 31,
2004
|
|
December 31,
2005
|
|
December 31,
2006
|
|
December 31,
2007
|
|
Republic Bancorp
Class A Common Stock
|
|
100
|
|
179
|
|
251
|
|
223
|
|
279
|
|
198
|
|
NASDAQ Bank
Stocks
|
|
100
|
|
129
|
|
147
|
|
144
|
|
161
|
|
128
|
|
S&P 500
|
|
100
|
|
129
|
|
143
|
|
150
|
|
173
|
|
183
|
|
24
Item 6. Selected Financial Data.
The
following table sets forth Republic Bancorp Inc.s selected consolidated
financial data from 2003 through 2007. This information should be read in
conjunction with Part II Item 7 Managements Discussion
and Analysis of Financial Condition and Results of Operations and Part II
Item 8 Financial Statements and Supplementary Data.
Certain amounts presented in prior periods have been reclassified to conform to
the current period presentation.
|
|
As of and for the Years Ended December 31,
|
|
(dollars in thousands, except per share data)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
income
|
|
$
|
199,097
|
|
$
|
176,540
|
|
$
|
148,079
|
|
$
|
121,443
|
|
$
|
112,826
|
|
Total interest
expense
|
|
104,619
|
|
88,242
|
|
62,432
|
|
42,052
|
|
36,551
|
|
Net interest
income
|
|
94,478
|
|
88,298
|
|
85,647
|
|
79,391
|
|
76,275
|
|
Provision for
loan losses
|
|
6,820
|
|
2,302
|
|
340
|
|
1,346
|
|
6,095
|
|
Non interest
income
|
|
37,792
|
|
31,700
|
|
28,807
|
|
25,651
|
|
29,619
|
|
Non interest
expenses
|
|
87,256
|
|
74,862
|
|
68,512
|
|
64,218
|
|
61,375
|
|
Income from
continuing operations before income tax expense
|
|
38,194
|
|
42,834
|
|
45,602
|
|
39,478
|
|
38,424
|
|
Income tax
expense from continuing operations
|
|
13,281
|
|
14,718
|
|
15,524
|
|
13,548
|
|
13,662
|
|
Income from
continuing operations before discontinued operations, net of income tax
expense *
|
|
24,913
|
|
28,116
|
|
30,078
|
|
25,930
|
|
24,762
|
|
Income from
discontinued operations, net of income tax expense *
|
|
|
|
235
|
|
4,987
|
|
6,571
|
|
3,441
|
|
Net income
|
|
24,913
|
|
28,351
|
|
35,065
|
|
32,501
|
|
28,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
580,636
|
|
$
|
561,772
|
|
$
|
512,163
|
|
$
|
551,593
|
|
$
|
410,931
|
|
Total loans
|
|
2,397,073
|
|
2,298,888
|
|
2,070,608
|
|
1,789,099
|
|
1,581,952
|
|
Allowance for
loan losses
|
|
12,735
|
|
11,218
|
|
11,009
|
|
13,554
|
|
13,959
|
|
Total assets
|
|
3,165,359
|
|
3,046,787
|
|
2,735,556
|
|
2,498,922
|
|
2,128,076
|
|
Total deposits
|
|
1,968,812
|
|
1,692,722
|
|
1,602,565
|
|
1,417,930
|
|
1,297,112
|
|
Securities sold
under agreements to repurchase and other short-term borrowings
|
|
398,296
|
|
401,886
|
|
292,259
|
|
364,828
|
|
220,345
|
|
Federal Home
Loan Bank advances
|
|
478,550
|
|
646,572
|
|
561,133
|
|
496,387
|
|
420,178
|
|
Subordinated
note
|
|
41,240
|
|
41,240
|
|
41,240
|
|
|
|
|
|
Total
stockholders equity
|
|
248,860
|
|
237,348
|
|
213,574
|
|
196,069
|
|
169,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
per Class A Common Stock
|
|
$
|
1.22
|
|
$
|
1.38
|
|
$
|
1.46
|
|
$
|
1.25
|
|
$
|
1.21
|
|
Basic earnings
per Class B Common Stock
|
|
1.18
|
|
1.35
|
|
1.43
|
|
1.23
|
|
1.17
|
|
Diluted earnings
per Class A Common Stock
|
|
1.20
|
|
1.35
|
|
1.40
|
|
1.20
|
|
1.18
|
|
Diluted earnings
per Class B Common Stock
|
|
1.16
|
|
1.32
|
|
1.37
|
|
1.18
|
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share from discontinued operations:*
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
per Class A Common Stock
|
|
0.00
|
|
0.01
|
|
0.24
|
|
0.32
|
|
0.16
|
|
Basic earnings
per Class B Common Stock
|
|
0.00
|
|
0.00
|
|
0.24
|
|
0.32
|
|
0.17
|
|
Diluted earnings
per Class A Common Stock
|
|
0.00
|
|
0.00
|
|
0.23
|
|
0.31
|
|
0.17
|
|
Diluted earnings
per Class B Common Stock
|
|
0.00
|
|
0.00
|
|
0.23
|
|
0.30
|
|
0.17
|
|
(continued)
25
|
|
As of and for the Years Ended December 31,
|
|
(dollars in thousands, except per share data)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data: (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
per Class A Common Stock
|
|
$
|
1.22
|
|
$
|
1.39
|
|
$
|
1.70
|
|
$
|
1.57
|
|
$
|
1.37
|
|
Basic earnings
per Class B Common Stock
|
|
1.18
|
|
1.35
|
|
1.67
|
|
1.55
|
|
1.34
|
|
Diluted earnings
per Class A Common Stock
|
|
1.20
|
|
1.35
|
|
1.63
|
|
1.51
|
|
1.35
|
|
Diluted earnings
per Class B Common Stock
|
|
1.16
|
|
1.32
|
|
1.60
|
|
1.48
|
|
1.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value per
share
|
|
16.53
|
|
23.90
|
|
19.46
|
|
22.20
|
|
16.08
|
|
Book value per
share
|
|
12.26
|
|
11.53
|
|
10.47
|
|
9.42
|
|
8.19
|
|
Cash dividends
declared per Class A Common Stock
|
|
0.424
|
|
0.363
|
|
0.306
|
|
0.254
|
|
0.416
|
|
Cash dividends
declared per Class B Common Stock
|
|
0.386
|
|
0.330
|
|
0.278
|
|
0.231
|
|
0.378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on
average assets (ROA) from continuing operations
|
|
0.81
|
%
|
0.98
|
%
|
1.15
|
%
|
1.14
|
%
|
1.32
|
%
|
Return on
average assets (ROA)
|
|
0.81
|
|
0.99
|
|
1.33
|
|
1.40
|
|
1.47
|
|
Return on
average equity (ROE) from continuing operations
|
|
10.25
|
|
12.46
|
|
14.24
|
|
14.23
|
|
15.16
|
|
Return on
average equity (ROE)
|
|
10.25
|
|
12.56
|
|
16.56
|
|
17.50
|
|
16.88
|
|
Efficiency ratio
from continuing operations
|
|
66
|
|
62
|
|
60
|
|
61
|
|
58
|
|
Yield on average
earning assets
|
|
6.69
|
|
6.43
|
|
5.91
|
|
5.59
|
|
6.24
|
|
Cost of average
interest-bearing liabilities
|
|
4.12
|
|
3.81
|
|
2.97
|
|
2.31
|
|
2.42
|
|
Net interest
spread
|
|
2.57
|
|
2.62
|
|
2.94
|
|
3.28
|
|
3.82
|
|
Net interest
margin
|
|
3.17
|
|
3.22
|
|
3.42
|
|
3.65
|
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing
loans to total loans
|
|
0.40
|
%
|
0.28
|
%
|
0.29
|
%
|
0.34
|
%
|
0.82
|
%
|
Allowance for
loan losses to total loans
|
|
0.53
|
|
0.49
|
|
0.53
|
|
0.76
|
|
0.88
|
|
Allowance for
loan losses to non-performing loans
|
|
132
|
|
175
|
|
183
|
|
221
|
|
108
|
|
Net loan charge
offs to average loans from continuing operations
|
|
0.22
|
|
0.06
|
|
0.09
|
|
0.13
|
|
0.19
|
|
Delinquent loans
to total loans
|
|
0.69
|
|
0.49
|
|
0.35
|
|
0.47
|
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
stockholders equity to average total assets
|
|
7.86
|
%
|
7.91
|
%
|
8.10
|
%
|
8.01
|
%
|
8.69
|
%
|
Tier I leverage
|
|
8.75
|
|
8.92
|
|
9.47
|
|
8.03
|
|
8.08
|
|
Tier I risk
based capital
|
|
13.29
|
|
13.73
|
|
14.41
|
|
12.18
|
|
11.99
|
|
Total risk based
capital
|
|
13.90
|
|
14.30
|
|
15.03
|
|
13.03
|
|
12.99
|
|
Dividend payout
ratio
|
|
35
|
|
26
|
|
18
|
|
16
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
full time equivalent employees
|
|
727
|
|
698
|
|
678
|
|
611
|
|
645
|
|
Number of
banking centers
|
|
40
|
|
38
|
|
35
|
|
33
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Represents the Company exiting the payday loan segment of
business during 2006. See additional discussion under the sections titled Item 1 Business,
and Footnote 2 Discontinued Operations and Footnote 24 Segment Information
of Item 8 Financial Statements and Supplementary Data.
26
Item 7.
Managements Discussion and Analysis of Financial Condition and Results
of Operations.
Managements
Discussion and Analysis of Financial Condition and Results of Operations of
Republic Bancorp, Inc. (Republic or the Company) analyzes the major
elements of Republics consolidated balance sheets and statements of income.
Republic, a bank holding company headquartered in Louisville, Kentucky, is the
Parent Company of Republic
Bank & Trust Company, (RB&T), Republic Bank (collectively
referred together with RB&T as the Bank), Republic Funding Company,
Republic Invest Co. Republic Invest Co. includes its subsidiary, Republic
Capital LLC. The consolidated financial statements also include the
wholly-owned subsidiaries of RB&T: Republic Financial Services, LLC, TRS
RAL Funding, LLC and Republic Insurance Agency, LLC. Republic Bancorp Capital
Trust is a Delaware statutory business trust that is a 100%-owned
unconsolidated finance subsidiary of Republic Bancorp, Inc. Managements Discussion and Analysis of Financial
Condition and Results of Operations of Republic should be read in conjunction
with Item 8 Financial Statements and Supplementary Data,
as well as other detailed information included in this Annual Report on Form 10-K.
This discussion includes
various forward-looking statements with respect to credit quality, including
but not limited to, delinquency trends and the adequacy of the allowance for
loan losses, business segments, corporate objectives, the Companys interest
rate sensitivity model and other financial and business matters. Broadly
speaking, forward-looking statements may include:
· projections of revenue, income, earnings
per share, capital expenditures, dividends, capital structure or other
financial items;
· descriptions of plans or objectives for
future operations, products or services;
· forecasts of future economic performance;
and
· descriptions of assumptions underlying or
relating to any of the foregoing.
The Company may make
forward-looking statements discussing managements expectations about:
· future credit losses and non-performing
assets;
· the adequacy of the allowance for loans
losses;
· the anticipated future cash flows of securitized Refund Anticipation
Loans (RALs);
· the future value of mortgage servicing rights;
· the impact of new accounting pronouncements;
· future short-term and long-term interest rate levels and the respective
impact on net interest margin, net interest spread, net income, liquidity and
capital;
· legal and regulatory matters; and
· future capital expenditures.
Forward-looking
statements discuss matters that are not historical facts. As forward-looking
statements discuss future events or conditions, the statements often include
words such as anticipate, believe, estimate, expect, intend, plan, project,
target, can, could, may, should, will, would, or similar expressions.
Do not rely on forward-looking statements. Forward-looking statements detail
managements expectations regarding the future and are not guarantees.
Forward-looking statements are assumptions based on information known to
management only as of the date the statements are made and management may not
update them to reflect changes that occur subsequent to the date the statements
are made. See additional discussion under the sections titled Item 1 Business and Item 1A Risk Factors.
27
OVERVIEW
Table 1
Summary
Year Ended December 31, (dollars in thousands, except per share data)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Net income from
continuing operations
|
|
$
|
24,913
|
|
$
|
28,116
|
|
$
|
30,078
|
|
Diluted earnings
per Class A Common Share from continuing operations
|
|
1.20
|
|
1.35
|
|
1.40
|
|
Diluted earnings
per Class A Common Share from discontinued operations
|
|
0.00
|
|
0.00
|
|
0.23
|
|
Diluted earnings
per Class A Common Share
|
|
1.20
|
|
1.35
|
|
1.63
|
|
Return on
average assets (ROA) from continuing operations
|
|
0.81
|
%
|
0.98
|
%
|
1.15
|
%
|
Return on
average assets (ROA)
|
|
0.81
|
|
0.99
|
|
1.33
|
|
Return on
average equity (ROE) from continuing operations
|
|
10.25
|
|
12.46
|
|
14.24
|
|
Return on
average equity (ROE)
|
|
10.25
|
|
12.56
|
|
16.56
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from
continuing operations for the year ended December 31, 2007 was $24.9
million, representing a decline of $3.2 million, or 11%, compared to the same
period in 2006. Diluted earnings per Class A Common Share from continuing
operations declined 11% from $1.35 for the year ended December 31, 2006 to
$1.20 for the same period in 2007.
Overall net income for
the year ended December 31, 2007 was $24.9 million, representing a decline
of $3.4 million, or 12%, compared to the same period in 2006. Diluted earnings
per Class A Common Share declined 11% to $1.20 for the year ended December 31,
2007 compared to $1.35 for the same period in 2006.
General highlights for the year
ended December 31, 2007 consisted of the following:
· Republic ended the year with total assets of $3.2 billion, an increase
of $119 million, or 4%, over the prior year. As of December 31, 2007,
Republic was the largest Kentucky-based bank holding company.
· Total loans grew by $98 million, or 4%, from just over $2.3 billion at December 31,
2006 to nearly $2.4 billion at December 31, 2007. Growth in loans
primarily occurred across three major categories: real estate construction,
commercial, and home equity, as the Company continued to focus its efforts on
the origination of immediately repricing loans.
· During the fourth quarter of 2007, the
Company acquired approximately $272 million in brokered deposits to be utilized
in the first quarter of 2008 to fund RALs. These deposits had a weighted
average cost of 4.68% with a final maturity of three months. During their time
outstanding before the RAL season began, the Company utilized the cash from
these brokered deposits to pay off lower interest rate overnight borrowings
from the Federal Home Loan Bank (FHLB) resulting in a negative spread of
approximately 75 basis points.
· Net income from the Companys traditional Banking business segment
decreased $1.7 million, or 7%, for the year ended December 31, 2007
compared to the same period in 2006. The decrease was due primarily to
continued compression of the Companys net interest margin combined with a
significant increase in non interest expenses.
· Net income from the Companys Tax Refund
Solutions (TRS) business segment decreased $1.9 million, or 40%, for the
year ended December 31, 2007 compared to the same period in 2006, as an
increase in revenue resulting from higher RAL volume was more than offset by an
increase in losses associated with RALs.
· The Company recorded a provision for loan losses of $6.8 million for
the year ended December 31, 2007, compared to a provision of $2.3 million
for the same period in 2006.
Included in the provision for loan losses for 2007 and 2006 was $2.9 million and $34,000 for losses
associated with RALs retained on-balance sheet. The increase in anticipated
losses associated with RALs was primarily due to higher confirmed fraud and
from an increase in the amount of refunds held by the Internal Revenue Service
(IRS) for reasons such as audits and liens from prior debts. The Banking
segment provision for loan losses was $3.9 million for the year ended December 31,
2007 compared to $2.3 million for the same period in 2006. The increase in the
bank level provision expense was due to growth in loans, as well as an increase
in classified loans and delinquencies. In addition, as general market conditions declined throughout 2007 the Company
modified several qualitative factors within its allowance for loan loss
calculation, contributing approximately $1.1 million to the overall increase in
the provision.
· Service charges on deposit accounts increased $2.1 million, or 13%,
during 2007 compared to 2006. The increase in service charges on deposit
accounts was due to growth in the number of checking accounts and an increase
during the second half of 2006 in the per item overdraft fees charged to
customers.
28
· Non interest income for 2007 includes a $1.9 million non-recurring gain
related to the final settlement of insurance proceeds in connection with the
Companys corporate center fire which occurred in late 2006. The gain
represented the difference between the total cash received from the Companys
insurance provider and the net book value of the fixed assets destroyed as a
result of the fire.
· Total non interest expenses increased $12.4 million, or 17%, during
2007 compared to 2006. This increase was primarily attributable to
increases in salaries and employee benefits resulting from an increase in full
time equivalent employees (FTEs), as well as increased infrastructure costs. The Company added staffing in both sales
and support functions as a result of new banking center locations and
expectations for future growth. In addition, the Company added approximately 20
FTEs in Florida as a result of the GulfStream Community Bank (GulfStream)
acquisition which occurred in October 2006.
· Non interest expenses for both 2007 and 2006 benefited from a reversal
of incentive compensation accruals as the Company fell short of its gross
operating profit goals for the year. For the third and fourth quarters of 2007,
the Company recorded total credits to incentive compensation accruals of $3.5
million compared to credits of $2.0 for the same periods in 2006.
· Republic opened three banking centers in 2007 and has announced plans
to open an additional four banking centers in 2008.
Net income from
continuing operations for the year ended December 31, 2006 was $28.1
million, representing a decline of $2.0 million, or 7%, compared to the same
period in 2005. Diluted earnings per Class A Common Share from continuing
operations declined 4% from $1.40 for the year ended December 31, 2005 to
$1.35 for the same period in 2006.
Overall net income for
the year ended December 31, 2006 was $28.4 million, representing a decline
of $6.7 million, or 19%, compared to the same period in 2005. Diluted earnings
per Class A Common Share declined 17% to $1.35 for the year ended December 31,
2006 compared to $1.63 for the same period in 2005.
General highlights for
the year ended December 31, 2006 consisted of the following:
· In February 2006, the Bank
substantially exited the payday loan business. For financial reporting
purposes, the payday loan business segment was treated as a discontinued
operation.
· Republic ended 2006 with total assets of
$3.0 billion, an increase of $311 million, or 11%, over 2005.
· In October 2006, Republic acquired
GulfStream with two banking centers headquartered in Port Richey, Florida. On
the acquisition date, GulfStream, which began operations in 2000, had total
assets of $64 million with net loans of $44 million and total deposits of $54
million. Consistent with the Companys branding initiative, the Company changed
the name of GulfStream to Republic Bank in December 2006.
· Effective November 30, 2006, the
Company merged Republic Bank & Trust Company of Indiana into RB&T.
· The Company opened two Northern Kentucky
banking centers in 2006, representing the Companys initial entrance into the
market.
· Net income from continuing operations
decreased from 2005 to 2006 due primarily to a decline in Electronic Refund
Check (ERC) and Electronic Refund Deposit (ERD) volume at TRS, a higher
provision for loan losses within the traditional banking segment and higher
overall non interest expenses across the Company.
· Total loans, primarily consisting of
secured real estate loans, increased by $228 million, or 11%, for 2006. The
growth in loans included $44 million in net loans acquired through the
acquisition of GulfStream. The growth was primarily spread across the
residential real estate, commercial real estate, real estate construction and
commercial loan portfolios.
· Service charges on deposit accounts
increased $2.7 million, or 19%, during 2006 compared to the same period in
2005. The increase was attributed to growth in the Companys checking account
base and an increase in the Banks overdraft fee in August of 2005 and
again in September of 2006.
· ERC fees declined $2.0 million, or 33%, for 2006 compared to 2005 due
primarily to the discontinuation of business with one large tax preparation
software company. Because the substantial majority of the Companys tax business
occurs during the first quarter of each year, the majority of the decline in
ERC fees related to the first quarter of 2006.
29
· The Company experienced an increase in the provision
for loan losses of $2.0 million for the year ended December 31, 2006
compared to the same period in the prior year. The increase was primarily in
the traditional banking segment and principally related to growth in the loan
portfolio during 2006 and to a large credit to the provision recorded during
the second quarter of 2005 resulting from improvements in large classified
loans.
· Non interest expenses increased $6.4
million, or 9%, during 2006. This increase was primarily attributable to
increases in salaries and employee benefits and occupancy and equipment
expense. Salaries and employee benefits rose due to annual salary increases, stock option
compensation expense, higher health insurance expenses and an increase in FTEs.
For the third and fourth quarters of 2006, the Company recorded total credits
to incentive compensation accruals of $2.0 million compared to credits of
$800,000 for the same periods in 2005. In addition, occupancy and equipment expense
increased due to a one-time charge of $900,000 to reflect a change in the
Companys lease accounting practices in 2006.
Tax Refund Solutions (TRS)
For 2007, TRS generated
$6.0 million in net RAL fee revenue, compared to $5.2 million for the same
period in 2006. TRS also earned $4.2 million and $4.1 million in net ERC/ERD
revenue during 2007 and 2006. Net RAL securitization income increased $1.0
million, or 36%, to $3.8 million for 2007 compared to $2.8 million in 2006.
The total volume of tax
return refunds processed during the 2007 tax season increased 19% over the 2006
tax season. RAL origination volume increased 29% during 2007 compared to the
same period in 2006, while ERC/ERD volume increased 14% for the same period.
The overall increase in volume was primarily achieved through successful sales
efforts, combined with more aggressive rebate incentives paid on the Companys
refund related products. As a percentage of total tax related revenues,
RB&Ts rebate incentives paid were 29.9% for 2007 compared to 28.6% for
2006.
While the total tax
return volume for 2007 increased 19% over the same period in 2006, overall
segment net income declined $1.9 million, or 40%, due primarily to higher
losses in 2007 associated with RALs. During 2007, the Company provided $2.9
million through its provision for loan losses for losses on RALs retained
on-balance sheet by the Company compared to $34,000 for 2006. Additionally,
during 2007 and 2006 the Company recorded a net increase to the fair value of
the residual interest of the securitization of $1.5 million and $749,000 for
losses related to RALs sold into the securitization. The initial valuations for
the estimated losses of the RALs sold into the securitization are reported as a
reduction to the gain on sale, with subsequent changes reported as an increase
or decrease in the residual value. The increase in losses associated with RALs
was primarily due to higher confirmed fraud and from an increase in the amount
of refunds held by the IRS for reasons such as audits and liens from prior
taxpayer debts.
For 2006 and 2007, the
Company implemented a RAL securitization to provide an alternative liquidity
vehicle to supplement brokered deposits. In addition to providing a funding
source, the purpose of the securitization was to reduce the impact to
regulatory capital of the RAL portfolio, helping ensure the Company was able to
maintain well-capitalized status. Approximately $347 million and $206 million
in RALs were sold through the securitization during the first quarters of 2007
and 2006. RB&T used overnight borrowing lines to fund the RALs that were
retained on-balance sheet. Accounting for the securitization caused
comparability differences among some income and expense items when comparing
income statement results for 2006 to results in 2005. The securitization had
the effect of reclassifying the fee income earned and interest expense paid for
securitized RALs into non interest income.
Table 2 Net RAL Securitization
Income
Detail of Net RAL
securitization income follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Net gain on sale
of RALs
|
|
$
|
2,261
|
|
$
|
2,022
|
|
Increase in
securitization residual
|
|
1,511
|
|
749
|
|
Net RAL
securitization income
|
|
$
|
3,772
|
|
$
|
2,771
|
|
30
On September 19,
2007, RB&T entered into a three year Program Agreement (Program Agreement)
with Jackson Hewitt Inc. (JHI) and a three year Technology Services Agreement
(Technology Agreement) with Jackson Hewitt Technology Services LLC (JHTSL)
related to RB&Ts RAL and ERC products. JHI and JHTSL are subsidiaries of
Jackson Hewitt Tax Service Inc., which provides computerized preparation of
federal, state and local individual income tax returns in the U.S. through a
nationwide network of franchised and company-owned tax offices operating under
the brand name Jackson Hewitt Tax Service®. RB&Ts RAL and ERC products
essentially comprise the products offered through the Companys TRS business
segment.
Under the Program
Agreement, JHI will process applications for TRS and under the Technology
Agreement JHTSL will provide technology services to TRS as necessary to support
the RAL and ERC products offered by TRS through selected Jackson Hewitt Tax
Service offices. Significant terms of the agreements include:
· The Program and Technology Agreements are effective for TRS first
quarter 2008 RAL and ERC tax season. TRS RAL and ERC products are
substantially delivered during the first quarter of each year.
· The Program Agreement provides for TRS to be the exclusive provider of
RAL and ERC products for a select group of Jackson Hewitt Tax Service offices.
The Jackson Hewitt offices offering TRS products are subject to mutual
agreement each year between TRS and Jackson Hewitt.
· The Program and Technology Agreements require RB&T to make minimum
fixed annual payments to Jackson Hewitt with an additional variable payment
schedule based on growth in the program.
· RB&T can terminate the agreements under specified circumstances.
The Company expects that the business generated from
the above agreements is more likely than not to have a material positive impact
on net income and earnings per share beginning with the first quarter of 2008.
During 2007, the select Jackson Hewitt offices that will begin making TRS products
available during 2008 produced approximately 70% of the total number of RAL and
ERC products generated by TRS with others during 2007. In addition to the
contracts signed with Jackson Hewitt, the Company also expects to increase its
independent tax-preparer customer base significantly in 2008. Management
believes that it is more likely than not that RB&T will process
approximately three times the business in the TRS segment during the first
quarter of 2008 as it did during the first quarter of 2007. The overall impact
of the expected increase in volume to the Companys earnings for 2008 and
beyond will depend upon many factors such as consumer demand for tax related
products, consumer demand for Jackson Hewitt services, losses on RALs, overall
product mix, and overhead cost to the Company.
See additional discussion about
this product under the sections titled Item 1 Business, Item 1A Risk Factors
and Footnote 5 Securitization and Footnote 24 Segment Information of Item 8
Financial Statements and Supplementary Data.
Discontinued Operations (Deferred
Deposits or Payday Lending)
The Bank substantially
exited the payday loan segment of business during February 2006. As a
result, the Companys payday loan business has been treated as a discontinued
operation and all current period and prior period data has been restated to
reflect operations absent of the payday loan segment of business.
See additional discussion about
this product under the sections titled Item 1 Business, and Footnote 2 Discontinued
Operations and Footnote 24 Segment Information of Item 8 Financial
Statements and Supplementary Data.
STAFF ACCOUNTING BULLETIN 108
In September 2006,
the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) 108. SAB 108 provides guidance on quantifying and evaluating the
materiality of unrecorded misstatements. SAB 108 requires that a company uses
both the iron curtain and rollover approaches when quantifying misstatement
amounts. Under the rollover approach, the error is quantified as the amount by
which the current year income statement is misstated. The iron curtain
approach, however, quantifies the error as the cumulative amount by which the
current year balance sheet is misstated. The SEC Staff states that companies
should quantify errors using both a balance sheet and an income statement
approach and evaluate whether either of these approaches results in quantifying
a misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. Prior to the issuance of SAB 108, the Company
evaluated misstatement amounts during each period using the rollover method
only.
31
During 2006, the Company
performed an analysis of its unrecorded misstatements using both the rollover
and iron curtain approaches. Using the rollover method, as the Company has
traditionally done, management concluded that none of its unrecorded
misstatements were material to its current period or prior periods financial
statements. Under the iron curtain method, however, management concluded that
two of the Companys unrecorded misstatements were material to the 2006
financial statements, but using the rollover method were immaterial to its
prior periods financial statements. These misstatements were related to the
overaccrual of losses on RALs and the deferral of previously recorded title
insurance commissions. The Company recorded a one-time entry of $547,000 to
retained earnings on January 1, 2006 to correct the unrecorded
misstatements on the balance sheet.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Republics consolidated
financial statements and accompanying footnotes have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
periods.
Management continually
evaluates the Companys accounting policies and estimates that it uses to
prepare the consolidated financial statements. In general, managements
estimates are based on historical experience, on information from regulators
and independent third party professionals and on various assumptions that are
believed to be reasonable. Actual results may differ from those estimates made
by management.
Critical accounting
policies are those that management believes are the most important to the
portrayal of the Companys financial condition and operating results and
require management to make estimates that are difficult, subjective or complex.
Most accounting policies are not considered by management to be critical
accounting policies. Several factors are considered in determining whether or
not a policy is critical in the preparation of the financial statements. These
factors include, among other things, whether the estimates have a significant
impact on the financial statements, the nature of the estimates, the ability to
readily validate the estimates with other information including independent
third parties or available pricing, sensitivity of the estimates to changes in
economic conditions and whether alternative methods of accounting may be
utilized under U.S. generally accepted accounting principles. Management has
discussed each critical accounting policy and the methodology for the
identification and determination of critical accounting policies with the
Companys Audit Committee.
Republic believes its
critical accounting policies and estimates relate to:
· Allowance for loan losses
· Mortgage servicing rights
· RAL securitization and valuation of
residual
· Income tax accounting
· Goodwill and other intangible assets
Allowance
for Loan Losses Republic
maintains an allowance for probable incurred credit losses inherent in the
Companys loan portfolio, which includes overdrawn deposit accounts. Management
evaluates the adequacy of the allowance for the loan losses on a monthly basis
and presents and discusses the analysis with the Audit Committee and the Board
of Directors on a quarterly basis. Management estimates the allowance required
using past loan loss experience, the nature and size of the portfolio, borrower
capacity, estimated collateral values, economic conditions, regulatory
requirements and guidance and various other factors. While management estimates
the allowance for loan losses, in part, based on historical losses within each
loan category, estimates for losses within the commercial and commercial real
estate portfolios are more dependent upon ongoing credit analysis and recent
payment performance. Allocations of the allowance may be made for specific
loans or loan categories, but the entire allowance is available for any loan
that may be charged off. Loan losses are charged against the allowance at the
point in time management deems a loan uncollectible.
Management makes
allocations within the allowance for loan losses for specifically classified
loans regardless of loan amount, collateral or loan type. Loans that are past
due 90 days or more and that are not specifically classified are uniformly
assigned a risk weighted percentage ranging from 15% to 100% of the loan
balance based upon the loan type. Management evaluates the remaining loan
portfolio by reviewing the historical loss rate for each respective loan type,
assigning risk multiples to certain categories to account for qualitative
factors including current economic conditions. Both an average five-year loss
rate and a loss rate based on heavier weighting of the previous two years loss
experience are reviewed in the analysis. Specialized loan categories are
evaluated utilizing subjective factors in addition to the historical loss
calculations to determine a loss allocation for each of those types. As this
analysis, or any similar analysis, is an imprecise measure of loss, the
allowance is subject to ongoing adjustments. Therefore, management will often
take into account other significant factors that may be necessary or prudent in
order to reflect probable incurred losses in the total loan portfolio. As general conditions in the national real estate
32
market
declined throughout 2007 the Company modified several qualitative factors
within its allowance for loan loss calculation, which contributed to an
increase in the overall allowance for loan losses of approximately $1.1
million.
Based
on managements calculation, an allowance of $12.7 million, or 0.53% of total
loans was an adequate estimate of losses within the loan portfolio as of December 31,
2007. This estimate resulted in provision for loan losses on the income
statement of $6.8 million during 2007. If the mix and amount of future charge
off percentages differ significantly from those assumptions used by management
in making its determination, an adjustment to the allowance for loan losses and
the resulting effect on the income statement could be material.
Mortgage
Servicing Rights
Mortgage servicing rights (MSRs) represent an estimate of the present value
of future cash servicing income, net of estimated costs that Republic expects
to receive on loans sold with servicing retained by the Company. MSRs are
capitalized as separate assets when loans are sold and servicing is retained.
This transaction is posted to net gain on sale of loans, a component of
mortgage banking income in the income statement. Management considers all
relevant factors, in addition to pricing considerations from other servicers,
to estimate the fair value of the MSRs to be recorded when the loans are initially
sold with servicing retained by the Company. The carrying value of MSRs is
initially amortized in proportion to and over the estimated period of net
servicing income and subsequently adjusted based on the weighted average
remaining life. The amortization is recorded as a reduction to mortgage banking
income. The MSR asset, net of amortization, recorded at December 31, 2007
was $6.7 million.
The carrying value of the
MSRs asset is reviewed monthly for impairment based on the fair value of the
MSRs, using groupings of the underlying loans by interest rates. Any impairment
of a grouping would be reported as a valuation allowance. A primary factor
influencing the fair value is the estimated life of the underlying loans
serviced. The estimated life of the loans serviced is significantly influenced
by market interest rates. During a period of declining interest rates, the fair
value of the MSRs is expected to decline due to anticipated prepayments within
the portfolio. Alternatively, during a period of rising interest rates, the
fair value of MSRs is expected to increase as prepayments on the underlying
loans would be anticipated to decline. Management utilizes an independent third
party on a monthly basis to assist with the fair value estimate of the MSRs. Based
on the estimated fair value at December 31, 2007 and 2006, management
determined no impairment of these assets existed and no valuation allowance was
necessary.
RAL Securitization and Valuation
of Residual A
securitization is a process by which an entity issues securities to investors,
with the securities paying a return based on the cash flows from a pool of
loans or other financial assets. The Company utilized a securitization
structure to fund, over a four week period, a portion of the RALs originated
during the first quarters of 2007 and 2006. The securitization consisted of a
total of $347 million and $206 million of loans originated and sold during January and
February of 2007 and 2006, respectively. The Companys continuing
involvement in loans sold into the securitization was limited to only servicing
of the loans. Compensation for servicing of the loans securitized was not
contingent upon performance of the loans securitized.
As part of the
securitization, the Company established a two step structure to handle the sale
of the assets to third party investors. In the first step, a sale provided for
TRS RAL Funding, LLC (TRS RAL, LLC), a qualified special purpose entity (QSPE)
to purchase the assets from RB&T as Originator and Servicer. In the second
step, a sale and administration agreement was entered into by and among TRS
RAL, LLC and various other third parties with TRS RAL, LLC retaining a residual
interest in an over-collateralization. There are no recourse obligations. The
residual value related to the securitization, which is presented as a trading
security on the balance sheet, was $0 at December 31, 2007 and 2006.
In the case where
Republic transferred financial assets to the QSPE, a decision was made as to
whether that transfer should be considered a sale. The Company concluded that
the transaction was indeed a sale as defined in Statement of Financial
Accounting Standards (SFAS) 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities a replacement of FASB Statement No. 125. This conclusion was based on, among other things, legal
isolation of assets, the ability of the purchaser to pledge or sell the assets,
and the absence of a right or obligation of the Company to repurchase the financial
assets. By concluding the transfer was a sale, the Company reduced the negative
impact of the RAL program on the Companys regulatory capital levels.
Residuals are created
upon the issuance of private-label securitizations. Residuals represent the first
loss position and are not typically rated by nationally recognized agencies.
The value of residuals represents the future cash flows expected to be received
by the Company from the excess cash flows created in the securitization
transaction. In general, future cash flows are estimated by taking the coupon
rate of the loans underlying the transaction, less the interest rate paid to
the investors, less contractually specified fees, adjusted for the effect of
estimated credit losses.
33
For a portion of the
year, the Company retained a related residual value in the securitization and
classified this as a trading asset. The initial residual interest has a
weighted average life of approximately one month, and as such, substantially
all of its cash flows are received by the end of the first quarter. The
disposition of the remaining anticipated cash flows is expected to occur within
the remainder of the year. At its initial valuation, and on a quarterly basis thereafter,
the Company adjusts the carrying amount of the residual value to its fair
value, which is determined based on its expected future cash flows and is
significantly influenced by the anticipated credit losses of the underlying
RALs.
Accounting for the
valuation of retained interests in securitizations requires managements
judgment since these assets are established and accounted for based on cash
flow modeling techniques that require management to make estimates regarding
the amount and timing of expected future cash flows, including assumptions
regarding credit losses. Because the value of the assets is sensitive to
changes in assumptions, the valuation of the residual is considered a critical
accounting estimate.
See additional discussion about
this product under the sections titled Item 1 Business, Item 1A Risk Factors
and Footnote 5 Securitization and Footnote 24 Segment Information of Item 8
Financial Statements and Supplementary Data.
Income
Tax Accounting
Income tax liabilities or assets are established for the amount of taxes
payable or refundable for the current year. Deferred tax liabilities and assets
are also established for the future tax consequences of events that have been
recognized in the Companys financial statements or tax returns. A deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and deductions that can be carried
forward (used) in future years. The valuation of current and deferred tax
liabilities and assets is considered critical as it requires management to make
estimates based on provisions of the enacted tax laws. The assessment of tax
assets and liabilities involves the use of estimates, assumptions,
interpretations, and judgments concerning certain accounting pronouncements and
federal and state tax codes. There can be no assurance that future events, such
as court decisions or positions of federal and state taxing authorities, will
not differ from managements current assessment, the impact of which could be
significant to the consolidated results of operations and reported earnings.
The Company believes its tax assets and liabilities are adequate and are
properly recorded in the consolidated financial statements at December 31,
2007.
Goodwill
and Other Intangible Assets When a company acquires a business, the purchased
assets and liabilities are recorded at fair value. The fair value of most
financial assets and liabilities are determined by estimating the discounted
anticipated cash flows from or for the instrument using current market rates
applicable to each category of instrument. Excess of consideration paid to
acquire a business over the fair value of the net assets is recorded as
goodwill. Errors in the estimation process of the fair value of acquired assets
and liabilities will result in an overstatement or understatement of goodwill.
This in turn will result in overstatement or understatement of income and
expenses and, in the case of an overstatement of goodwill, could make the Company
subject to an impairment charge when the overstatement is discovered in its
annual assessment for impairment.
At a minimum, management
is required to assess goodwill and other intangible assets annually for
impairment. This assessment involves estimating cash flows for future periods,
preparing analyses of market multiples for similar operations, and estimating
the fair value of the reporting unit to which the goodwill is allocated. If the
future cash flows were materially less than the estimates, the Company would be
required to take a charge against earnings to write down the asset to the lower
fair value. Based on its assessment, the Company believes its goodwill of $10.2
million and other identifiable intangibles of $420,000 are not impaired and are
properly recorded in the consolidated financial statements as of December 31,
2007.
RESULTS
OF OPERATIONS
Net Interest Income
The largest categorical source of Republics revenue is net interest
income. Net interest income is the difference between interest income on
interest-earning assets, such as loans and securities and the interest expense
on liabilities used to fund those assets, such as interest-bearing deposits and
borrowings. Net interest income is impacted by both changes in the amount and composition
of interest-earning assets and interest-bearing liabilities, as well as market
interest rates.
34
Discussion of 2007 vs. 2006
For 2007, net interest
income was $94.5 million, an increase of $6.2 million, or 7%, over the same
period in 2006. The Company experienced a $5.1 million, or 6%, increase in net
interest income within the Banking segment, which was primarily related to
growth in the traditional loan portfolio as detailed throughout this document.
The Company also experienced a $994,000, or 18%, increase in net interest
income within the TRS business segment as a result of the increased RAL volume
in 2007 partially offset by the increase in expense related to the negative
spread on brokered deposits it acquired. The Companys net interest spread
declined 5 basis points to 2.57% for 2007 compared to 2006, while its net
interest margin declined 5 basis points to 3.17% for the same period.
The decline in the net
interest spread and margin for 2007 was the result of an increase in the
Companys cost of funds without a similar corresponding increase in the Companys
yield on interest-earning assets. More specifically, for the majority of the
year, the Company continued to experience contraction in its spread and margin
due to a flat and sometimes inverted interest rate yield curve in which
short-term rates approximated long-term rates. The effect of a flat yield curve
was magnified in Republics financial statements because the Companys
liabilities are more sensitive to interest rate movements than its assets. The
Company also faced stern competition for deposit funds in its market areas,
which continued to increase its incremental cost of deposits obtained.
Alternatively, when the Company was unable to gather enough deposits in its
geographical market areas to fund its asset growth, the Company obtained
funding from higher cost borrowing sources such as brokered deposits and/or
FHLB advances.
In September 2007,
the Federal Open Markets Committee (FOMC) of the Federal Reserve Bank (FRB)lowered
the Federal Funds Target rate by 50 basis points. This was followed up with two
additional 25 basis point decreases in October and December ending
the year at 4.25%. The Federal Funds Target rate is an index, which many of the
Companys short-term deposit rates track. Because the Companys interest
bearing liabilities continue to be more sensitive to interest rate movements
than its assets, the decreases in the Federal Funds Target rate significantly
benefited the Companys net interest income and net interest margin during the
fourth quarter of 2007. Management believes that further rate reductions of the
Federal Funds Target rate, such as the 125 basis point drop in January, 2008,
by the FOMC will continue to benefit the Companys net interest income and net
interest margin in the short-term. Management is unable to precisely determine
the ultimate impact to the Companys net interest spread and margin in the
future resulting from FOMC rate cuts because of factors such as consumer demand
for the Companys products and overall need for liquidity, among many others.
Discussion
of 2006 vs. 2005
For 2006, net interest
income was $88.3 million, an increase of $2.7 million, or 3%, over 2005. The
Company experienced a $5.9 million, or 8%, increase in net interest income
within the Banking segment which was primarily related to growth in the
traditional loan portfolio, particularly within the residential real estate
portfolio. Total traditional Bank loans increased $235 million from December 31,
2005 to December 31, 2006. The Company experienced a $3.1 million, or 36%,
decline in net interest income within the TRS business segment as a result of
the RAL securitization, which effectively caused $2.8 million in net RAL fees
to be classified in non interest income as these related to securitized RALs.
The Companys net
interest spread declined 32 basis points to 2.62% for the year ended December 31,
2006 compared to the same period in 2005, while the Companys net interest
margin declined 20 basis points to 3.22% for the same period. Approximately 15
basis points of the decline resulted from the securitization of a portion of
the RAL portfolio. The remainder of the decline in net interest margin and net
interest spread was the result of an increase in the Companys cost of funds
without a similar corresponding increase in the Companys yield on
interest-earning assets. More specifically, spread and margin contraction
occurred because much of the Companys funding is/was derived from large
commercial treasury management accounts that are tied to immediately repricing
indices, while the majority of the Companys interest-earning assets are real
estate secured loans that reprice over a longer period.
For additional information on the
past effect of rising short-term interest rates on Republics net
interest income, see Table 4 Volume/Rate Variance Analysis in this section of
the document. For additional information on the potential future effect
of rising short-term interest rates on Republics net interest income, see
Table 23 Interest Rate Sensitivity in this section of the document. For
additional discussion regarding the securitization, see the section titled Tax
Refund Solutions in this section of the document and Footnote 5Securitization
of Item 8 Financial Statements and Supplementary Data.
Table 3 provides detailed
information as to average balances, interest income/expense and average rates
by major balance sheet category for 2007, 2006 and 2005. Table 4 provides an
analysis of the changes in net interest income attributable to changes in rates
and changes in volume of interest-earning assets and interest-bearing
liabilities.
35
Table 3 Average Balance Sheets and Interest
Rates for Years Ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
(dollars in thousands)
|
|
Average
Balance
|
|
Interest
|
|
Average
Rate
|
|
Average
Balance
|
|
Interest
|
|
Average
Rate
|
|
Average
Balance
|
|
Interest
|
|
Average
Rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
securities(1)
|
|
$
|
607,406
|
|
$
|
31,636
|
|
5.21
|
%
|
$
|
522,321
|
|
$
|
24,755
|
|
4.74
|
%
|
$
|
537,500
|
|
$
|
19,578
|
|
3.64
|
%
|
Tax exempt
securities(4)
|
|
1,783
|
|
103
|
|
8.89
|
|
1,842
|
|
96
|
|
8.02
|
|
|
|
|
|
|
|
Federal funds sold
and other
|
|
7,437
|
|
416
|
|
5.59
|
|
29,234
|
|
752
|
|
2.57
|
|
49,700
|
|
1,472
|
|
2.96
|
|
Loans and fees(2)(3)
|
|
2,359,617
|
|
166,942
|
|
7.07
|
|
2,192,395
|
|
150,937
|
|
6.88
|
|
1,919,269
|
|
127,029
|
|
6.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning
assets
|
|
2,976,243
|
|
199,097
|
|
6.69
|
|
2,745,792
|
|
176,540
|
|
6.43
|
|
2,506,469
|
|
148,079
|
|
5.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance
for loan losses
|
|
(11,885
|
)
|
|
|
|
|
(11,219
|
)
|
|
|
|
|
(11,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
54,936
|
|
|
|
|
|
45,906
|
|
|
|
|
|
56,278
|
|
|
|
|
|
Premises and
equipment, net
|
|
37,052
|
|
|
|
|
|
33,422
|
|
|
|
|
|
32,520
|
|
|
|
|
|
Other assets(1)
|
|
35,587
|
|
|
|
|
|
40,996
|
|
|
|
|
|
31,639
|
|
|
|
|
|
Total assets
|
|
$
|
3,091,933
|
|
|
|
|
|
$
|
2,854,897
|
|
|
|
|
|
$
|
2,615,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
$
|
222,501
|
|
$
|
1,597
|
|
0.72
|
%
|
$
|
253,798
|
|
$
|
2,103
|
|
0.83
|
%
|
$
|
320,506
|
|
$
|
3,166
|
|
0.99
|
%
|
Money market
accounts
|
|
597,832
|
|
24,539
|
|
4.10
|
|
424,431
|
|
16,024
|
|
3.78
|
|
316,938
|
|
7,669
|
|
2.42
|
|
Time deposits
|
|
476,906
|
|
21,262
|
|
4.46
|
|
478,837
|
|
18,751
|
|
3.92
|
|
483,403
|
|
16,612
|
|
3.44
|
|
Brokered deposits
|
|
144,144
|
|
7,304
|
|
5.07
|
|
166,930
|
|
7,396
|
|
4.43
|
|
124,470
|
|
4,256
|
|
3.42
|
|
Total deposits
|
|
1,441,383
|
|
54,702
|
|
3.80
|
|
1,323,996
|
|
44,274
|
|
3.34
|
|
1,245,317
|
|
31,703
|
|
2.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements and other short-term borrowings
|
|
433,809
|
|
19,079
|
|
4.40
|
|
374,937
|
|
15,889
|
|
4.24
|
|
359,327
|
|
9,906
|
|
2.76
|
|
Federal Home Loan
Bank advances
|
|
623,050
|
|
28,323
|
|
4.55
|
|
575,523
|
|
25,564
|
|
4.44
|
|
480,157
|
|
19,872
|
|
4.14
|
|
Subordinated note
|
|
41,240
|
|
2,515
|
|
6.10
|
|
41,240
|
|
2,515
|
|
6.10
|
|
15,592
|
|
951
|
|
6.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities
|
|
2,539,482
|
|
104,619
|
|
4.12
|
|
2,315,696
|
|
88,242
|
|
3.81
|
|
2,100,393
|
|
62,432
|
|
2.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
interest-bearing liabilities and stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
interest-bearing deposits
|
|
281,926
|
|
|
|
|
|
285,877
|
|
|
|
|
|
290,968
|
|
|
|
|
|
Other liabilities
|
|
27,558
|
|
|
|
|
|
28,150
|
|
|
|
|
|
22,404
|
|
|
|
|
|
Stockholders
equity
|
|
242,967
|
|
|
|
|
|
225,699
|
|
|
|
|
|
211,712
|
|
|
|
|
|
Less:
Stockholders equity allocated to discontinued Operations
|
|
|
|
|
|
|
|
(525
|
)
|
|
|
|
|
(10,435
|
)
|
|
|
|
|
Total liabilities
and stockholders equity
|
|
$
|
3,091,933
|
|
|
|
|
|
$
|
2,854,897
|
|
|
|
|
|
$
|
2,615,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
|
|
$
|
94,478
|
|
|
|
|
|
$
|
88,298
|
|
|
|
|
|
$
|
85,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
spread
|
|
|
|
|
|
2.57
|
%
|
|
|
|
|
2.62
|
%
|
|
|
|
|
2.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
margin
|
|
|
|
|
|
3.17
|
%
|
|
|
|
|
3.22
|
%
|
|
|
|
|
3.42
|
%
|
(1)
|
|
For the purpose of this calculation, the fair market value
adjustment on investment securities resulting from SFAS
115 is included as a component of other assets.
|
(2)
|
|
The amount of loan fee income included in total interest
income was $10.3 million, $8.8 million and $11.8 million for the years ended
December 31, 2007, 2006 and 2005.
|
(3)
|
|
Average balances for loans include the principal balance
of non-accrual loans.
|
(4)
|
|
Yields on tax exempt securities have been computed based
on a fully tax-equivalent basis using the federal income tax rate of 35%.
|
36
Table 4
illustrates the extent to which changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities impacted
Republics interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) changes attributable to changes in rate (changes in rate multiplied
by prior volume) and (iii) net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
Table 4 Volume/Rate Variance Analysis
|
|
Year Ended December 31, 2007
Compared to
Year Ended December 31, 2006
|
|
Year Ended December 31, 2006
Compared to
Year Ended December 31, 2005
|
|
|
|
|
|
Increase/(Decrease)
Due to
|
|
|
|
Increase/(Decrease)
Due to
|
|
(in thousands)
|
|
Total Net Change
|
|
Volume
|
|
Rate
|
|
Total Net Change
|
|
Volume
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
securities
|
|
$
|
6,881
|
|
$
|
4,281
|
|
$
|
2,600
|
|
$
|
5,177
|
|
$
|
(567
|
)
|
$
|
5,744
|
|
Tax exempt
securities
|
|
7
|
|
(3
|
)
|
10
|
|
96
|
|
96
|
|
|
|
Federal funds
sold and other
|
|
(336
|
)
|
(816
|
)
|
480
|
|
(720
|
)
|
(546
|
)
|
(174
|
)
|
Loans and fees
|
|
16,005
|
|
10,883
|
|
5,122
|
|
23,908
|
|
19,716
|
|
4,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
interest income
|
|
22,557
|
|
14,345
|
|
8,212
|
|
28,461
|
|
18,699
|
|
9,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
(506
|
)
|
(243
|
)
|
(263
|
)
|
(1,063
|
)
|
(599
|
)
|
(464
|
)
|
Money market
accounts
|
|
8,515
|
|
7,017
|
|
1,498
|
|
8,355
|
|
3,151
|
|
5,204
|
|
Time deposits
|
|
2,511
|
|
(76
|
)
|
2,587
|
|
2,139
|
|
(158
|
)
|
2,297
|
|
Brokered
deposits
|
|
(92
|
)
|
(1,080
|
)
|
988
|
|
3,140
|
|
1,682
|
|
1,458
|
|
Repurchase
agreements and other short-term borrowings
|
|
3,190
|
|
2,571
|
|
619
|
|
5,983
|
|
448
|
|
5,535
|
|
Federal Home
Loan Bank advances
|
|
2,759
|
|
2,150
|
|
609
|
|
5,692
|
|
4,158
|
|
1,534
|
|
Subordinated
note
|
|
|
|
|
|
|
|
1,564
|
|
1,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
interest expense
|
|
16,377
|
|
10,339
|
|
6,038
|
|
25,810
|
|
10,246
|
|
15,564
|
|
Net change in
net interest income
|
|
$
|
6,180
|
|
$
|
4,006
|
|
$
|
2,174
|
|
$
|
2,651
|
|
$
|
8,453
|
|
$
|
(5,802
|
)
|
37
Non Interest Income
Table 5 Analysis of Non Interest Income
|
|
|
|
|
|
|
|
Percent Increase/(Decrease)
|
|
Year Ended December 31, (dollars in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
2007/2006
|
|
2006/2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges
on deposit accounts
|
|
$
|
18,577
|
|
$
|
16,505
|
|
$
|
13,851
|
|
13
|
%
|
19
|
%
|
Electronic
refund check fees
|
|
4,189
|
|
4,102
|
|
6,083
|
|
2
|
|
(33
|
)
|
Net RAL
securitization income
|
|
3,772
|
|
2,771
|
|
|
|
36
|
|
100
|
|
Mortgage banking
income
|
|
2,973
|
|
2,316
|
|
2,751
|
|
28
|
|
(16
|
)
|
Debit card
interchange fee income
|
|
4,387
|
|
3,644
|
|
3,122
|
|
20
|
|
17
|
|
Title insurance
commissions
|
|
296
|
|
762
|
|
1,756
|
|
(61
|
)
|
(57
|
)
|
Gain on sale of
securities
|
|
8
|
|
300
|
|
|
|
(97
|
)
|
100
|
|
Insurance
settlement gain
|
|
1,877
|
|
|
|
|
|
100
|
|
|
|
Other
|
|
1,713
|
|
1,300
|
|
1,244
|
|
32
|
|
5
|
|
Total non
interest income
|
|
$
|
37,792
|
|
$
|
31,700
|
|
$
|
28,807
|
|
19
|
|
10
|
|
Discussion of 2007 vs. 2006
Service charges on
deposit accounts increased $2.1 million, or 13%, during 2007 compared to the
same period in 2006. The increase was primarily due to growth in the Companys
checking account base in conjunction with growth in the Banks Overdraft Honor
program, which permits selected customers to overdraft their accounts up to a
predetermined dollar amount (up to a maximum of $1,000) for the Banks
customary overdraft fee. In addition to growth in the Banks Overdraft Honor
program, the Company also increased its overdraft fee by 7% in September of
2006. Included in service charges on deposits are net per item overdraft/NSF
fees of $13.7 million and $12.1 million for 2007 and 2006, respectively.
Net RAL
securitization income increased $1.0 million, or 36%, during 2007 compared to
the same period in 2006 primarily due to the increase in the volume of loans
sold into the RAL securitization. The volume of RALs securitized rose year over
year due to an increase in overall originations of RALs combined with more
favorable underwriting criteria within the securitization structure, which
allowed the Company to securitize a higher percentage of RALs than the previous
year.
Detail
of Net RAL securitization income follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Net gain on sale
of RALs
|
|
$
|
2,261
|
|
$
|
2,022
|
|
Increase in
securitization residual
|
|
1,511
|
|
749
|
|
Net RAL
securitization income
|
|
$
|
3,772
|
|
$
|
2,771
|
|
Mortgage banking
income increased $657,000, or 28%, during 2007 compared to 2006. The increase
was due primarily to a $602,000, or 38%, increase in net gain on sale of loans.
The increase in net gain resulted primarily from pricing strategies employed by
the Company on its portfolio Adjustable Rate Mortgage (ARM) product
offerings, which effectively shifted consumer demand to
15- and 30-year fixed rate products that are sold into the secondary market.
The Company employed these pricing strategies due to a flat and sometimes
inverted yield curve, which increased the Companys funding costs and made it
less attractive to retain such loans on balance sheet. As a percentage of loans
sold, net gains on sale of loans increased to 1.00% in 2007 compared to 0.81%
in 2006. The increase resulted primarily from more favorable pricing strategies
employed by the Company.
Debit
card interchange revenue increased $743,000, or 20%, consistent with the overall
growth in customer base and transaction volume. The increase in debit card
interchange income was substantially offset by a $600,000 increase in
interchange non interest expenses.
During the fourth quarter of 2007, the Company sold one U.S. Treasury Bill
security resulting in a gain of $8,000. During the fourth quarter of 2006, the
Company sold a portion of the available for sale Freddie Mac (FHLMC)
preferred stock totaling $5 million, realizing a gain on sale of securities of
$300,000. There were no securities available for sale sold during 2005.
38
The Company recorded a non recurring insurance settlement gain of $1.9
million in 2007 related to the final settlement of insurance proceeds in
connection with the Companys corporate center fire which occurred in late
2006. The gain represented the difference between the total cash received from
the Companys insurance provider and the net book value of the fixed assets
destroyed as a result of the fire.
Discussion of 2006 vs. 2005
Service charges on
deposit accounts increased $2.7 million, or 19%, during 2006 compared to 2005.
The increase was primarily due to growth in the Companys checking account base
in conjunction with the Banks Overdraft Honor program, which permits
selected customers to overdraft their accounts up to a predetermined dollar
amount for the Banks customary overdraft fee. The Company also increased its
overdraft fee by 7% in August of 2005 and again by a similar amount in September of
2006. Included in service charges on deposits were per item overdraft fees of
$12.1 million and $9.9 million for years ended December 31, 2006 and 2005.
Electronic Refund
Check (ERC) fees decreased $2.0 million, or 33%, to $4.1 million during the year
ended December 31, 2006 compared to the same period in 2005. This decrease
was due to a 27% decline in ERC/ERD volume from the prior year resulting
primarily from the discontinuation of a business relationship with one large
integrated software partner.
Net RAL securitization
income was $2.8 million for the year ended December 31, 2006, as the
Company completed its first securitization of a portion of the RAL portfolio
during the first quarter of the year.
Mortgage banking
income decreased $435,000 during 2006 due primarily to a $682,000 decline in
net gain on sale of loans which was partially offset by a $247,000 increase in
servicing income, net of amortization. The reduction in net gain on sale of
loans resulted from the decline in mortgage origination volume of 15 and
30-year fixed rate residential real estate loans from 2005 resulting primarily
from an increase in longer-term interest rates. As a percentage of loans sold,
net gains decreased to 0.81% in 2006 compared to 0.92% in 2005. The decrease in
net gain on sale of loans as a percentage of loans sold resulted primarily from
competitive pricing pressures and costs absorbed by the Company in connection
with its fixed closing costs product that ranged from $299 to $599.
Title
insurance commissions declined $994,000, or 57%, during 2006 due primarily to
an accounting change in accordance with SFAS 91, corrected in prior year
financial statements through SAB 108. See the section titled Staff Accounting Bulletin 108 in this section of the
document and Footnote 1 Summary of Significant
Accounting Principles of Item 8 Financial Statements and Supplementary Data for
additional information.
Non Interest Expenses
Table 6 Analysis of Non Interest Expenses
|
|
|
|
|
|
|
|
Percent Increase/(Decrease)
|
|
Year Ended December 31, (dollars in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
2007/2006
|
|
2006/2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
employee benefits
|
|
$
|
44,162
|
|
$
|
40,412
|
|
$
|
36,731
|
|
9
|
%
|
10
|
%
|
Occupancy and
equipment, net
|
|
17,904
|
|
15,541
|
|
13,654
|
|
15
|
|
14
|
|
Communication and
transportation
|
|
3,785
|
|
2,750
|
|
3,000
|
|
38
|
|
(8
|
)
|
Marketing and
development
|
|
3,287
|
|
2,459
|
|
2,489
|
|
34
|
|
(1
|
)
|
Bank franchise
tax expense
|
|
2,552
|
|
1,902
|
|
1,822
|
|
34
|
|
4
|
|
Data processing
|
|
2,675
|
|
2,171
|
|
1,871
|
|
23
|
|
16
|
|
Debit card
interchange
|
|
2,263
|
|
1,663
|
|
1,357
|
|
36
|
|
23
|
|
Supplies
|
|
1,749
|
|
1,271
|
|
1,133
|
|
38
|
|
12
|
|
Other
|
|
8,879
|
|
6,693
|
|
6,455
|
|
33
|
|
4
|
|
Total non
interest expenses
|
|
$
|
87,256
|
|
$
|
74,862
|
|
$
|
68,512
|
|
17
|
|
9
|
|
39
Discussion of 2007 vs. 2006
Salaries and employee
benefits increased $3.8 million, or 9%, during 2007 compared to 2006. This
increase was primarily attributable to an increase in the Companys employee
base combined with annual salary increases and higher costs associated with the
Companys health insurance. End of period FTEs increased from 698 at December 31,
2006 to 727 at December 31, 2007, as the Company added to staff in both
sales and support functions as a result of new banking center locations and
expectations for future growth in the traditional Banking segment, as well as
TRS. In addition, the Company experienced a full years effect in 2007 of the
20 FTE increase in Florida resulting from the GulfStream acquisition in October 2006.
Occupancy and equipment
expense increased $2.4 million, or 15%, during 2007 compared to the same period
in 2006. The increases in occupancy and equipment were primarily associated
with growth in the Companys infrastructure and banking center network, as well
as increased leasing costs and service agreements for the Companys core
technology, telecommunications and operating systems.
Communication and
transportation increased $1.0 million, or 38%, during 2007 compared to 2006
primarily due to enhancements to the Companys telecommunication carrier
networks, as well as banking center expansion. The Company also experienced
increased freight and postage primarily due to TRS. The majority of the
increase was incurred during the fourth quarter in preparation for the upcoming
tax refund processing season.
Marketing and development
increased $828,000, or 34%, during 2007 compared to 2006. Approximately one
half of this increase was related to the Companys new Debit Card Rewards
program, which allows debit card users to earn points that can be used toward
the purchase consumer goods.
Bank franchise tax
expense increased $650,000, or 34%, consistent with the overall growth in the
Companys taxable deposit and capital bases.
Data processing expense
increased $504,000, or 23%, during 2007 compared to 2006. Approximately
$250,000 of this increase resulted from the Companys new business on-line
banking system. Approximately $100,000 of this increase was related to an
increase in the number of users utilizing the Companys retail internet
delivery and consumer on-line bill payment systems.
Debit card interchange
expense increased $600,000, or 36%, during 2007 compared to 2006. The increase
in expense resulted from growth in the number of debit card transactions
processed by the Company.
Other expense increased
$2.2 million, or 33%, during 2007 compared to the same period in 2006 primarily
due to the following items:
· Travel increased approximately $234,000,
primarily related to TRS and new locations in Florida.
· Legal expense increased approximately
$845,000, primarily related to the settlement of a previously disclosed
lawsuit.
· Third party audit and professional fees
increased approximately $182,000, primarily due to routine services associated
with TRS. Included in these services was an annual review of the RAL
underwriting by a third party consultant and routine annual audits of tax
preparation offices nationwide.
· Fraud losses increased approximately
$383,000, resulting primarily from two customer identity thefts.
· Core deposit amortization increased
approximately $106,000, resulting from the acquisition of GulfStream in October 2006.
· Reimbursement of foreign ATM fees
increased approximately $369,000, primarily related to growth in the Companys
new promotional demand deposit accounts which offer unlimited free foreign ATM
transactions.
40
Discussion
of 2006 vs. 2005
Salaries and employee
benefits increased $3.7 million, or 10%, from 2005 to 2006. The increase was
primarily attributable to annual salary increases, stock option compensation
expense and higher costs associated with the Companys health insurance. In
addition, end of period FTEs increased from 678 at December 31, 2005 to
698 at December 31, 2006. The increase in salaries and employee benefits
was moderated by $1.1 million and $800,000 in credits to incentive compensation
accruals posted during the fourth quarters of 2006 and 2005. The Company
recorded stock option expense of $844,000 during the year ended December 31,
2006 related to the prospective adoption of SFAS 123R on January 1, 2006.
Occupancy and equipment
expense increased $1.9 million, or 14%, during 2006 compared to 2005.
Approximately $900,000 of the increase was due to a one-time charge related to
a change in the Companys lease accounting practices. The remaining increase
was attributable to increased rent and leasehold improvements for the Companys
operations areas, as well as increased leasing costs and service agreements
for the Companys technology and operating systems.
FINANCIAL CONDITION
Investment Securities
Table 7 Investment Securities Portfolio
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Securities
available for sale (fair value):
|
|
|
|
|
|
|
|
U.S. Treasury
securities and U.S Government agencies
|
|
$
|
160,275
|
|
$
|
286,272
|
|
$
|
330,294
|
|
Freddie Mac
preferred stock
|
|
1,541
|
|
2,064
|
|
|
|
Corporate
mortgage backed securities and other corporate mortgage-related securities
|
|
32,475
|
|
45,210
|
|
20,000
|
|
Mortgage backed
securities, including CMOs
|
|
334,459
|
|
170,181
|
|
97,571
|
|
Total securities
available for sale
|
|
528,750
|
|
503,727
|
|
447,865
|
|
|
|
|
|
|
|
|
|
Securities to be
held to maturity (carrying value):
|
|
|
|
|
|
|
|
U.S. Treasury
securities and U.S Government agencies
|
|
4,672
|
|
8,586
|
|
12,110
|
|
Obligations of
states and political subdivisions
|
|
383
|
|
383
|
|
|
|
Mortgage backed
securities, including CMOs
|
|
46,831
|
|
49,076
|
|
52,188
|
|
Total securities
to be held to maturity
|
|
51,886
|
|
58,045
|
|
64,298
|
|
Total investment
securities
|
|
$
|
580,636
|
|
$
|
561,772
|
|
$
|
512,163
|
|
Securities available for
sale primarily consists of U.S. Treasury and U.S. Government Agency
obligations, including agency mortgage backed securities (MBSs), agency
collateralized mortgage obligations (CMOs), corporate mortgage backed and
other corporate mortgage-related securities and FHLMC preferred stock. The
agency MBSs primarily consist of hybrid mortgage securities, as well as other
adjustable rate mortgage securities, underwritten and guaranteed by Ginnie Mae
(GNMA), FHLMC and Fannie Mae (FNMA). Agency CMOs held in the investment
portfolio are substantially all floating rate securities that adjust monthly.
The Company primarily uses the securities portfolio as collateral for
securities sold under agreements to repurchase (repurchase agreements) and to
mitigate its risk position from rising interest rates. Strategies for the
securities portfolio may also be influenced by economic and market conditions,
loan demand, deposit mix and liquidity needs.
41
Nationally, residential
real estate values have declined. These declines in value, coupled with the
reduced ability of homeowners to refinance or repay their residential real
estate obligations, have led to elevated delinquencies and losses in
residential real estate loans. Many of these loans have previously been
securitized and sold to investors as corporate mortgage backed or other
corporate mortgage-related securities. The Company owns $35 million in
corporate mortgage backed and other corporate mortgage-related securities.
These securities are not guaranteed by government agencies. Approximately $24
million of these securities are rated AAA by Standard & Poors (S&P)
and are backed by Alternative A first lien mortgage loans. The remaining $11
million are asset backed securities with an insurance wrap or guarantee.
These asset backed securities are AA rated by S&P. Due to current market
conditions, all of these assets are extremely illiquid, and as such, the market
value is unable to be reasonably estimated due to the volatility in the
mortgage industry. The average life of these securities is currently estimated
to be approximately five years. At this time, management intends to hold these
securities until maturity and does not believe the Company will incur any loss
of principal. Further deterioration in the real estate markets and/or
deterioration in the financial condition of the insurance company providing the
wrap could produce a loss of principal in the future. As of the date of this
filing, none of these securities have been downgraded by the applicable rating
agency.
Approximately $380
million of the Companys agency mortgage related MBS investment portfolio and
$165 million of the Companys agency portfolio represents securities guaranteed
by government agencies such as FHLMC and have first lien 1-4 family home
mortgage loans as their underlying collateral. Approximately $259 million of
these securities were purchased at a market premium above par. The current
unamortized premium of these securities was $1.4 million at December 31,
2007. While the Company believes the overall risk of principal loss within this
portfolio is minimal due to the agency guarantees, these securities are subject
to substantial prepayment risk in a declining interest rate environment because
the underlying loans are subject to refinancing. Prepayments in excess of those
projected when the securities were originally purchased could cause the final
yield received by the Company to be substantially lower due to the acceleration
of previous amortization. In addition, the cash received from these prepaying
securities would likely be reinvested into lower yielding investment products,
further reducing the Companys profitability on its securities portfolio.
Management projects various prepayment scenarios in the many interest
sensitivity analyses it performs. At this time, however, management is unable
to precisely estimate the amount of prepayment activity the Company will
experience within its investment portfolio in the short-term. For additional information on the potential future effect of
changing short-term interest rates on Republics net interest income, see Table
23 Interest Rate Sensitivity in this section of the document.
Detail of Mortgage Backed
Securities at December 31, 2007 was as follows
Table 8 Mortgage Backed Securities
December 31, 2007 (in thousands)
|
|
Amortized Cost
|
|
Fair Value
|
|
|
|
|
|
|
|
Agency
mortgage backed securities
|
|
$
|
322,488
|
|
$
|
324,446
|
|
Corporate
mortgage backed and other corporate mortgage-related securities
|
|
34,644
|
|
32,475
|
|
Agency
collateralized mortgage obligations
|
|
56,646
|
|
57,720
|
|
Total
mortgage backed securities
|
|
$
|
413,778
|
|
$
|
414,641
|
|
In addition, the Company
holds agency structured notes in the investment portfolio which consist of step
up bonds. These investments are predominantly classified as available for sale.
The amortized cost and fair value of structured notes is as follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Amortized cost
|
|
$
|
8,172
|
|
$
|
70,784
|
|
Fair value
|
|
8,217
|
|
70,529
|
|
|
|
|
|
|
|
|
|
During 2007, Republic
purchased $3.71 billion in available for sale securities and had maturities and
calls of $3.66 billion. A substantial majority of the securities purchased were
agency discount notes, which the Company utilized primarily for collateral
purposes. The weighted average yield on these discount notes was 4.98% with an
average term of 11 days.
42
Table 9 Securities Available for Sale
December 31, 2007 (in thousands)
|
|
Amortized
Cost
|
|
Fair Value
|
|
Weighted
Average
Yield
|
|
Average
Maturity in
Years
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and U.S. Government agencies:
|
|
|
|
|
|
|
|
|
|
Due in
one year or less
|
|
$
|
95,833
|
|
$
|
95,777
|
|
4.44
|
%
|
0.41
|
|
Due
from one to five years
|
|
59,278
|
|
59,986
|
|
5.19
|
|
1.61
|
|
Due
from five to ten years
|
|
4,413
|
|
4,512
|
|
5.53
|
|
3.88
|
|
Total
U.S. Treasury securities and U.S. Government agencies
|
|
159,524
|
|
160,275
|
|
4.75
|
|
0.95
|
|
Total
Freddie Mac preferred stock
|
|
2,000
|
|
1,541
|
|
5.73
|
|
22.76
|
|
Total
corporate mortgage backed and other corporate mortgage-related securities
|
|
34,644
|
|
32,475
|
|
6.00
|
|
1.76
|
|
Total
mortgage backed securities, including CMOs*
|
|
332,303
|
|
334,459
|
|
5.39
|
|
14.87
|
|
Total
securities available for sale
|
|
$
|
528,471
|
|
$
|
528,750
|
|
5.24
|
|
9.84
|
|
Table 10 Securities to be Held to Maturity
December 31, 2007 (in thousands)
|
|
Carrying
Value
|
|
Fair Value
|
|
Weighted
Average
Yield
|
|
Average
Maturity in
Years
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and U.S. Government agencies:
|
|
|
|
|
|
|
|
|
|
Due
from one to five years
|
|
$
|
4,672
|
|
$
|
4,679
|
|
3.89
|
%
|
1.30
|
|
Obligations
of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
Due
from five to ten years
|
|
383
|
|
408
|
|
6.00
|
|
5.50
|
|
Total
mortgage backed securities, including CMOs*
|
|
46,831
|
|
47,707
|
|
6.00
|
|
15.30
|
|
Total
securities to be held to maturity
|
|
$
|
51,886
|
|
$
|
52,794
|
|
5.81
|
|
13.96
|
|
* The
average maturity of mortgage backed securities, including CMOs, is calculated
based on contractual maturity.
Loan Portfolio
Net loans, primarily
consisting of secured real estate loans, increased by $97 million during 2007
to $2.4 billion at December 31, 2007. Overall growth in the portfolio for
Republic during 2007 was less than historical experience and resulted primarily
from two factors. In the residential real estate category, the Company retained
5-year ARM loans in its portfolio while it historically sold its 15-, 20- and
30-year fixed rate loans into the secondary market. Due to the flat and
sometimes inverted yield curve, the Company maintained a higher spread on its
5-year ARM product offerings during 2007 compared to its 30-year fixed rate
product. As a result, Republic experienced a decrease in its production of
portfolio ARM products and a corresponding increase in production of its fixed
rate secondary market products. Secondly, the Company experienced slower growth
in the commercial real estate category due primarily to an above historical
average amount of payoffs during 2007.
At December 31,
2007, commercial real estate loans comprised 27% of the total gross loan
portfolio and were concentrated primarily within the Banks existing markets.
These loans are principally secured by multi-family investment properties,
single family developments, medical facilities, small business owner occupied
offices, retail properties and hotels. These loans typically have interest
rates that are initially fixed for one to ten years with the remainder of the
loan term subject to repricing based on various market indices. In order to
reduce the negative effect of refinance activity within the portfolio during a
declining interest rate environment, the Company requires an early termination
penalty on substantially all commercial real estate loans for a portion of the
fixed term period. The Banks underwriting standards typically include personal
guarantees on most commercial real estate loans. Overall, commercial real
estate loans increased $6 million, or 1%, from December 31, 2006.
43
Similar to commercial
real estate loans, residential real estate loans that are not sold into the
secondary market typically have fixed interest rate periods of one to ten years
with the remainder of the loan term subject to repricing based on various
market indices. These loans also typically carry early termination penalties
during a portion of their fixed rate periods in order to lessen the overall
negative effect to the Company of refinancing in a declining interest rate
environment. To increase its competitiveness within its markets, Republic
offered closing costs as low as $299 on its residential real estate products
during 2007 and 2006. The promotional closing costs were increased to $599 in December 2007.
Overall, residential real estate loans decreased $5 million, or less than 1%,
from December 31, 2006.
The majority of the
Companys growth within its loan portfolio during 2007 occurred in the real
estate construction, commercial loan and home equity categories. Overall, real
estate construction loans increased $58 million, commercial loans increased $24
million, and home equity loans increased $22 million. Substantially all of
these loans are immediately repricing and float with an index such as the Prime
or LIBOR rates. Despite the likelihood of a declining interest rate
environment in the short-term, origination of immediately repricing loans
remains a primary focus of management due to the Companys negative sensitivity
to rising interest rates. Managements current intent is to substantially
increase over the next five years the percentage of loans on its balance sheet
that immediately reprice in a changing interest rate environment.
Table 11 Loan Portfolio Composition
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real
estate
|
|
$
|
1,168,591
|
|
$
|
1,173,813
|
|
$
|
1,056,175
|
|
$
|
851,736
|
|
$
|
762,000
|
|
Commercial real
estate
|
|
658,987
|
|
652,773
|
|
575,922
|
|
495,827
|
|
442,083
|
|
Real estate
construction
|
|
163,700
|
|
105,318
|
|
84,850
|
|
70,220
|
|
70,897
|
|
Commercial
|
|
90,741
|
|
66,559
|
|
46,562
|
|
36,807
|
|
34,553
|
|
Consumer
|
|
33,310
|
|
40,408
|
|
34,677
|
|
31,022
|
|
29,462
|
|
Overdrafts
|
|
1,238
|
|
1,377
|
|
852
|
|
1,344
|
|
988
|
|
Deferred
deposits (Payday loans), Discontinued Operations
|
|
|
|
|
|
5,779
|
|
35,631
|
|
27,584
|
|
Home equity
|
|
280,506
|
|
258,640
|
|
265,895
|
|
267,231
|
|
215,088
|
|
Total loans
|
|
$
|
2,397,073
|
|
$
|
2,298,888
|
|
$
|
2,070,712
|
|
$
|
1,789,818
|
|
$
|
1,582,655
|
|
The table below
illustrates Republics maturities and repricing frequency for the loan
portfolio:
Table 12 Selected Loan Distribution
December 31, 2007 (in thousands)
|
|
Total
|
|
One Year
Or Less
|
|
Over One
Through
Five
Years
|
|
Over
Five
Years
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate maturities:
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
406,125
|
|
$
|
60,354
|
|
$
|
205,037
|
|
$
|
140,734
|
|
Commercial
|
|
126,180
|
|
34,947
|
|
63,377
|
|
27,856
|
|
Construction
|
|
51,183
|
|
41,140
|
|
10,033
|
|
10
|
|
Commercial
|
|
40,120
|
|
12,185
|
|
22,880
|
|
5,055
|
|
Consumer,
including overdrafts
|
|
28,331
|
|
13,265
|
|
4,919
|
|
10,147
|
|
Home
equity
|
|
4,817
|
|
2,836
|
|
250
|
|
1,731
|
|
Total
fixed
|
|
$
|
656,756
|
|
$
|
164,727
|
|
$
|
306,496
|
|
$
|
185,533
|
|
|
|
|
|
|
|
|
|
|
|
Variable
rate repricing:
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
762,466
|
|
$
|
324,627
|
|
$
|
424,579
|
|
$
|
13,260
|
|
Commercial
|
|
532,807
|
|
297,136
|
|
235,529
|
|
142
|
|
Construction
|
|
112,517
|
|
105,277
|
|
3,342
|
|
3,898
|
|
Commercial
|
|
50,621
|
|
50,452
|
|
|
|
169
|
|
Consumer
|
|
6,217
|
|
6,217
|
|
|
|
|
|
Home
equity
|
|
275,689
|
|
275,689
|
|
|
|
|
|
Total
variable
|
|
$
|
1,740,317
|
|
$
|
1,059,398
|
|
$
|
663,450
|
|
$
|
17,469
|
|
44
Allowance for Loan Losses and Provision for Loan Losses
The allowance for loan
losses as a percent of total loans increased slightly to 0.53% at December 31,
2007 compared to 0.49% at December 31, 2006. In general, the increase in
the allowance for loan losses as a percentage of total loans was primarily
attributable to reserves required for growth in the loan portfolio and an adjustment of $1.1 million related to the
modification of several qualitative factors within the allowance calculation as
a result of generally deteriorating real estate market conditions. Management
believes, based on information presently available, that it has adequately
provided for loan losses at December 31, 2007.
For discussion of Republics
methodology for determining the adequacy of the allowance for loan losses, see
the section titled Critical Accounting Policies and Estimates in this section
of the document.
Discussion
of loan loss provision in 2007 vs. 2006
The Company recorded a
provision for loan losses of $6.8 million for 2007 compared to a provision of
$2.3 million for the same period in 2006.
Included in the provision for loan losses in 2007 and 2006 were $2.9 million and $34,000 for losses
associated with RALs. The increase in anticipated losses associated with RALs
was primarily due to higher confirmed fraud losses and from an increase in the
amount of refunds held by the IRS for reasons such as audits and liens from prior
debts. The Banking segment provision for loan losses increased to $3.9 million
for 2007 compared to $2.3 million for 2006 due to growth in loans, as well as
an increase in classified loans and delinquencies. In addition, as general real estate market conditions declined
throughout 2007 the Company modified several qualitative factors within its
allowance for loan loss calculation, which contributed to an increase in the
overall allowance for loan losses of approximately $1.1 million.
Discussion of loan loss provision
in 2006 vs. 2005
The Company experienced
an increase in the provision for loan losses of $2.0 million for the year ended
December 31, 2006 compared to the same period in the prior year. The
traditional banking segment increased $2.9 million primarily due to growth in
the loan portfolio during 2006 and a large credit recorded to the provision
during the second quarter of 2005 associated with improvements in a few large
classified loans.
Also included in the
provision for loan losses for the year ended December 31, 2006 was a
$855,000 reduction in losses associated with RALs retained by the Company. The
decrease in the provision associated with RALs during 2006 resulted primarily
from the securitization of a portion of the RAL portfolio during the first
quarter of 2006.
See additional discussion
regarding TRS under the following: Item 1A Risk Factors, under the sections
titled Results of Operations and Critical Accounting Policies and Estimates
in this section of the document and Results of Operations and Footnote 5 Securitization
and Footnote 24 Segment Information of Item 8 Financial Statements and
Supplementary Data.
45
Table 13
Summary of Loan Loss Experience
Year Ended December 31,
(dollars in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at beginning of year
|
|
$
|
11,218
|
|
$
|
11,009
|
|
$
|
13,554
|
|
$
|
13,959
|
|
$
|
10,148
|
|
Addition resulting from the acquisition of
GulfStream
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge offs:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
(553
|
)
|
(601
|
)
|
(448
|
)
|
(444
|
)
|
(670
|
)
|
Commercial
|
|
(493
|
)
|
(270
|
)
|
(162
|
)
|
(177
|
)
|
(1,223
|
)
|
Construction
|
|
(158
|
)
|
(72
|
)
|
(84
|
)
|
|
|
(135
|
)
|
Commercial
|
|
(132
|
)
|
(215
|
)
|
|
|
(22
|
)
|
(50
|
)
|
Consumer
|
|
(1,531
|
)
|
(1,117
|
)
|
(697
|
)
|
(868
|
)
|
(994
|
)
|
Home equity
|
|
(397
|
)
|
(264
|
)
|
(91
|
)
|
(177
|
)
|
(155
|
)
|
Tax Refund
Solutions
|
|
(4,246
|
)
|
(1,358
|
)
|
(2,213
|
)
|
(3,404
|
)
|
(2,300
|
)
|
Discontinued
operations
|
|
|
|
(409
|
)
|
(212
|
)
|
|
|
|
|
Total
|
|
(7,510
|
)
|
(4,306
|
)
|
(3,907
|
)
|
(5,092
|
)
|
(5,527
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
102
|
|
138
|
|
176
|
|
151
|
|
448
|
|
Commercial
|
|
213
|
|
65
|
|
87
|
|
284
|
|
1,074
|
|
Construction
|
|
1
|
|
86
|
|
34
|
|
35
|
|
300
|
|
Commercial
|
|
59
|
|
13
|
|
32
|
|
43
|
|
100
|
|
Consumer
|
|
446
|
|
425
|
|
289
|
|
348
|
|
366
|
|
Home equity
|
|
37
|
|
49
|
|
35
|
|
56
|
|
26
|
|
Tax Refund
Solutions
|
|
1,349
|
|
1,323
|
|
1,257
|
|
2,022
|
|
450
|
|
Discontinued
operations
|
|
|
|
82
|
|
14
|
|
|
|
|
|
Total
|
|
2,207
|
|
2,181
|
|
1,924
|
|
2,939
|
|
2,764
|
|
Net loan charge offs / recoveries
|
|
(5,303
|
)
|
(2,125
|
)
|
(1,983
|
)
|
(2,153
|
)
|
(2,763
|
)
|
Provision for loan losses from continuing operations
|
|
6,820
|
|
2,302
|
|
340
|
|
1,346
|
|
6,095
|
|
Provision for loan losses from discontinued
operations
|
|
|
|
(355
|
)
|
(902
|
)
|
402
|
|
479
|
|
Allowance for loan losses at end of year
|
|
$
|
12,735
|
|
$
|
11,218
|
|
$
|
11,009
|
|
$
|
13,554
|
|
$
|
13,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans
|
|
0.53
|
%
|
0.49
|
%
|
0.53
|
%
|
0.76
|
%
|
0.88
|
%
|
Allowance for loan losses to non-performing loans
|
|
132
|
|
175
|
|
183
|
|
221
|
|
108
|
|
Allowance for loan losses to non-performing assets
|
|
122
|
|
162
|
|
170
|
|
200
|
|
108
|
|
46
The
table below depicts managements allocation of the allowance for loan losses by
loan type. The allowance allocation is based on managements assessment of
economic conditions, past loss experience, loan volume, past due history and
other factors. Since these factors and managements assumptions are subject to
change, the allocation is not necessarily indicative of future loan portfolio
performance or future allowance allocation.
Table 14 Managements Allocation
of the Allowance for Loan Losses
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
December 31,
(dollars in thousands)
|
|
Allowance
|
|
Percent
of Loans
to Total
Loans
|
|
Allowance
|
|
Percent
of Loans
to Total
Loans
|
|
Allowance
|
|
Percent
of Loans
to Total
Loans
|
|
Allowance
|
|
Percent
of Loans
to Total
Loans
|
|
Allowance
|
|
Percent
of Loans
to Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real
estate
|
|
$
|
1,333
|
|
49
|
%
|
$
|
1,138
|
|
51
|
%
|
$
|
793
|
|
51
|
%
|
$
|
761
|
|
48
|
%
|
$
|
1,009
|
|
48
|
%
|
Commercial real
estate
|
|
7,417
|
|
27
|
|
7,105
|
|
28
|
|
7,086
|
|
28
|
|
8,100
|
|
28
|
|
7,804
|
|
28
|
|
Real estate construction
|
|
278
|
|
7
|
|
204
|
|
5
|
|
101
|
|
4
|
|
58
|
|
4
|
|
551
|
|
4
|
|
Commercial
|
|
993
|
|
4
|
|
241
|
|
3
|
|
163
|
|
2
|
|
107
|
|
2
|
|
237
|
|
2
|
|
Consumer
|
|
378
|
|
1
|
|
377
|
|
2
|
|
761
|
|
2
|
|
2,422
|
|
4
|
|
2,104
|
|
4
|
|
Home equity
|
|
371
|
|
12
|
|
188
|
|
11
|
|
186
|
|
13
|
|
187
|
|
14
|
|
131
|
|
14
|
|
Unallocated
|
|
1,965
|
|
|
|
1,965
|
|
|
|
1,919
|
|
|
|
1,919
|
|
|
|
2,123
|
|
|
|
Total
|
|
$
|
12,735
|
|
100
|
%
|
$
|
11,218
|
|
100
|
%
|
$
|
11,009
|
|
100
|
%
|
$
|
13,554
|
|
100
|
%
|
$
|
13,959
|
|
100
|
%
|
Asset Quality
The Company maintains a
watch list of commercial loans and reviews those loans on a regular basis.
Generally, assets are designated as watch list loans to ensure more frequent
monitoring. The assets are reviewed to ensure proper earning status and
management strategy. If it is determined that there is serious doubt as to
performance in accordance with original terms of the contract, then the loan is
placed on non accrual.
Loans, including impaired
loans under SFAS 114, but excluding consumer loans, are placed on non-accrual
status when the loans become past due 90 days or more as to principal or
interest, unless the loans are adequately secured and in the process of
collection. Past due status is based on how recently payments have been
received. When loans are placed on non-accrual status, all unpaid interest is
reversed from interest income and accrued interest receivable. These loans
remain on non-accrual status until the borrower demonstrates the ability to
become and remain current or the loan or a portion of the loan is deemed
uncollectible and is charged off.
Consumer loans, exclusive
of RALs, are not placed on non-accrual status but are reviewed periodically and
charged off when the loans reach 120 days past due or at any point the loan is
deemed uncollectible. RALs traditionally undergo a review in March of each
year and those deemed uncollectible are charged off against the allowance for
loan losses.
Total
non-performing loans to total loans increased to 0.40% at December 31,
2007, from 0.28% at December 31, 2006, while the total balance of
non-performing loans increased by $3.2 million for the same period. The
increase was substantially concentrated within the commercial real estate
category. Republic is generally well secured on its real estate loans and
management does not anticipate a substantial increase in losses resulting from
the current rise in the level of non-performing loans at this time.
Table 15
Non-performing Loans and Non-performing Assets
As of December 31,
(dollars in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on non-accrual status(1)
|
|
$
|
8,303
|
|
$
|
5,980
|
|
$
|
5,725
|
|
$
|
5,763
|
|
$
|
12,466
|
|
Loans past due
90 days or more and still on accrual
|
|
1,318
|
|
413
|
|
295
|
|
371
|
|
473
|
|
Total non-performing loans
|
|
9,621
|
|
6,393
|
|
6,020
|
|
6,134
|
|
12,939
|
|
Other real estate owned
|
|
795
|
|
547
|
|
452
|
|
657
|
|
|
|
Total non-performing assets
|
|
$
|
10,416
|
|
$
|
6,940
|
|
$
|
6,472
|
|
$
|
6,791
|
|
$
|
12,939
|
|
Non-performing loans to total loans
|
|
0.40
|
%
|
0.28
|
%
|
0.29
|
%
|
0.34
|
%
|
0.82
|
%
|
Non-performing assets to total loans
|
|
0.43
|
|
0.30
|
|
0.31
|
|
0.38
|
|
0.82
|
|
(1) Loans on
non-accrual status include impaired loans. See Footnote 4 Loans and Allowance
for Loan Losses of Item 8 Financial Statements and Supplementary Data for
additional discussion regarding impaired loans.
47
Interest income
that would have been recorded if non-accrual loans were on a current basis in
accordance with their original terms was $287,000, $354,000 and $268,000 in
2007, 2006 and 2005.
Republic defines impaired
loans to be those commercial loans that management has classified as doubtful
(collection of total amount due is improbable) or loss (all or a portion of the
loan has been written off or a specific allowance for loss has been provided)
or otherwise meet the definition of impaired. Republics policy is to charge
off all or that portion of its investment in an impaired loan upon a
determination that it is probable the full amount will not be collected. There
were no impaired loans at December 31, 2007 compared to $525,000 at December 31,
2006.
Deposits
Total deposits increased
$276 million from December 31, 2006 to December 31, 2007 to $2.0
billion. Interest-bearing deposits increased $276 million, or 19%, while non
interest-bearing deposits increased $431,000, or less than 1%, from December 31,
2006 to December 31, 2007. The increase in interest-bearing accounts
occurred primarily in the money market and brokered deposit categories, which
increased $137 million and $205 million, respectively.
Approximately $82 million
of the $137 million increase in money market accounts was attributable to one
relationship established during the third quarter of 2007. Management believes
this relationship will likely move a substantial majority of these funds from
the Bank when more favorable investment alternatives become available to the
customer. The additional increase in the money market category was also related
to successful marketing of the Companys Premier First business money market
account, which is the Banks primary Treasury Management product offering for
medium to large business customers.
Brokered deposits
increased $205 million during 2007 to $371 million. During the fourth quarter
of 2007, the Company acquired approximately $272 million in brokered deposits
to be utilized in the first quarter of 2008 to fund RALs. These deposits had a
weighted average cost of 4.68% with a final maturity of three months. During
their time outstanding before the RAL season began, the Company utilized the
cash from these brokered deposits to payoff overnight borrowings from the FHLB
resulting in a negative spread of approximately 75 basis points. Management
currently anticipates replacing these brokered deposits with FHLB advances when
the deposits mature during the first quarter of 2008.
Table 16
Deposits
Ending balances of all
deposit categories at December 31, 2007, follows:
December 31, (in
thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand (NOW and
SuperNOW)
|
|
$
|
197,949
|
|
$
|
197,225
|
|
$
|
262,714
|
|
$
|
304,264
|
|
$
|
271,022
|
|
Money market
accounts
|
|
635,590
|
|
498,943
|
|
322,421
|
|
256,175
|
|
194,353
|
|
Internet money
market accounts
|
|
10,521
|
|
18,135
|
|
33,864
|
|
45,076
|
|
96,034
|
|
Savings
|
|
30,362
|
|
37,690
|
|
43,548
|
|
41,080
|
|
35,735
|
|
Individual
retirement accounts
|
|
51,338
|
|
54,180
|
|
48,954
|
|
47,324
|
|
42,073
|
|
Certificates of
deposit, $100,000 and over
|
|
174,538
|
|
171,706
|
|
168,777
|
|
149,217
|
|
196,026
|
|
Other
certificates of deposit
|
|
217,670
|
|
269,828
|
|
282,609
|
|
266,547
|
|
203,893
|
|
Brokered
deposits
|
|
371,387
|
|
165,989
|
|
153,194
|
|
46,254
|
|
64,655
|
|
Total
interest-bearing deposits
|
|
1,689,355
|
|
1,413,696
|
|
1,316,081
|
|
1,155,937
|
|
1,103,791
|
|
Total non
interest-bearing deposits
|
|
279,457
|
|
279,026
|
|
286,484
|
|
261,993
|
|
193,321
|
|
Total
|
|
$
|
1,968,812
|
|
$
|
1,692,722
|
|
$
|
1,602,565
|
|
$
|
1,417,930
|
|
$
|
1,297,112
|
|
48
Table 17 Average Deposits
Ending average balances of all deposits and the average rates paid on
such deposits for the years indicated follows:
|
|
2007
|
|
2006
|
|
2005
|
|
December 31, (in thousands)
|
|
Average
Balance
|
|
Average
Rate
|
|
Average
Balance
|
|
Average
Rate
|
|
Average
Balance
|
|
Average
Rate
|
|
Transaction accounts
|
|
$
|
222,501
|
|
0.72
|
%
|
$
|
253,798
|
|
0.83
|
%
|
$
|
320,506
|
|
0.99
|
%
|
Money market
accounts
|
|
597,832
|
|
4.10
|
|
424,431
|
|
3.78
|
|
316,938
|
|
2.42
|
|
Time deposits
|
|
476,906
|
|
4.46
|
|
478,837
|
|
3.92
|
|
483,403
|
|
3.44
|
|
Brokered
deposits
|
|
144,144
|
|
5.07
|
|
166,930
|
|
4.43
|
|
124,470
|
|
3.42
|
|
Total
interest-bearing deposits
|
|
1,441,383
|
|
3.80
|
|
1,323,996
|
|
3.34
|
|
1,245,317
|
|
2.55
|
|
Total non
interest-bearing deposits
|
|
281,926
|
|
|
|
285,877
|
|
|
|
290,968
|
|
|
|
Total
|
|
$
|
1,723,309
|
|
|
|
$
|
1,609,873
|
|
|
|
$
|
1,536,285
|
|
|
|
Table 18 Time Deposits Maturities
Maturities of time deposits of $100,000 or more outstanding at December
31, 2007 follows:
(in thousands)
|
|
Amount
|
|
|
|
|
|
Three
months or less
|
|
$
|
55,850
|
|
Over
three months through six months
|
|
37,466
|
|
Over
six months through twelve months
|
|
38,981
|
|
Over 12
months
|
|
42,241
|
|
Total
time deposits
|
|
174,538
|
|
|
|
|
|
|
Securities Sold Under Agreements to Repurchase and Other Short-term
Borrowings
Securities sold under agreements to repurchase and other short-term
borrowings declined $4 million during 2007. The majority of the repurchase
accounts are large treasury management transaction relationships, which require
security collateral on their accounts. The substantial majority of these
accounts are indexed to immediately repricing indices such as the Federal Funds
target rate. Based on the transactional nature of the Companys treasury
management accounts, repurchase agreement balances are subject to large
fluctuations on a daily basis.
Table 19 Securities sold under agreements to repurchase
Information regarding
Securities sold under agreements to repurchase follows:
Years ended December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Outstanding
balance at end of year
|
|
$
|
398,296
|
|
$
|
401,886
|
|
$
|
292,259
|
|
Weighted average
interest at year end
|
|
3.40
|
%
|
4.52
|
%
|
3.59
|
%
|
Average
outstanding balance during the year
|
|
$
|
433,809
|
|
$
|
374,937
|
|
$
|
359,327
|
|
Average interest
rate during the year
|
|
4.40
|
%
|
4.24
|
%
|
2.76
|
%
|
Maximum
outstanding at any month end
|
|
$
|
493,838
|
|
$
|
403,003
|
|
$
|
384,147
|
|
Federal Home Loan Bank Advances
FHLB advances decreased $168 million during 2007 to $479 million. The
decrease occurred as the Company utilized excess cash from the previously
mentioned brokered deposits acquired to reduce overnight borrowings at the FHLB.
Management currently anticipates replacing the previously mentioned brokered
deposits with FHLB advances when the deposits mature during the first quarter
of 2008.
Approximately $150 million of the FHLB advances at December 31, 2007
are putable advances with original fixed rate periods ranging from one to five
years and original maturities ranging from three to ten years. To moderate the
continued contraction on its margin, during March of 2007 the Company
refinanced $100 million in overnight borrowings from the FHLB with an
approximate cost of 5.25% into a 10-year fixed rate advance with a 3-year put
option at an average cost of 4.39%. At the end of the three year period, the
FHLB has the right to require the Company to pay off the advances. The weighted
average coupon on all of the Companys putable advances at December 31, 2007
was 4.51%. Based on market
49
conditions at this time, management does not believe that any of its
putable advances are likely to be put back to the Company in the short-term by
the FHLB.
Liquidity
The Company is
highly leveraged and had a loan to deposit ratio of 122% at December 31, 2007. Traditionally, the Company has utilized secured
and unsecured borrowing lines to supplement its funding requirements. At
December 31, 2007, Republic had available collateral to borrow an additional
$545 million from the FHLB. Management currently anticipates replacing
approximately $272 million in brokered CDs maturing in the first quarter of
2008 with FHLB advances. In addition to its borrowing line with the FHLB,
Republic also had unsecured lines of credit totaling $227 million available
through various other financial institutions. If the Company were to lose a
significant funding source, such as a few major depositors, or any of its lines
of credit were canceled, or if the Company cannot obtain brokered CDs, the
Company would be forced to offer above market deposit interest rates to raise
funding.
Republic maintains
sufficient liquidity to fund routine loan demand and routine deposit withdrawal
activity. Liquidity is managed by maintaining sufficient liquid assets in the
form of investment securities. Funding and cash flows can also be realized by
the sale of securities available for sale, principal paydowns on loans and MBSs
and proceeds realized from loans held for sale. The Companys liquidity is
impacted by its ability to sell certain securities, which is limited due to the
level of securities that are needed to secure public deposits, securities sold
under agreements to repurchase and for other purposes, as required by law. At
December 31, 2007, these securities had a fair market value of $520 million.
Republics banking centers and its website, www.republicbank.com, provide
access to retail deposit markets. These retail deposit products, if offered at
attractive rates, have historically been a source of additional funding when
needed. In addition, brokered deposits have provided a source of liquidity to
the Company when needed to fund loan growth or TRS RAL volume.
Currently, the Company has approximately $343 million in Premier First
money market accounts, which is the Banks primary product offering for
medium to large business customers. These accounts do not require collateral by
the Company and as such, cash from these accounts can be utilized to fund the
loan portfolio. The 25 largest Premier first relationships represent approximately
$200 million of the total balance. If any of these balances are moved from the
Bank, the Company would likely utilize overnight borrowings in the short-term
to replace the balances. Management believes that at least one relationship
with $82 million in balances at year end 2007 will likely move a substantial
majority of these funds away from the Bank when more favorable investment
alternatives become available to the client. On a longer-term basis, the
Company would most likely utilize brokered deposits to replace the balances.
Based on past experience with brokered deposits, management believes it can
quickly obtain brokered deposits if needed. The overall cost of gathering
brokered deposits, however, could be substantially higher than the deposits
they replace, potentially decreasing the Companys earnings.
The Companys liquidity risk is increased significantly during the
first quarter of each year due to the RAL program. The Company has committed to
its electronic filers and tax-preparer base that it will make RALs available to
their customers under the terms of its contracts with them. This requires the
Company to estimate liquidity needs for the RAL program well in advance of the
tax season. If management materially overestimates the need for liquidity
during the tax season, a significant expense could be incurred with no
offsetting revenue stream. If management materially underestimates the need for
liquidity during the tax season, the Bank could experience a significant
shortfall of cash needed to fund RALs and could potentially be required to stop
originating new RALs.
In addition to the new business expected through the Jackson Hewitt
relationship, the Company also expects significant growth through its
independent tax-preparer customer base as well. The Company expects its 2008
RAL program to require significantly more liquidity than in prior tax seasons.
Management will utilize a securitization structure once again in 2008 to fund a
significant portion of the RAL portfolio. Brokered deposits will be utilized to
fund all RALs not funded through the securitization structure.
The Parent Companys principal source of funds for dividend payments
are dividends received from RB&T. Federal and state regulations limit the
amount of dividends that may be paid to the Parent Company by the Bank without
prior approval of the respective banking regulators. Under these regulations,
the amount of dividends that may be paid in any calendar year is limited to the
current years net profits, combined with the retained net profits of the
preceding two years. At December 31, 2007, RB&T could, without prior
approval, declare dividends of approximately $61 million. The Company does not
plan to pay dividends from its Florida subsidiary, Republic Bank, in the
foreseeable future.
See Part I Item 1A Risk Factors for additional discussion regarding
liquidity risk related to TRS and the RAL securitization.
50
Capital
Table 20 Capital
Information pertaining to the Companys capital balances and ratios
follows:
Years ended December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Stockholders
equity
|
|
$
|
248,860
|
|
$
|
237,348
|
|
$
|
213,574
|
|
Dividends per
share Class A Common Stock
|
|
0.424
|
|
0.363
|
|
0.306
|
|
Dividends per
share Class B Common Stock
|
|
0.386
|
|
0.330
|
|
0.278
|
|
Tier I leverage
|
|
8.75
|
%
|
8.92
|
%
|
9.47
|
%
|
Tier I risk
based capital
|
|
13.29
|
|
13.73
|
|
14.41
|
|
Total risk based
capital
|
|
13.90
|
|
14.30
|
|
15.03
|
|
Dividend payout
ratio
|
|
35
|
|
26
|
|
18
|
|
Total equity to
total assets
|
|
7.86
|
|
7.79
|
|
7.81
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity increased from $237 million at December 31,
2006 to $249 million at December 31, 2007. The increase in stockholders equity
was primarily attributable to net income earned during 2007 reduced by cash
dividends declared and the repurchase of shares of the Companys common stock
and the change in unrealized position of securities available for sale.
During 2007, the Company purchased 527,000 shares of common stock for
$9.3 million, an average of $17.68 per share. During May of 2007, the Companys
Board of Directors also approved the repurchase of an additional 300,000 shares
from time-to-time if market conditions are deemed favorable to the Company. The
repurchase program will remain effective until the number of shares authorized
is repurchased or until Republics Board of Directors terminates the program.
As of December 31, 2007, the Company had 103,053 shares which could be
repurchased under the current stock repurchase program.
See Part
III, Item 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters for additional detail regarding stock
repurchases and buy back programs.
Regulatory Capital Requirements The Parent
Company and the Bank are subject to various regulatory capital requirements
administered by banking regulators. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on Republics financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Parent Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Companys assets, liabilities and certain off
balance sheet items, as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Banking regulators
have categorized the Bank as well-capitalized. To be categorized as
well-capitalized, the Bank must maintain minimum Total Risk Based, Tier I Capital
and Tier I Leverage ratios. Regulatory agencies measure capital adequacy within
a framework that makes capital requirements, in part, dependent on the
individual risk profiles of financial institutions. Republic continues to
exceed the regulatory requirements for Total Risk Based Capital, Tier I Capital
and Tier I Leverage. Republic and the Bank intend to maintain a capital position
that meets or exceeds the well-capitalized requirements as defined by the
Federal Reserve and FDIC. Republics average capital to average assets ratio was
7.86% at December 31, 2007 compared to 7.90% at December 31, 2006. Formal
measurements of the capital ratios for Republic and the Bank are performed by management
at each quarter end.
In 2004, the
Company executed an intragroup trust preferred transaction, with the purpose of
providing RB&T access to additional capital markets, if needed, in the
future. On a consolidated basis, this transaction has had no impact on the
capital levels and ratios of the Company. The subordinated debentures held by RB&T,
as a result of this transaction, however, are treated as Tier 2 capital based
on requirements administered by the Banks federal banking agency. If RB&Ts
Tier I capital ratios should not meet the minimum requirement to be
well-capitalized, the Company could immediately modify the transaction in order
to maintain its well-capitalized status.
In 2005, Republic
Bancorp Capital Trust (RBCT), an unconsolidated trust subsidiary of Republic
Bancorp, Inc., was formed and issued $40 million in Trust Preferred Securities
(TPS). The TPS pay a fixed interest rate for 10 years and adjust with LIBOR
thereafter. The TPS mature on September 30, 2035 and are redeemable at the
Companys option after ten years. The subordinated debentures are treated as
Tier I Capital for regulatory purposes. The sole asset of RBCT represents the
proceeds of the offering loaned to Republic Bancorp, Inc. in exchange for
subordinated debentures which have terms that are similar to
51
the TPS. The
subordinated debentures and the related interest expense, which are payable
quarterly at the annual rate of 6.015%, are included in the consolidated
financial statements. The proceeds obtained from the TPS offering have been and
will continue to be utilized to fund loan growth, support an existing stock
repurchase program and for other general business purposes including stock
repurchases and the acquisition of GulfStream in October of 2006.
Off Balance Sheet Items
Summarized credit-related
financial instruments, including both commitments to extend credit and letters
of credit at December 31, 2007 follows:
Table 21 Off Balance Sheet Items
|
|
Maturity by Period
|
|
December 31, 2007 (in thousands)
|
|
Less than
one year
|
|
Greater
than one
year to
three years
|
|
Greater than
three years to
five years
|
|
Greater
than five
years
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused
loan commitments
|
|
$
|
91,957
|
|
$
|
66,410
|
|
$
|
7,142
|
|
$
|
321,544
|
|
$
|
487,053
|
|
Standby
letters of credit
|
|
11,638
|
|
14,832
|
|
11,100
|
|
220
|
|
37,790
|
|
FHLB
letters of credit
|
|
12,194
|
|
|
|
|
|
|
|
12,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Some of the unused
commitments above are expected to expire or may not be fully used, therefore the
total amount of commitments above does not necessarily represent future cash
requirements.
Standby letters of
credit are conditional commitments issued by Republic to guarantee the
performance of a customer to a third party. The terms and risk of loss involved
in issuing standby letters of credit are similar to those involved in issuing
loan commitments and extending credit. Commitments outstanding under standby
letters of credit totaled $38 million at December 31, 2007 and $9 million at
December 31, 2006. Approximately $14 million of the increase during 2007
relates to a single letter of credit that originated during the second quarter
of 2007. In addition to credit risk, the Company also has liquidity risk
associated with standby letters of credit because funding for these obligations
could be required immediately. The Company does not deem this risk to be
material.
At December 31,
2007, Republic had $12 million in letters of credit from the FHLB used as
credit enhancements for customer bond offerings. At December 31, 2006, Republic
had $72 million in letters of credit from the FHLB issued on behalf of the Banks
customers with $12 million used as credit enhancements for customer bond
offerings. The remaining $60 million related to a letter of credit used to
collateralize a public funds deposit, which the Company classified in
short-term borrowings at March 31, 2007 and December 31, 2006. These letters of
credit reduce or served to reduce Republics available borrowing line at the
FHLB by the amount of the letters of credit. Republic uses a blanket pledge of
eligible real estate loans to secure the letters of credit.
Commitments to
extend credit generally consist of unfunded lines of credit. These commitments
generally have variable rates of interest.
Aggregate
Contractual Obligations
In addition to owned banking facilities, the Bank has entered into
long-term leasing arrangements to support the ongoing activities of the
Company. The Bank also has required future payments for long-term and
short-term debt as well as the maturity of time deposits. The required payments
under such commitments at December 31, 2007 follows:
52
Table 22 Aggregate Contractual
Obligations
|
|
Maturity by Period
|
|
December 31, 2007 (in thousands)
|
|
Less than
one year
|
|
Greater
than one
year to
three years
|
|
Greater than
three years to
five years
|
|
Greater
than five
years
|
|
Total
|
|
Time deposits
|
|
$
|
636,797
|
|
$
|
146,060
|
|
$
|
31,972
|
|
$
|
104
|
|
$
|
814,933
|
|
Federal
Home Loan Bank advances
|
|
173,500
|
|
149,570
|
|
50,000
|
|
105,480
|
|
478,550
|
|
Subordinated note
|
|
|
|
|
|
|
|
41,240
|
|
41,240
|
|
Securities
sold under agreements to repurchase
|
|
391,612
|
|
6,684
|
|
|
|
|
|
398,296
|
|
FASB
Interpretation No. 48 settlements
|
|
450
|
|
|
|
|
|
|
|
450
|
|
Lease commitments
|
|
4,993
|
|
8,932
|
|
5,066
|
|
11,468
|
|
30,459
|
|
Total
|
|
$
|
1,207,352
|
|
$
|
311,246
|
|
$
|
87,038
|
|
$
|
158,292
|
|
$
|
1,763,928
|
|
FHLB advances represent the amounts that are due to the FHLB. A portion
of the advances from the FHLB, although fixed, are subject to conversion
provisions at the option of the FHLB and can be prepaid without a penalty. Management
believes these advances will not likely be converted in the short-term, and
therefore has included the advances in their original maturity buckets for
purposes of this table.
See Footnote 12 Subordinated Note of
Item 8 Financial Statements and Supplementary Data
for further information regarding the subordinated note.
Securities sold under agreements to repurchase generally have
indeterminate maturity periods and are predominantly included in the less than
one year category above.
Lease commitments represent the total minimum lease payments under non
cancelable operating leases.
Asset/Liability Management and Market Risk
Asset/liability
management control is designed to ensure safety and soundness, maintain
liquidity and regulatory capital standards and achieve acceptable net interest
income. Interest rate risk is the exposure to adverse changes in net interest
income as a result of market fluctuations in interest rates. Management, on an
ongoing basis, monitors interest rate and liquidity risk in order to implement
appropriate funding and balance sheet strategies. Management considers interest
rate risk to be Republics most significant market risk.
The interest sensitivity profile of Republic at
any point in time will be affected by a number of factors. These factors
include the mix of interest sensitive assets and liabilities, as well as their
relative pricing schedules. It is also influenced by market interest rates,
deposit growth, loan growth and other factors.
Republic utilizes an
earnings simulation model to analyze net interest income sensitivity. Potential
changes in market interest rates and their subsequent effects on net interest
income are evaluated with the model. The model projects the effect of
instantaneous movements in interest rates of both 100 and 200 basis point
increments equally across all points on the yield curve. These projections are
computed based on various assumptions, which are used to determine the 100 and
200 basis point increments, as well as the base case (which is a twelve month
projected amount) scenario. Assumptions based on growth expectations and on the
historical behavior of Republics deposit and loan rates and their related
balances in relation to changes in interest rates are also incorporated into
the model. These assumptions are inherently uncertain and, as a result, the
model cannot precisely measure future net interest income or precisely predict
the impact of fluctuations in market interest rates on net interest income.
Actual results will differ from the models simulated results due to timing,
magnitude and frequency of interest rate changes, as well as changes in market
conditions and the application and timing of various management strategies.
Additionally, actual results could differ materially from the model if interest
rates do not move equally across all points on the yield curve. As with the
Companys previous simulation models, the December 31, 2007 simulation analysis
continues to indicate that an increase in interest rates would generally have a
negative effect on net interest income and a decrease in interest rates would
generally have a positive impact on net interest income. As the Company has
continued to implement strategies to mitigate the negative impact of rising
interest rates, these strategies have lessened the positive impact from
lowering interest rates.
53
The following tables illustrate Republics
projected net interest income sensitivity profile based on the asset/liability
model as of December 31, 2007 and 2006:
Table 23 Interest Rate Sensitivity for 2007
|
|
Decrease in Rates
|
|
|
|
Increase in Rates
|
|
(dollars in thousands)
|
|
200
Basis Points
|
|
100
Basis Points
|
|
Base
|
|
100
Basis Points
|
|
200
Basis Points
|
|
Projected
interest income:
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$
|
169
|
|
$
|
220
|
|
$
|
305
|
|
$
|
368
|
|
$
|
428
|
|
Investments
|
|
23,051
|
|
26,223
|
|
29,043
|
|
31,170
|
|
32,566
|
|
Loans,
excluding fees (1)
|
|
142,018
|
|
154,059
|
|
164,175
|
|
173,970
|
|
183,067
|
|
Total
interest income, excluding loan fees
|
|
165,238
|
|
180,502
|
|
193,523
|
|
205,508
|
|
216,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
39,243
|
|
47,122
|
|
54,847
|
|
63,906
|
|
72,814
|
|
Securities
sold under agreements to repurchase
|
|
12,004
|
|
15,413
|
|
18,724
|
|
22,628
|
|
26,565
|
|
Federal
Home Loan Bank advances
|
|
22,331
|
|
24,962
|
|
27,218
|
|
30,283
|
|
33,447
|
|
Total
interest expense
|
|
73,578
|
|
87,497
|
|
100,789
|
|
116,817
|
|
132,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income, excluding loan fees
|
|
$
|
91,660
|
|
$
|
93,005
|
|
$
|
92,734
|
|
$
|
88,691
|
|
$
|
83,235
|
|
Change
from base
|
|
$
|
(1,074
|
)
|
$
|
271
|
|
|
|
$
|
(4,043
|
)
|
$
|
(9,499
|
)
|
%
Change from base
|
|
(1.16
|
)%
|
0.29
|
%
|
|
|
(4.36
|
)%
|
(10.24
|
)%
|
Table
24 - Interest Rate Sensitivity for 2006
|
|
Decrease in Rates
|
|
|
|
Increase in Rates
|
|
(dollars in thousands)
|
|
200
Basis Points
|
|
100
Basis Points
|
|
Base
|
|
100
Basis Points
|
|
200
Basis Points
|
|
Projected
interest income:
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$
|
1,243
|
|
$
|
1,521
|
|
$
|
1,826
|
|
$
|
2,005
|
|
$
|
2,315
|
|
Investments
|
|
23,918
|
|
28,418
|
|
30,741
|
|
36,167
|
|
39,830
|
|
Loans, excluding
fees (1)
|
|
143,659
|
|
151,980
|
|
159,060
|
|
166,494
|
|
173,574
|
|
Total interest
income, excluding loan fees
|
|
168,820
|
|
181,919
|
|
191,627
|
|
204,666
|
|
215,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
40,061
|
|
46,471
|
|
52,827
|
|
60,939
|
|
69,296
|
|
Securities sold
under agreements to repurchase
|
|
12,615
|
|
16,071
|
|
19,525
|
|
23,649
|
|
27,772
|
|
Federal Home
Loan Bank advances
|
|
27,098
|
|
30,044
|
|
32,231
|
|
36,739
|
|
40,121
|
|
Total interest
expense
|
|
79,774
|
|
92,586
|
|
104,583
|
|
121,327
|
|
137,189
|
|
Net interest
income, excluding loan fees
|
|
$
|
89,046
|
|
$
|
89,333
|
|
$
|
87,044
|
|
$
|
83,339
|
|
$
|
78,530
|
|
Change from base
|
|
$
|
2,002
|
|
$
|
2,289
|
|
|
|
$
|
(3,705
|
)
|
$
|
(8,514
|
)
|
% Change from
base
|
|
2.30
|
%
|
2.63
|
%
|
|
|
(4.26
|
)%
|
(9.78
|
)%
|
(1) - The tables above do not
consider the effects of increasing and decreasing interest rates on RALs, which
are fee based and occurs substantially all in the first quarter of the year.
54
Recently Issued Accounting Pronouncements
In February 2006, the FASB issued SFAS 155, Accounting
for Certain Hybrid Financial Instruments, which permits fair value
remeasurement for hybrid financial instruments that contain an embedded
derivative that otherwise would require bifurcation. Additionally, SFAS 155
clarifies the accounting guidance for beneficial interests in securitizations.
Under SFAS 155, all beneficial interests in a securitization will require an
assessment in accordance with SFAS 133 to determine if an embedded derivative
exists within the instrument. In January 2007, the FASB issued Derivatives
Implementation Group (DIG) Issue B40, Application of Paragraph 13(b) to
Securitized Interests in Prepayable Financial Assets. DIG Issue B40 provides an
exemption from the embedded derivative test of paragraph 13(b) of SFAS 133 for
instruments that would otherwise require bifurcation if the test is met solely
because of a prepayment feature included within the securitized interest and
prepayment is not controlled by the security holder. SFAS 155 and DIG Issue B40
are effective for fiscal years beginning after September 15, 2006. The adoption
of SFAS 155 and DIG Issue B40 did not have a material impact on the Company's
consolidated financial position or results of operations.
In September 2006,
the FASB Emerging Issues Task Force (EITF) finalized Issue No. 06-10, Accounting for Collateral
Assignment Split-Dollar Life Insurance Arrangements.
This issue requires that a liability be recorded during the service period when
a split-dollar life insurance agreement continues after participants
employment or retirement. The required accrued liability will be based on
either the post-employment benefit cost for the continuing life insurance or
based on the future death benefit depending on the contractual terms of the
underlying agreement. This issue is effective for fiscal years beginning after
December 15, 2007. The adoption of this statement is not expected to have a
material impact on the Companys consolidated financial position or results of
operations.
In September 2006, the FASB EITF finalized Issue No. 06-5, Accounting for Purchases of Life Insurance - Determining the Amount
That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4
(Accounting for Purchases of Life Insurance). This issue requires
that a policyholder consider contractual terms of a life insurance policy in
determining the amount that could be realized under the insurance contract. It
also requires that if the contract provides for a greater surrender value if
all individual policies in a group are surrendered at the same time; that the surrender
value be determined based on the assumption that policies will be surrendered
on an individual basis. Lastly, the issue discusses whether the cash surrender
value should be discounted when the policyholder is contractually limited in
its ability to surrender a policy. This issue was effective for fiscal years
beginning after December 15, 2006. The adoption of this EITF did not have a
material impact upon the Company.
In September 2006,
the FASB issued SFAS 157, Fair Value Measurements.
This Statement defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. This Statement
establishes a fair value hierarchy about the assumptions used to measure fair
value and clarifies assumptions about risk and the effect of a restriction on
the sale or use of an asset. The standard is effective for fiscal years beginning
after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP)
157-2, Effective Date of SFAS 157. This FSP delays
the effective date of FAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after November
15, 2008, and interim periods within those fiscal years. The Company did not
elect to early adopt this standard, and as such, it will apply beginning
January 1, 2008.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial Liabilities. The
standard provides companies with an option to report selected financial assets
and liabilities at fair value and establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and liabilities. The
new standard is effective for the Company on January 1, 2008. The Company
elected the fair value option for all loans held for sale originated after
December 31, 2007.
On November 5, 2007, the SEC issued Staff Accounting Bulletin (SAB) No.
109, Written Loan Commitments Recorded at Fair Value
through Earnings. Previously, SAB 105, Application
of Accounting Principles to Loan Commitments, stated that in
measuring the fair value of a derivative loan commitment, a company should not
incorporate the expected net future cash flows related to the associated
servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the
expected net future cash flows related to the associated servicing of the loan
should be included in measuring fair value for all written loan commitments
that are accounted for at fair value through earnings. SAB 105 also indicated
that internally-developed intangible assets should not be recorded as part of
the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB
109 is effective for derivative loan commitments issued or modified in fiscal
quarters beginning after December 15, 2007. Adoption of SAB 109 will
effectively accelerate the recognition of approximately $300,000 in mortgage
banking revenue for the first quarter of 2008 with minimal impact on mortgage
banking revenue in subsequent quarters.
55
Item 7A
Quantitative and Qualitative Disclosures About Market Risk.
See the section titled Asset/Liability Management and Market Risk included under
Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Item 8. Financial Statements and Supplementary Data.
The following are included in this section:
Managements Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Financial
Statements
Consolidated balance sheets December 31, 2007 and 2006
Consolidated statements of income and comprehensive income years
ended December 31, 2007, 2006 and 2005
Consolidated statements of stockholders equity years ended December
31, 2007, 2006 and 2005
Consolidated statements of cash flows years ended December 31, 2007,
2006 and 2005
Footnotes to consolidated financial statements
56
MANAGEMENTS REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
The Management of Republic Bancorp, Inc. (the Company) is responsible
for the preparation, integrity, and fair presentation of the Companys annual
consolidated financial statements. All information has been prepared in
accordance with U.S. generally accepted accounting principles and, as such,
includes certain amounts that are based on Managements best estimates and
judgments.
Management is responsible for establishing and maintaining adequate
internal control over financial reporting presented in conformity with U.S.
generally accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the Companys assets that could have a material effect on the financial
statements.
Two of the objectives of internal control are to provide reasonable
assurance to Management and the Board of Directors that transactions are
properly authorized and recorded in the Companys financial records, and that
the preparation of the Companys financial statements and other financial
reporting is done in accordance with U.S. generally accepted accounting
principles.
Management has made its own assessment of the effectiveness of the
Companys internal control over financial reporting as of December 31, 2007, in
relation to the criteria described in the report, Internal
Control Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on its
assessment, Management concludes that as of December 31, 2007, the Companys
internal control over financial reporting is effective based on those criteria.
There are inherent limitations in the effectiveness of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even effective internal control can
provide only reasonable assurance with respect to reliability of financial
statements. Furthermore, internal control can vary with changes in
circumstances. Based on its assessment, Management believes that as of December
31, 2007, the Companys internal control was effective in achieving the
objectives stated above. Crowe Chizek and Company LLC has provided its report
of this assessment in a separate report dated March 12, 2008.
|
Bernard M. Trager
Chairman of the Board
|
Steven E. Trager
President and
Chief Executive Officer
|
Kevin Sipes
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
|
March 12, 2008
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We have audited Republic
Bancorp, Inc.s internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Republic Bancorp Inc.s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our
audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A companys
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.
Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion,
Republic Bancorp, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Republic
Bancorp, Inc as of December 31, 2007 and 2006 and the related consolidated
statements of income and comprehensive income, stockholders equity, and cash
flows for each of the three years in the period ended December 31, 2007 and our
report dated March 12, 2008 expressed an unqualified opinion on those
consolidated financial statements.
Louisville, Kentucky
March 12, 2008
58
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS
Board of Directors and Stockholders
of
Republic Bancorp, Inc.
We
have audited the accompanying consolidated balance sheets of Republic Bancorp,
Inc. as of December 31, 2007 and 2006 and the related consolidated statements
of income and comprehensive income, stockholders equity and cash flows for
each of the three years in the period ended December 31, 2007. These financial
statements are the responsibility of Republics management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Republic
Bancorp, Inc. as of December 31, 2007 and 2006 and the results of its
operations and cash flows for each of the three years in the period ended
December 31, 2007, in conformity with U.S. generally accepted accounting
principles.
We also have audited,
in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Republic Bancorp, Inc.s internal control
over financial reporting as of December 31, 2007, based on criteria established
in Internal Control Integrated Framework issued by the Committee of
Sponsoring organizations of the Treadway Commission (COSO) and our report dated
March 12, 2008 expressed an unqualified opinion thereon.
Louisville, Kentucky
March
12, 2008
59
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (in thousands, except
share data)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
86,177
|
|
$
|
81,613
|
|
Trading securities
|
|
|
|
|
|
Securities available for sale
|
|
528,750
|
|
503,727
|
|
Securities to be held to maturity (fair value
$52,794 in 2007 and $58,824 in 2006)
|
|
51,886
|
|
58,045
|
|
Mortgage loans held for sale
|
|
4,278
|
|
5,724
|
|
Loans, net of allowance for loan losses of $12,735
and $11,218 (2007 and 2006)
|
|
2,384,338
|
|
2,287,670
|
|
Federal Home Loan Bank stock, at cost
|
|
23,955
|
|
23,111
|
|
Premises and equipment, net
|
|
39,706
|
|
36,560
|
|
Goodwill
|
|
10,168
|
|
10,016
|
|
Other assets and accrued interest receivable
|
|
36,101
|
|
40,321
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
3,165,359
|
|
$
|
3,046,787
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Non
interest-bearing
|
|
$
|
279,457
|
|
$
|
279,026
|
|
Interest-bearing
|
|
1,689,355
|
|
1,413,696
|
|
Total deposits
|
|
1,968,812
|
|
1,692,722
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase and
other short-term borrowings
|
|
398,296
|
|
401,886
|
|
Federal Home Loan Bank advances
|
|
478,550
|
|
646,572
|
|
Subordinated note
|
|
41,240
|
|
41,240
|
|
Other liabilities and accrued interest payable
|
|
29,601
|
|
27,019
|
|
|
|
|
|
|
|
Total liabilities
|
|
2,916,499
|
|
2,809,439
|
|
|
|
|
|
|
|
Commitments and contingencies (footnote 19)
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock,
no par value, 100,000 shares authorized Series A 8.5% non cumulative
convertible, none issued
|
|
|
|
|
|
Class A
Common Stock, no par value, 30,000,000 shares authorized, 18,001,283 shares
(2007) and 18,336,946 shares (2006) issued, 17,952,400 shares (2007) and
18,241,777 shares (2006) outstanding; Class B Common Stock, no par
value, 5,000,000 shares authorized, 2,343,637 shares (2007) and 2,350,468
shares (2006) issued and outstanding
|
|
4,821
|
|
4,683
|
|
Additional paid in capital
|
|
119,761
|
|
97,394
|
|
Retained earnings
|
|
124,616
|
|
137,673
|
|
Unearned shares in Employee Stock Ownership Plan
|
|
(519
|
)
|
(1,011
|
)
|
Accumulated other comprehensive income (loss)
|
|
181
|
|
(1,391
|
)
|
|
|
|
|
|
|
Total stockholders equity
|
|
248,860
|
|
237,348
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
3,165,359
|
|
$
|
3,046,787
|
|
See accompanying
footnotes to consolidated financial statements.
60
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS
ENDED DECEMBER 31, (in thousands, except per
share data)
|
|
2007
|
|
2006
|
|
2005
|
|
INTEREST
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including
fees
|
|
$
|
166,942
|
|
$
|
150,937
|
|
$
|
127,029
|
|
Taxable
securities
|
|
29,518
|
|
22,952
|
|
18,568
|
|
Tax exempt
securities
|
|
103
|
|
96
|
|
|
|
Federal Home
Loan Bank stock and other
|
|
2,534
|
|
2,555
|
|
2,482
|
|
Total interest
income
|
|
199,097
|
|
176,540
|
|
148,079
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
54,702
|
|
44,274
|
|
31,703
|
|
Securities sold
under agreements to repurchase and other short-term borrowings
|
|
19,079
|
|
15,889
|
|
9,906
|
|
Federal Home
Loan Bank advances
|
|
28,323
|
|
25,564
|
|
19,872
|
|
Subordinated
note
|
|
2,515
|
|
2,515
|
|
951
|
|
Total interest
expense
|
|
104,619
|
|
88,242
|
|
62,432
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
94,478
|
|
88,298
|
|
85,647
|
|
|
|
|
|
|
|
|
|
Provision for
loan losses
|
|
6,820
|
|
2,302
|
|
340
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
87,658
|
|
85,996
|
|
85,307
|
|
|
|
|
|
|
|
|
|
NON
INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges
on deposit accounts
|
|
18,577
|
|
16,505
|
|
13,851
|
|
Electronic
refund check fees
|
|
4,189
|
|
4,102
|
|
6,083
|
|
Net RAL
securitization income
|
|
3,772
|
|
2,771
|
|
|
|
Mortgage banking
income
|
|
2,973
|
|
2,316
|
|
2,751
|
|
Debit card
interchange fee income
|
|
4,387
|
|
3,644
|
|
3,122
|
|
Title insurance
commissions
|
|
296
|
|
762
|
|
1,756
|
|
Gain on sale of
securities
|
|
8
|
|
300
|
|
|
|
Insurance
settlement gain
|
|
1,877
|
|
|
|
|
|
Other
|
|
1,713
|
|
1,300
|
|
1,244
|
|
Total non
interest income
|
|
37,792
|
|
31,700
|
|
28,807
|
|
|
|
|
|
|
|
|
|
NON
INTEREST EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
employee benefits
|
|
44,162
|
|
40,412
|
|
36,731
|
|
Occupancy and
equipment, net
|
|
17,904
|
|
15,541
|
|
13,654
|
|
Communication
and transportation
|
|
3,785
|
|
2,750
|
|
3,000
|
|
Marketing and
development
|
|
3,287
|
|
2,459
|
|
2,489
|
|
Bank franchise
tax expense
|
|
2,552
|
|
1,902
|
|
1,822
|
|
Data processing
|
|
2,675
|
|
2,171
|
|
1,871
|
|
Debit card
interchange expense
|
|
2,263
|
|
1,663
|
|
1,357
|
|
Supplies
|
|
1,749
|
|
1,271
|
|
1,133
|
|
Other
|
|
8,879
|
|
6,693
|
|
6,455
|
|
Total non
interest expenses
|
|
87,256
|
|
74,862
|
|
68,512
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
61
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
|
|
$
|
38,194
|
|
$
|
42,834
|
|
$
|
45,602
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE FROM CONTINUING OPERATIONS
|
|
13,281
|
|
14,718
|
|
15,524
|
|
|
|
|
|
|
|
|
|
INCOME
FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS,NET OF INCOME TAX
EXPENSE
|
|
24,913
|
|
28,116
|
|
30,078
|
|
|
|
|
|
|
|
|
|
INCOME
FROM DISCONTINUED OPERATIONS BEFORE INCOME TAX EXPENSE
|
|
|
|
359
|
|
7,561
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE FROM DISCONTINUED OPERATIONS
|
|
|
|
124
|
|
2,574
|
|
|
|
|
|
|
|
|
|
INCOME
FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX EXPENSE
|
|
|
|
235
|
|
4,987
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
24,913
|
|
$
|
28,351
|
|
$
|
35,065
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME, NET OF TAX:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on securities available for sale
|
|
$
|
1,577
|
|
$
|
1,913
|
|
$
|
(2,625
|
)
|
Less:
Reclassification of realized amount
|
|
5
|
|
195
|
|
|
|
Net unrealized
gain (loss) recognized in comprehensive income
|
|
1,572
|
|
1,718
|
|
(2,625
|
)
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME
|
|
$
|
26,485
|
|
$
|
30,069
|
|
$
|
32,440
|
|
(continued)
62
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE FROM CONTINUING
OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
$
|
1.22
|
|
$
|
1.38
|
|
$
|
1.46
|
|
Class B
Common Stock
|
|
1.18
|
|
1.35
|
|
1.43
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE FROM DISCONTINUED
OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
$
|
0.00
|
|
$
|
0.01
|
|
$
|
0.24
|
|
Class B
Common Stock
|
|
0.00
|
|
0.00
|
|
0.24
|
|
|
|
|
|
|
|
|
|
BASIC
EARNINGS PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
$
|
1.22
|
|
$
|
1.39
|
|
$
|
1.70
|
|
Class B
Common Stock
|
|
1.18
|
|
1.35
|
|
1.67
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE FROM CONTINUING
OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
$
|
1.20
|
|
$
|
1.35
|
|
$
|
1.40
|
|
Class B
Common Stock
|
|
1.16
|
|
1.32
|
|
1.37
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE FROM DISCONTINUED
OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.23
|
|
Class B
Common Stock
|
|
0.00
|
|
0.00
|
|
0.23
|
|
|
|
|
|
|
|
|
|
DILUTED
EARNINGS PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
$
|
1.20
|
|
$
|
1.35
|
|
$
|
1.63
|
|
Class B
Common Stock
|
|
1.16
|
|
1.32
|
|
1.60
|
|
See
accompanying footnotes to consolidated financial statements.
63
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31,
2007, 2006 and 2005
|
|
Common Stock
|
|
|
|
|
|
Unearned
Shares in
|
|
Accumulated
|
|
|
|
(in thousands, except per share data)
|
|
Class A
Shares
Outstanding
|
|
Class B
Shares
Outstanding
|
|
Amount
|
|
Additional
Paid In
Capital
|
|
Retained
Earnings
|
|
Empl. Stock
Ownership
Plan
|
|
Other
Comprehensive
Loss
|
|
Total
Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2005
|
|
18,453
|
|
2,370
|
|
$
|
4,381
|
|
$
|
58,117
|
|
$
|
135,949
|
|
$
|
(1,894
|
)
|
$
|
(484
|
)
|
$
|
196,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
35,065
|
|
|
|
|
|
35,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,625
|
)
|
(2,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend declared
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
($0.306 per share)
|
|
|
|
|
|
|
|
|
|
(5,645
|
)
|
|
|
|
|
(5,645
|
)
|
Class B
($0.278 per share)
|
|
|
|
|
|
|
|
|
|
(659
|
)
|
|
|
|
|
(659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
exercised, net of shares redeemed
|
|
57
|
|
|
|
12
|
|
534
|
|
(344
|
)
|
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of
Class A Common Stock
|
|
(511
|
)
|
|
|
(112
|
)
|
(1,948
|
)
|
(7,760
|
)
|
|
|
|
|
(9,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
Class B Common Stock to Class A Common Stock
|
|
8
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares committed
to be released under the Employee Stock Ownership Plan
|
|
40
|
|
|
|
|
|
383
|
|
|
|
426
|
|
|
|
809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Stock dividend
|
|
|
|
|
|
194
|
|
20,031
|
|
(20,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable
on common stock, net of cash payments
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation expense -Company stock
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December 31, 2005
|
|
18,047
|
|
2,362
|
|
$
|
4,475
|
|
$
|
77,295
|
|
$
|
136,381
|
|
$
|
(1,468
|
)
|
$
|
(3,109
|
)
|
$
|
213,574
|
|
(continued)
64
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
Shares
in
|
|
Accumulated
|
|
|
|
|
|
Class A
|
|
Class B
|
|
|
|
Additional
|
|
|
|
Empl.
Stock
|
|
Other
|
|
Total
|
|
|
|
Shares
|
|
Shares
|
|
|
|
Paid In
|
|
Retained
|
|
Ownership
|
|
Comprehensive
|
|
Stockholders
|
|
(in thousands, except per share data)
|
|
Outstanding
|
|
Outstanding
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Plan
|
|
Loss
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
18,047
|
|
2,362
|
|
$
|
4,475
|
|
$
|
77,295
|
|
$
|
136,381
|
|
$
|
(1,468
|
)
|
$
|
(3,109
|
)
|
$
|
213,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAB 108
adjustments
|
|
|
|
|
|
|
|
|
|
(547
|
)
|
|
|
|
|
(547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
28,351
|
|
|
|
|
|
28,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,718
|
|
1,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend declared
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
($0.363 per share)
|
|
|
|
|
|
|
|
|
|
(6,578
|
)
|
|
|
|
|
(6,578
|
)
|
Class B
($0.330 per share)
|
|
|
|
|
|
|
|
|
|
(776
|
)
|
|
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
exercised, net of shares redeemed
|
|
176
|
|
|
|
39
|
|
1,099
|
|
(527
|
)
|
|
|
|
|
611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of
Class A Common Stock
|
|
(36
|
)
|
|
|
(8
|
)
|
(169
|
)
|
(522
|
)
|
|
|
|
|
(699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
Class B Common Stock to Class A Common Stock
|
|
12
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares committed
to be released under the Employee Stock Ownership Plan
|
|
43
|
|
|
|
|
|
395
|
|
|
|
457
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Stock dividend
|
|
|
|
|
|
177
|
|
17,932
|
|
(18,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable
on common stock, net of cash payments
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation expense - Company Stock
|
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
|
|
|
|
|
|
844
|
|
|
|
|
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December 31, 2006
|
|
18,242
|
|
2,350
|
|
$
|
4,683
|
|
$
|
97,394
|
|
$
|
137,673
|
|
$
|
(1,011
|
)
|
$
|
(1,391
|
)
|
$
|
237,348
|
|
(continued)
65
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
Shares
in
|
|
Accumulated
|
|
|
|
|
|
Class A
|
|
Class B
|
|
|
|
Additional
|
|
|
|
Empl.
Stock
|
|
Other
|
|
Total
|
|
|
|
Shares
|
|
Shares
|
|
|
|
Paid In
|
|
Retained
|
|
Ownership
|
|
Comprehensive
|
|
Stockholders
|
|
(in thousands, except per share data)
|
|
Outstanding
|
|
Outstanding
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Plan
|
|
Income
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
18,242
|
|
2,350
|
|
$
|
4,683
|
|
$
|
97,394
|
|
$
|
137,673
|
|
$
|
(1,011
|
)
|
$
|
(1,391
|
)
|
$
|
237,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
initially apply FASB Interpretation No. 48
|
|
|
|
|
|
|
|
|
|
(359
|
)
|
|
|
|
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
24,913
|
|
|
|
|
|
24,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,572
|
|
1,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend declared
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
($0.424 per share)
|
|
|
|
|
|
|
|
|
|
(7,673
|
)
|
|
|
|
|
(7,673
|
)
|
Class B
($0.386 per share)
|
|
|
|
|
|
|
|
|
|
(906
|
)
|
|
|
|
|
(906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
exercised, net of shares redeemed
|
|
190
|
|
|
|
41
|
|
1,548
|
|
(238
|
)
|
|
|
|
|
1,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of
Class A Common Stock
|
|
(527
|
)
|
|
|
(118
|
)
|
(3,127
|
)
|
(6,079
|
)
|
|
|
|
|
(9,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
Class B Common Stock to Class A Common Stock
|
|
6
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares committed
to be released under the Employee Stock Ownership Plan
|
|
46
|
|
|
|
|
|
358
|
|
|
|
492
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Stock dividend
|
|
|
|
|
|
215
|
|
22,500
|
|
(22,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable
on common stock, net of cash payments
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation expense - Company Stock
|
|
1
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based
compensation expense
|
|
|
|
|
|
|
|
961
|
|
|
|
|
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December 31, 2007
|
|
17,958
|
|
2,344
|
|
$
|
4,821
|
|
$
|
119,761
|
|
$
|
124,616
|
|
$
|
(519
|
)
|
$
|
181
|
|
$
|
248,860
|
|
See accompanying footnotes to
consolidated financial statements.
66
CONSOLIDATED STATEMENTS OF CASH
FLOWS
YEARS ENDED DECEMBER 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,913
|
|
$
|
28,351
|
|
$
|
35,065
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation,
amortization and accretion, net
|
|
2,076
|
|
4,137
|
|
4,133
|
|
Federal Home
Loan Bank stock dividends
|
|
(342
|
)
|
(1,258
|
)
|
(1,010
|
)
|
Provision for
loan losses, including provision for loan losses from discontinued operations
|
|
6,820
|
|
1,947
|
|
(562
|
)
|
Net gain on sale
of mortgage loans held for sale
|
|
(2,185
|
)
|
(1,583
|
)
|
(2,265
|
)
|
Origination of
mortgage loans held for sale
|
|
(213,858
|
)
|
(194,124
|
)
|
(232,903
|
)
|
Proceeds from
sale of mortgage loans held for sale
|
|
217,489
|
|
196,565
|
|
245,071
|
|
Net gain on sale
of RALs
|
|
(2,261
|
)
|
(2,022
|
)
|
|
|
Increase in RAL
securitization residual
|
|
(1,511
|
)
|
(749
|
)
|
|
|
Origination of
RALs sold
|
|
(350,414
|
)
|
(213,423
|
)
|
|
|
Proceeds from
sale of RALs
|
|
319,882
|
|
194,550
|
|
|
|
Paydown of trading
securities
|
|
33,825
|
|
21,644
|
|
|
|
Net realized
gain on sale of available for sale securities
|
|
(8
|
)
|
(300
|
)
|
|
|
Net gain on sale
of other real estate owned
|
|
|
|
(81
|
)
|
60
|
|
Deferred
director compensation expense Company Stock
|
|
146
|
|
133
|
|
120
|
|
Employee Stock
Ownership Plan compensation expense
|
|
850
|
|
852
|
|
809
|
|
Stock based
compensation expense
|
|
961
|
|
844
|
|
|
|
Net gain on
involuntary conversion of fixed assets
|
|
(1,877
|
)
|
|
|
|
|
Net change in
other assets and liabilities:
|
|
|
|
|
|
|
|
Accrued interest
receivable
|
|
28
|
|
(2,463
|
)
|
(2,533
|
)
|
Accrued interest
payable
|
|
666
|
|
1,467
|
|
1,448
|
|
Other assets
|
|
2,944
|
|
(9,300
|
)
|
(928
|
)
|
Other
liabilities
|
|
365
|
|
(762
|
)
|
(849
|
)
|
Net cash
provided by operating activities
|
|
38,509
|
|
24,425
|
|
45,656
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Cash paid for acquisition of GulfStream Community
Bank, net of cash acquired
|
|
|
|
(14,276
|
)
|
|
|
Purchases of securities available for sale
|
|
(3,713,098
|
)
|
(2,478,085
|
)
|
(4,518,393
|
)
|
Purchases of securities to be held to maturity
|
|
(1,999
|
)
|
(383
|
)
|
(1,991
|
)
|
Purchases of Federal Home Loan Bank stock
|
|
(502
|
)
|
(137
|
)
|
(264
|
)
|
Proceeds from calls, maturities and paydowns of
securities available for sale
|
|
3,655,763
|
|
2,431,481
|
|
4,523,146
|
|
Proceeds from calls, maturities and paydowns of
securities to be held to maturity
|
|
8,137
|
|
8,583
|
|
35,880
|
|
Proceeds from sales of securities available for sale
|
|
39,927
|
|
5,000
|
|
|
|
Proceeds from sales of other real estate owned
|
|
1,252
|
|
1,314
|
|
962
|
|
Net increase in loans
|
|
(104,888
|
)
|
(191,365
|
)
|
(283,211
|
)
|
Investment in unconsolidated subsidiary
|
|
|
|
|
|
(1,240
|
)
|
Net proceeds from involuntary conversion of fixed
assets
|
|
1,877
|
|
|
|
|
|
Purchases of premises and equipment, net
|
|
(8,637
|
)
|
(6,052
|
)
|
(3,640
|
)
|
Net cash used in
investing activities
|
|
(122,168
|
)
|
(243,920
|
)
|
(248,751
|
)
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net change in deposits
|
|
276,087
|
|
36,016
|
|
184,635
|
|
Net change in
securities sold under agreements to repurchase and other short-term
borrowings
|
|
(3,590
|
)
|
109,627
|
|
(72,569
|
)
|
Payments on Federal Home Loan Bank advances
|
|
(323,223
|
)
|
(242,561
|
)
|
(93,091
|
)
|
Proceeds from Federal Home Loan Bank advances
|
|
155,201
|
|
328,000
|
|
157,837
|
|
Net proceeds from subordinated note
|
|
|
|
|
|
41,240
|
|
Repurchase of Common Stock
|
|
(9,324
|
)
|
(699
|
)
|
(9,820
|
)
|
Net proceeds from Common Stock options exercised
|
|
1,351
|
|
611
|
|
202
|
|
Cash dividends paid
|
|
(8,279
|
)
|
(7,055
|
)
|
(6,020
|
)
|
Net cash
provided by financing activities
|
|
88,223
|
|
223,939
|
|
202,414
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
4,564
|
|
4,444
|
|
(681
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
81,613
|
|
77,169
|
|
77,850
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
86,177
|
|
$
|
81,613
|
|
$
|
77,169
|
|
(continued)
67
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during
the year for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
103,954
|
|
$
|
86,752
|
|
$
|
61,492
|
|
Income taxes
|
|
14,868
|
|
14,266
|
|
16,698
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
NONCASH DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from
loans to real estate acquired in settlement of loans
|
|
$
|
1,500
|
|
$
|
1,328
|
|
$
|
737
|
|
Retained
securitization residual
|
|
32,314
|
|
22,956
|
|
|
|
See
accompanying footnotes to consolidated financial statements.
68
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of
Operations and Principles of Consolidation The consolidated financial statements
include the accounts of Republic Bancorp, Inc. (the Parent Company) and
its wholly-owned subsidiaries: Republic Bank & Trust Company (RB&T)
and Republic Bank (collectively referred together with RB&T as the Bank),
Republic Funding Company, Republic Invest Co. Republic Invest Co. includes its
subsidiary, Republic Capital LLC. The consolidated financial statements also
include the wholly-owned subsidiaries of RB&T: Republic Financial Services,
LLC, TRS RAL Funding, LLC and Republic Insurance Agency, LLC. Republic Bancorp
Capital Trust (RBCT) is a Delaware statutory business trust that is a
wholly-owned unconsolidated finance subsidiary of Republic Bancorp, Inc.
All companies are collectively referred to as Republic or the Company. All
significant intercompany balances and transactions are eliminated in
consolidation.
Republic
operates 40 banking centers, primarily in the retail banking industry, and
conducts its operations predominately in metropolitan Louisville, Kentucky,
central Kentucky, northern Kentucky, southern Indiana, metropolitan Tampa,
Florida and through an Internet banking delivery channel. Republics
consolidated results of operations are dependent upon net interest income,
which represents the difference between the interest income and fees on
interest-earning assets and the interest expense on interest-bearing
liabilities. Principal interest-earning assets represent securities and real
estate mortgage, commercial and consumer loans. Interest-bearing liabilities
primarily consist of interest-bearing deposit accounts, as well as short-term
and long-term borrowing sources.
Other
sources of banking income include service charges on deposit accounts, debit
card interchange income, title insurance commissions, fees charged to customers
for trust services and revenue generated from mortgage banking activities,
which represents both the origination and sale of loans in the secondary market
and the servicing of loans for others.
Republics
operating expenses consist primarily of salaries and employee benefits,
occupancy and equipment expenses, communication and transportation costs,
marketing and development expenses, bank franchise tax expense, data
processing, debit card interchange expense and other general and administrative
costs. Republics results of operations are significantly impacted by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory agencies.
RB&T
is one of a limited number of financial institutions which facilitate the
payment of federal and state tax refunds through tax-preparers located
throughout the U.S.. The Company facilitates the payment of these tax refunds
through three primary products: Refund Anticipation Loans (RALs), Electronic
Refund Checks (ERCs) and Electronic Refund Deposits (ERDs). RALs are
classified as consumer loans. ERCs and ERDs are products whereby a tax refund
is issued to the taxpayer after RB&T has received the refund from the
federal or state government.
Use of
Estimates
Financial statements prepared in conformity with accounting principles
generally accepted in the U.S. (U.S. generally accepted accounting principles)
require management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Material estimates that are
particularly susceptible to significant change in the short-term relate to:
· Allowance for loan losses
· Mortgage servicing rights
· RAL securitization and valuation of
residual
· Income tax accounting
· Goodwill and other intangible assets
These
estimates are particularly subject to change and actual results could differ
from these estimates.
Significant
Group Concentrations of Credit Risk The Company does not have any significant
concentrations of credit risk to any one industry or relationship.
Earnings
Concentration
For 2007, 2006 and 2005, approximately 11%, 17% and 18% of net income from continuing
operations was derived from the Tax Refund Solutions (TRS), which if
terminated, could have a materially adverse impact on net income.
69
Cash Flows For purpose of the consolidated statement of
cash flows, cash and cash equivalents include cash, deposits with other
financial institutions with original maturities under 90 days and federal funds
sold. Net cash flows are reported for customer loan and deposit transactions,
interest bearing deposits in other financial institutions, repurchase
agreements and income taxes.
Trust Assets Property held for customers in fiduciary or
agency capacities, other than trust cash on deposit at Republic, is not
included in the consolidated financial statements since such items are not
assets of Republic.
Securities Debt Securities
to be held to maturity are those which Republic has the positive intent and
ability to hold to maturity and are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method over
the period to maturity.
Trading securities consist of the residual interest in the RAL
securitization and was $0 at December 31, 2007 and 2006. These securities
are recorded at fair value with changes in fair value included in earnings.
Securities available for sale, carried at fair value,
consist of securities not classified as trading securities nor as held to
maturity securities. Unrealized holding gains and losses, net of tax, on
securities available for sale are reported as a separate component of
stockholders equity until realized. Gains and losses on the sale of available
for sale securities are recorded on the trade date and determined using the
specific identification method. Premiums and discounts are recognized in
interest income using the interest method over the period to maturity.
Declines in the fair value of securities below their
cost that are deemed to be other than temporary are reflected in earnings as
realized losses. In estimating other than temporary impairment losses,
management considers the length of time and the extent to which the fair value
has been less than cost, the financial condition and short-term prospects of
the issuer and the intent and ability of the Company to retain its investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.
Mortgage
Banking Activities Mortgage loans originated and intended
for sale in the secondary market are carried at the lower of aggregate cost or
market, as determined by outstanding commitments from investors. Net unrealized
losses, if any, are recorded as a valuation allowance and charged to earnings.
Mortgage loans held for
sale are generally sold with servicing rights retained. The carrying value of
mortgage loans sold is reduced by the amount allocated to the servicing right.
Gains and losses on sales of mortgage loans are based on the difference between
the selling price and the carrying value of the related loan sold. Substantially
all of the gain on sale from mortgage banking activities reported in earnings
is recorded when closed loans are delivered into the sales contracts.
Commitments to fund mortgage loans (interest rate lock commitments)
to be sold into the secondary market and mandatory forward sales contracts
(forward contracts) for the future delivery of these mortgage loans are
accounted for as derivatives not qualifying for hedge accounting. Fair values
of these mortgage derivatives are estimated based on changes in mortgage
interest rates from the date of the commitments. Changes in the fair values of
these derivatives are included in net gains on sales of loans.
The Company enters into
loan commitments for fixed rate mortgage loans, generally lasting 45 to 90 days
and are at market rates when initiated. To deliver closed loans to the
secondary market and to moderate its interest rate risk prior to sale, Republic
typically enters into non-exchange traded mandatory forward sales contracts.
These contracts are entered into for amounts and terms offsetting the interest
rate risk of loan commitment derivatives and loans held for sale, and both are
carried at their fair value with changes included in earnings.
Mortgage
Servicing Rights (MSRs) represent an estimate of the present value of future
cash servicing income, net of estimated costs that Republic expects to receive
on loans sold with servicing retained by the Company. MSRs are capitalized as
separate assets when loans are sold and servicing is retained. Management
considers all relevant factors, in addition to pricing considerations from
other servicers, to estimate the fair value of the MSRs to be recorded when the
loans are initially sold with servicing retained. The service release premium
on loans sold servicing released, and the gain recognized for MSRs on loans
sold servicing retained are included as components of mortgage banking income
on the income statement. The carrying value of MSRs is amortized in proportion
to and over the weighted average remaining life of the net servicing income.
This amortization is recorded as a reduction to mortgage banking income. The
total MSR asset, net of amortization, recorded at December 31, 2007 and
2006 was $6.7 million and $6.1 million. The MSR asset is recorded as a component
of other assets on the balance sheet.
70
In March 2006,
the FASB issued Statement of Financial Accounting Standard (SFAS) 156 Accounting for Servicing of Financial Assets-an amendment of FASB Statement
No. 140. This Statement provides the following: 1) revised
guidance on when a servicing asset and servicing liability should be
recognized; 2) requires all separately recognized servicing assets and
servicing liabilities to be initially measured at fair value, if practicable;
3) permits an entity to elect to measure servicing assets and servicing
liabilities at fair value for each reporting date and report changes in fair
value in earnings in the period in which the changes occur; 4) upon initial adoption,
permits a one time reclassification of available for sale securities to trading
securities for securities which are identified as offsetting the entitys
exposure to changes in the fair value of servicing assets or liabilities that a
servicer elects to subsequently measure at fair value; and 5) requires separate
presentation of servicing assets and servicing liabilities subsequently
measured at fair value in the statement of financial position and additional
footnote disclosures. This standard became effective January 1, 2007 and
the Company elected not to recognize existing servicing rights at their fair
value. Therefore, the adoption of this statement did not impact the Companys
consolidated financial position or results of operations.
For sales of mortgage loans prior to January 1,
2007, a portion of the cost of the loan was allocated to the servicing right
based on relative fair values. The Company adopted SFAS 156 on January 1,
2007, and for sales of mortgage loans beginning in 2007, servicing rights are
initially recorded at fair value with the income statement effect recorded in
gains on sales of loans. Fair value is based on market prices for comparable
mortgage servicing contracts, when available, or alternatively, is based on a
valuation model that calculates the present value of estimated future net
servicing income. The valuation model incorporates assumptions that market
participants would use in estimating future net servicing income, such as the
cost to service, the discount rate, the custodial earnings rate, an inflation
rate, ancillary income, prepayment speeds and default rates and losses. The
Company compares the valuation model inputs and results to published industry
data in order to validate the model results and assumptions. All classes of
servicing assets are subsequently measured using the amortization method which
requires servicing rights to be amortized into non-interest income in
proportion to, and over the period of, the estimated future net servicing
income of the underlying loans.
The
carrying value of the MSR asset is evaluated monthly for impairment based on
the fair value of the MSR, using groupings of the underlying loans grouped by
interest rates. Any impairment of a grouping would be reported as a valuation
allowance. A primary factor influencing the fair value is the estimated life of
the underlying loans serviced. The estimated life of the loans serviced is
significantly influenced by market interest rates. During a period of declining
interest rates, the fair value of the MSRs generally will decline due to higher
expected prepayments within the portfolio. Alternatively, during a period of
rising interest rates the fair value of MSRs generally will increase as
prepayments on the underlying loans would be expected to decline. Management
utilizes an independent third party on a monthly basis to assist with the fair
value estimate of the MSRs. Based on the estimated fair value at December 31,
2007 and 2006, management determined no impairment of the MSR asset existed.
Further, no impairment expense was recognized during 2007, 2006 or 2005.
Loan
servicing income is reported on the income statement as a component of Mortgage
banking income. Loan servicing income is recorded as loan payments are
collected and includes servicing fees from investors and certain charges
collected from borrowers. The fees are based on a contractual percentage of the
outstanding principal; or a fixed amount per loan and are recorded as income
when earned. The amortization of MSRs is netted against loan servicing fee
income. Loan servicing income totaled $2.4 million, $2.3 million and $2.2
million for the years ended December 31, 2007, 2006 and 2005. Late fees
and ancillary fees related to loan servicing are not material.
Loans Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal balance adjusted for any changes to the allowance for
loan losses, unearned interest and any deferred loan fees or costs.
Interest
on loans is computed on the principal balance outstanding. Loan origination
fees and certain direct loan origination costs relating to successful loan
origination efforts are deferred and recognized over the estimated lives of the
related loans on the level yield method without anticipating prepayments.
Generally,
the accrual of interest on loans, including impaired loans, is discontinued
when it is determined that the collection of interest or principal is doubtful,
or when a default of interest or principal has existed for 90 days or more,
unless such loans are well secured and in the process of collection.
71
All interest accrued but
not received for loans placed on non accrual is reversed against interest
income. Interest received on such loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured. Consumer and credit card loans, exclusive of RALs, are not placed on
non-accrual status, but are reviewed periodically and charged off when the
loans reach 120 days past due or at any point the loan is deemed uncollectible.
RALs traditionally undergo a review in March of each year. RALs which are
not included in the securitization deemed uncollectible by management are
charged off against the allowance for loan losses.
Securitization
The Company
utilized a securitization structure to fund, over a four week period, a portion
of the RALs originated during the first quarters of 2007 and 2006. The
securitization consisted of a total of $347 million and $206 million of loans
originated and sold during January and February of 2007 and 2006,
respectively. The Companys continuing involvement in loans sold into the
securitization was limited to only servicing of the loans. Compensation for
servicing of the loans securitized was not contingent upon performance of the
loans securitized.
Generally, from mid January to
the end of February of each year, RALs which meet certain underwriting
criteria related to refund amount and Earned Income Tax Credit amount are
classified as loans held for sale upon origination and sold into the
securitization. All other RALs originated are retained by the Company. There
are no RALs held for sale as of any quarter end. The Company retains a related
residual value in the securitization, which is classified on the balance sheet
as a trading asset. The initial residual interest has a weighted average life
of approximately one month, and as such, substantially all of its cash flows
are received by the end of the first quarter. The disposition of the remaining
anticipated cash flows is expected to occur within the remainder of the year.
At its initial valuation and on a quarterly basis thereafter, the Company
adjusts the carrying amount of the residual value to its fair value, which is
determined based on its expected future cash flows and is significantly
influenced by the anticipated credit losses of the underlying RALs.
The Company concluded
that the transaction was a sale as defined in SFAS 140 Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities a replacement of Financial Accounting Standards Board (FASB) Statement No. 125. This conclusion was based
on, among other things, legal isolation of assets, the ability of the purchaser
to pledge or sell the assets, and the absence of a right or obligation of the
Company to repurchase the financial assets.
Allowance
for Loan Losses The allowance for loan losses is a
valuation allowance for probable incurred credit losses. Loan losses are
charged against the allowance when management believes the uncollectibility of
a loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan
losses is evaluated on a monthly basis by management and is based upon
managements review of the collectibility of the loans, including overdrafts,
in light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrowers ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective, as it requires estimates that are
susceptible to significant revision as additional information becomes
available.
The
allowance consists of specific and general components. The specific components
relate to loans that are classified as either loss, doubtful, substandard or
special mention. For such loans that are also classified as impaired, an
allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value
of that loan. The general component covers non classified loans and is based on
historical loss experience adjusted for risk multiples related to qualitative
factors such as general economic conditions. There are underlying uncertainties
that could affect managements estimate of probable losses and there is a
margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio.
72
A loan is considered
impaired when, based on current information and events, it is probable that the
Company will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment include payment
status, collateral value and the probability of collecting scheduled principal
and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case by case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, prior payment history and the amount of the shortfall in
relation to the principal and interest owed. Impairment is measured on a loan
by loan basis for commercial and construction loans by either the present value
of expected future cash flows discounted at the loans effective interest rate,
the loans obtainable market price or the fair value of the collateral, if
payment from the loans is expected solely from the collateral.
Large groups of smaller
balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual consumer and
residential loans for impairment disclosures, unless such loans are the subject
of a restructuring agreement.
Real
Estate Owned
Assets acquired through loan foreclosure are initially recorded at fair value,
less costs to sell, when acquired, establishing a new cost basis. If fair value
declines subsequent to foreclosure, a valuation allowance is recorded through
expense. Costs incurred after acquisition are expensed. Real estate owned
totaled $795,000 and $546,000 at December 31, 2007 and 2006.
Premises
and Equipment, Net Premises and equipment are stated at cost
less accumulated depreciation and amortization. Land is carried at cost.
Depreciation is computed over the estimated useful lives of the related assets
on the straight-line method. Estimated lives are 25 to 39 years for buildings
and improvements, three to ten years for furniture, fixtures and equipment and
three to five years for leasehold improvements.
Federal
Home Loan Bank Stock
The Company is a member of the Federal Home Loan Bank (FHLB) system.
Members are required to own a certain amount of stock based on the level of
borrowings and other factors, and may invest in additional amounts. FHLB stock
is carried at cost, classified as a restricted security and periodically
evaluated for impairment. Because this stock is viewed as long-term investment,
impairment is based on ultimate recovery of par value. Both cash and stock
dividends are recorded as interest income.
Goodwill
and Other Intangible Assets Goodwill results from business acquisitions and
represents the excess of the purchase price over the fair value of acquired
tangible assets and liabilities and identifiable intangible assets. Goodwill is
assessed at least annually in accordance with SFAS 142 Goodwill and
Other Intangible Assets and any such impairment would be recognized
in the period identified. Republic measures goodwill impairment for the Company
as a whole by comparing the fair value of its net assets to the carrying value.
Market capitalization, which is an indication of the value the market places on
a company, is the basis for the fair value of net assets.
Other intangible
assets consist of core deposit assets arising from whole bank and branch
acquisitions. Core deposit assets are initially measured at fair value and then
amortized on an accelerated method over the estimated useful life of seven
years.
Long-Term
Assets Premises
and equipment, core deposit and other intangible assets, and other long-term
assets are reviewed for impairment when events indicate their carrying amount
may not be recoverable from future undiscounted cash flows. If impaired, the
assets are recorded at fair value.
Stock
Based Compensation
Effective January 1, 2006, the Company adopted SFAS 123(R), Share-based Payment, using the modified prospective
transition method. Accordingly, the Company has recorded stock-based employee
compensation cost using the fair value method. See Footnote 16 Stock Plans and Stock Based Compensation in this section of
the document.
Prior to January 1,
2006, employee compensation expense under stock options was reported using the
intrinsic value method. There was no stock-based compensation cost reflected in
net income for the year ended December 31, 2005, as all options granted
had an exercise price equal to or greater than the market price of the
underlying common stock at date of grant.
73
The following table
illustrates the effect on net income and earnings per share if stock based
compensation expense were measured using the fair value recognition provisions
of SFAS 123 for year ended December 31, 2005:
Years Ended December 31 (n thousands, except per share data)
|
|
2005
|
|
|
|
|
|
Net income from
continuing operations, as reported
|
|
$
|
30,078
|
|
Net income from
discontinued operations, as reported
|
|
4,987
|
|
Deduct: Stock
based compensation expense determined under the fair value based method, net
of tax
|
|
915
|
|
Pro forma net
income
|
|
$
|
34,150
|
|
|
|
|
|
Earnings per
share from continuing operations, as reported:
|
|
|
|
Class A
Common Share
|
|
$
|
1.46
|
|
Class B
Common Share
|
|
1.43
|
|
|
|
|
|
Earnings per
share, as reported:
|
|
|
|
Class A
Common Share
|
|
$
|
1.70
|
|
Class B
Common Share
|
|
1.67
|
|
|
|
|
|
Pro forma
earnings per share from continuing operations:
|
|
|
|
Class A
Common Share
|
|
$
|
1.41
|
|
Class B
Common Share
|
|
1.38
|
|
|
|
|
|
Pro forma earnings
per share:
|
|
|
|
Class A
Common Share
|
|
$
|
1.65
|
|
Class B
Common Share
|
|
1.63
|
|
|
|
|
|
Diluted earnings
per share from continuing operations, as reported:
|
|
|
|
Class A
Common Share
|
|
$
|
1.40
|
|
Class B
Common Share
|
|
1.37
|
|
|
|
|
|
Diluted earnings
per share, as reported:
|
|
|
|
Class A
Common Share
|
|
$
|
1.63
|
|
Class B
Common Share
|
|
1.60
|
|
|
|
|
|
Pro forma
diluted earnings per share from continuing operations:
|
|
|
|
Class A
Common Share
|
|
$
|
1.36
|
|
Class B
Common Share
|
|
1.33
|
|
|
|
|
|
Pro forma
diluted earnings per share:
|
|
|
|
Class A
Common Share
|
|
$
|
1.59
|
|
Class B
Common Share
|
|
1.56
|
|
74
Securities
Sold Under Agreements to Repurchase and Other Short-term Borrowings Substantially all securities sold
under agreements to repurchase liabilities represent amounts advanced by
customers. Securities are pledged to cover the majority of these liabilities,
as the liabilities are not covered by Federal Deposit Insurance Corporation (FDIC)
insurance. Certain repurchase agreements are secured by private insurance
purchased by Republic, or FHLB letters of credit, rather than by security
pledges. Other short-term borrowings primarily consist of federal funds
purchased.
Income
Taxes Income
tax expense represents the total of the current year income tax due or
refundable and the change in the deferred tax assets and liabilities. Deferred
tax assets and liabilities are reflected at currently enacted income tax rates
applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes. A valuation allowance, if needed, reduces deferred tax assets
to the amount expected to be realized.
The Company adopted FASB
Interpretation No. (FIN) 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement No. 109,
as of January 1, 2007. The standard prescribed a recognition threshold and
measurement attribute for an uncertain tax position taken or expected to be
taken in a tax return. A tax position is recognized as a benefit only if it is more
likely than not that the tax position would be sustained under a tax
examination, with a tax examination being presumed to occur. The standard
requires that the amount recognized is the largest amount of tax benefit that
is greater than 50% likely of being realized on examination. For tax positions
not meeting the more likely than not test, no tax benefit is recorded.
Retirement
Plans 401(k) plan
expense is recorded as a component of salaries and employee benefits and
represents the amount of Company matching contributions.
Employee
Stock Ownership Plan (ESOP) The cost of shares held by the ESOP, but not yet
committed or allocated to participants, is recorded as a reduction to
stockholders equity. Compensation expense is based on the market price of
shares as the shares are committed to be released to participant accounts. The
difference between market price and the cost of shares committed to be released
is recorded as an adjustment to additional paid in capital. Dividends on
allocated ESOP shares reduce retained earnings, and dividends on unearned ESOP
shares reduce debt and accrued interest.
Financial
Instruments
Financial instruments include off balance sheet credit instruments, such as
commitments to fund loans and standby letters of credit. The face amount for
these items represents the exposure to loss, before considering customer collateral
or ability to repay. Such financial instruments are recorded upon funding.
Instruments such as standby letters of credit are considered financial
guarantees in accordance with FIN 45 and are recorded at fair value.
Derivatives
Republic only
utilizes derivative instruments as described in Footnote 6 Mortgage Banking Activities in this section of the
document.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the
ordinary course of business, are recorded as liabilities when the likelihood of
loss is probable and an amount or range of loss can be reasonably estimated.
While the Company believes its provision for legal contingencies is adequate,
the outcome of legal proceedings is difficult to predict and the Company may
settle legal claims or be subject to judgments for amounts that exceed the
Companys estimates.
Restrictions
on Cash and Cash Equivalents Republic is required by the Federal Reserve Bank to
maintain average reserve balances. Cash and due from banks in the consolidated
balance sheet includes $3.2 million and $4.5 million of reserve balances at December 31,
2007 and 2006. The Company does not earn interest on these cash balances.
Earnings
Per Share Basic
earnings per share is based on net income (in the case of Class B Common
Stock, less the dividend preference on Class A Common Stock), divided by
the weighted average number of shares outstanding during the period. For
purposes of all earnings per share calculations, unallocated ESOP shares are
not considered issued and outstanding until earned. Diluted earnings per common
share includes the dilutive effect of additional potential common shares
issuable under stock options. Earnings and dividends per share are restated for
all stock dividends through the date of issuance of the financial statements.
75
Comprehensive
Income
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available for sale which are also recognized as a separate component of equity,
net of tax.
Equity Stock dividends in excess
of 20% are reported by transferring the par value of the stock issued from
retained earnings to common stock. Stock dividends for 20% or less are reported
by transferring the fair value, as of the ex-dividend date, of the stock issued
from retained earnings to common stock and additional paid in capital.
Fractional share amounts are paid in cash with a reduction in retained
earnings.
Dividend
Restrictions
Banking regulations require maintaining certain capital levels and may limit
the dividends paid by the bank to the holding company or by the holding company
to shareholders. These restrictions pose no practical limit on the ability of
the bank or holding company to pay dividends at historical levels.
Fair
Value of Financial Instruments Fair values of financial instruments are estimated
using relevant market information and other assumptions. Fair value estimates
involve uncertainties and matters of significant judgment regarding interest
rates, credit risk, prepayments, and other factors, especially in the absence
of broad markets for particular items. Changes in assumptions or in market
conditions could significantly affect the estimates.
Segment
Information
Segments represent parts of the Company evaluated by management with separate
financial information. Republics internal information is primarily reported
and evaluated in three lines of business banking, TRS, and mortgage banking.
In February 2006, the Company substantially exited the payday loan
business. For financial reporting purposes, the payday loan business segment
has been treated as a discontinued operation. All current period and prior
period income statement data has been restated to reflect continuing operations
absent the payday loan business.
Reclassifications
Certain amounts
presented in prior periods have been reclassified to conform to the current
period presentation.
76
2. DISCONTINUED OPERATIONS
By letter to RB&T
dated February 17, 2006, the FDIC cited inherent risks associated with
payday lending activities and requested that the Board of Directors consider
terminating this line of business. Consequently, on February 24, 2006,
RB&T and ACE Cash Express, Inc. (ACE) amended the agreement
regarding RB&Ts payday loan activities in Texas, Pennsylvania and
Arkansas. With respect to Texas, RB&T ceased offering payday loans the week
of February 27, 2006. With respect to Arkansas and Pennsylvania, RB&T
ceased offering payday loans on December 31, 2006. The Company did not
incur any additional costs related to the termination of the contract and does
not anticipate incurring any additional costs in the future. The Company had no
payday loans outstanding related to the above contract at December 31,
2007 and December 31, 2006.
By letter to Republic
Bank & Trust Company of Indiana dated February 17, 2006, the FDIC
cited inherent risks associated with payday lending activities and asked the
Board of Directors to consider terminating this line of business. Republic Bank &
Trust Company of Indiana voluntarily elected to terminate its Internet payday
loan program the week of February 20, 2006. The Internet payday loan
program began operating in July 2005 and remained in a developmental stage
until its termination date. The Company had no payday loans outstanding related
to the above program at December 31, 2007 and December 31, 2006.
There were no assets,
liabilities or equity related to the discontinued operation as of December 31,
2007 and 2006.
The following table
details the Statements of Income of the discontinued operation:
Statements of Income
Years Ended December 31,
(in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
Loans, including
fees
|
|
$
|
|
|
$
|
528
|
|
$
|
9,205
|
|
Total interest
income
|
|
|
|
528
|
|
9,205
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
Federal Home
Loan Bank advances
|
|
|
|
30
|
|
508
|
|
Total interest
expense
|
|
|
|
30
|
|
508
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
|
|
498
|
|
8,697
|
|
Provision for
loan losses
|
|
|
|
(355
|
)
|
(902
|
)
|
Net interest
income after provision for loan losses
|
|
|
|
853
|
|
9,599
|
|
|
|
|
|
|
|
|
|
Non interest
income:
|
|
|
|
|
|
|
|
Service charges
on deposit accounts
|
|
|
|
|
|
31
|
|
Other income
|
|
|
|
500
|
|
|
|
Total non
interest income
|
|
|
|
500
|
|
31
|
|
|
|
|
|
|
|
|
|
Non interest
expenses:
|
|
|
|
|
|
|
|
Salaries and
employee benefits
|
|
|
|
119
|
|
306
|
|
Occupancy and
equipment, net
|
|
|
|
115
|
|
33
|
|
Communication
and transportation
|
|
|
|
|
|
35
|
|
Marketing and
development
|
|
|
|
108
|
|
389
|
|
Data processing
|
|
|
|
130
|
|
38
|
|
Other
|
|
|
|
522
|
|
1,268
|
|
Total non
interest expenses
|
|
|
|
994
|
|
2,069
|
|
|
|
|
|
|
|
|
|
Income before
income tax expense
|
|
|
|
359
|
|
7,561
|
|
Income tax
expense
|
|
|
|
124
|
|
2,574
|
|
Net income
|
|
$
|
|
|
$
|
235
|
|
$
|
4,987
|
|
77
3. SECURITIES
Trading securities:
Trading securities consisting of residual interest in
the RAL securitization totaled $0 at December 31, 2007 and 2006.
Securities
available for sale:
The amortized cost and fair value of available for
sale securities and the related gross unrealized gains and losses recognized in
accumulated other comprehensive income (loss) were as follows:
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
December 31, 2007 (in thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and U.S. Government agencies
|
|
$
|
159,524
|
|
$
|
841
|
|
$
|
(90
|
)
|
$
|
160,275
|
|
Freddie
Mac preferred stock
|
|
2,000
|
|
|
|
(459
|
)
|
1,541
|
|
Corporate
mortgage backed and other corporate mortgage-related securities
|
|
34,644
|
|
|
|
(2,169
|
)
|
32,475
|
|
Mortgage
backed securities, including CMOs
|
|
332,303
|
|
2,620
|
|
(464
|
)
|
334,459
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities available for sale
|
|
$
|
528,471
|
|
$
|
3,461
|
|
$
|
(3,182
|
)
|
$
|
528,750
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
December 31, 2006 (in thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities and U.S. Government agencies
|
|
$
|
287,789
|
|
$
|
156
|
|
$
|
(1,673
|
)
|
$
|
286,272
|
|
Freddie Mac
preferred stock
|
|
2,000
|
|
64
|
|
|
|
2,064
|
|
Corporate
mortgage backed and other corporate mortgage-related securities
|
|
45,150
|
|
70
|
|
(10
|
)
|
45,210
|
|
Mortgage backed
securities, including CMOs
|
|
170,930
|
|
704
|
|
(1,453
|
)
|
170,181
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available for sale
|
|
$
|
505,869
|
|
$
|
994
|
|
$
|
(3,136
|
)
|
$
|
503,727
|
|
Securities
to be held to maturity:
The
carrying value, unrecognized gains and losses, and fair value of securities
held to maturity were as follows:
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Unrecognized
|
|
Unrecognized
|
|
|
|
December 31, 2007 (in thousands)
|
|
Value
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and U.S. Government agencies
|
|
$
|
4,672
|
|
$
|
7
|
|
$
|
|
|
$
|
4,679
|
|
Obligations
of states and political subdivisions
|
|
383
|
|
25
|
|
|
|
408
|
|
Mortgage
backed securities, including CMOs
|
|
46,831
|
|
974
|
|
(98
|
)
|
47,707
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities to be held to maturity
|
|
$
|
51,886
|
|
$
|
1,006
|
|
$
|
(98
|
)
|
$
|
52,794
|
|
78
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
|
Carrying
|
|
Unrecognized
|
|
Unrecognized
|
|
|
|
December 31, 2006 (in thousands)
|
|
Value
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities and U.S. Government agencies
|
|
$
|
8,586
|
|
$
|
|
|
$
|
(50
|
)
|
$
|
8,536
|
|
Obligations of
states and political subdivisions
|
|
383
|
|
16
|
|
|
|
399
|
|
Mortgage backed
securities, including CMOs
|
|
49,076
|
|
1,057
|
|
(244
|
)
|
49,889
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
to be held to maturity
|
|
$
|
58,045
|
|
$
|
1,073
|
|
$
|
(294
|
)
|
$
|
58,824
|
|
During the fourth quarter of 2007, the Company sold a
$40 million U.S. Treasury Bill security resulting in a gain of $8,000. During
the fourth quarter of 2006, the Company sold a portion of the available for
sale Freddie Mac (FHLMC) preferred stock totaling $5 million, realizing a
gain on sale of securities of $300,000. The tax provision related to this
realized gain totaled $3,000 and $105,000 for 2007 and 2006, respectively.
There were no sales of securities available for sale during 2005.
The amortized cost and fair value of securities, by
contractual maturity are as follows. Securities not due at a single maturity
date are detailed separately.
|
|
Securities
|
|
Securities to be
|
|
|
|
available for sale
|
|
held to maturity
|
|
|
|
Amortized
|
|
|
|
Carrying
|
|
|
|
December 31, 2007 (in thousands)
|
|
Cost
|
|
Fair Value
|
|
Value
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Due in
one year or less
|
|
$
|
95,833
|
|
$
|
95,777
|
|
$
|
|
|
$
|
|
|
Due
from one to five years
|
|
59,278
|
|
59,986
|
|
4,672
|
|
4,679
|
|
Due
from five to ten years
|
|
4,413
|
|
4,512
|
|
383
|
|
408
|
|
Freddie
Mac preferred stock
|
|
2,000
|
|
1,541
|
|
|
|
|
|
Corporate
mortgage backed securities and other corporate mortgage-related securities
|
|
34,644
|
|
32,475
|
|
|
|
|
|
Mortgage
backed securities, including CMOs
|
|
332,303
|
|
334,459
|
|
46,831
|
|
47,707
|
|
Total
|
|
$
|
528,471
|
|
$
|
528,750
|
|
$
|
51,886
|
|
$
|
52,794
|
|
At December 31, 2007 and 2006, there were no
holdings of securities of any one issuer, other than the U.S. Government and
its agencies, in an amount greater than 10% of stockholders equity.
Securities
with unrealized losses at December 31, 2007 and 2006, aggregated by
investment category and length of time that individual securities have been in
a continuous unrealized loss position, are as follows:
79
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
December 31, 2007 (in thousands)
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and U.S. Government agencies
|
|
$
|
63,438
|
|
$
|
(55
|
)
|
$
|
19,959
|
|
$
|
(35
|
)
|
$
|
83,397
|
|
$
|
(90
|
)
|
Freddie
Mac preferred stock
|
|
1,541
|
|
(459
|
)
|
|
|
|
|
1,541
|
|
(459
|
)
|
Obligations
of states and political sub.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
mortgage backed securities and other Corporate mortgage-related securities
|
|
29,719
|
|
(2,132
|
)
|
2,756
|
|
(37
|
)
|
32,475
|
|
(2,169
|
)
|
Mortgage
backed securities, including CMOs
|
|
26,313
|
|
(126
|
)
|
43,067
|
|
(436
|
)
|
69,380
|
|
(562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
121,011
|
|
$
|
(2,772
|
)
|
$
|
65,782
|
|
$
|
(508
|
)
|
$
|
186,793
|
|
$
|
(3,280
|
)
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
December 31, 2006 (in thousands)
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities and U.S. Government agencies
|
|
$
|
97,098
|
|
$
|
(174
|
)
|
$
|
149,645
|
|
$
|
(1,549
|
)
|
$
|
246,743
|
|
$
|
(1,723
|
)
|
Freddie Mac
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
states and political sub.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
mortgage backed securities and other Corporate mortgage-related securities
|
|
10,752
|
|
(10
|
)
|
|
|
|
|
10,752
|
|
(10
|
)
|
Mortgage backed
securities, including CMOs
|
|
33,919
|
|
(163
|
)
|
68,961
|
|
(1,534
|
)
|
102,880
|
|
(1,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
141,769
|
|
$
|
(347
|
)
|
$
|
218,606
|
|
$
|
(3,083
|
)
|
$
|
360,375
|
|
$
|
(3,430
|
)
|
All unrealized losses are
reviewed to determine whether the losses are other than temporary. Management
evaluates securities for other than temporary impairment on a quarterly basis,
and more frequently when economic or market conditions warrant such evaluation.
Factors considered include whether the securities are backed by the U.S.
Government or its agencies and concerns surrounding the recovery of full
principal. Unrealized losses on corporate bonds have not been recognized into
income because the bonds are of investment-grade quality, the bonds continue to
perform according to the contractual terms, all interest payments are current,
and management has the intent and ability to hold for the foreseeable future.
The fair value is expected to recover as the bonds approach maturity.
Unrealized losses on corporate
mortgage backed securities and other corporate mortgage related securities have
not been recognized into income because the issuer(s) bonds are of high
credit quality (rated AA or higher) and management has the intent and ability
to hold for the foreseeable future. As such, the fair value of the corporate
mortgage backed securities and other corporate mortgage related securities is
expected to recover as the securities approach maturity.
80
4. LOANS AND ALLOWANCE FOR LOAN
LOSSES
The composition of loans follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Residential real
estate
|
|
$
|
1,168,591
|
|
$
|
1,173,813
|
|
Commercial real
estate
|
|
658,987
|
|
652,773
|
|
Real estate
construction
|
|
163,700
|
|
105,318
|
|
Commercial
|
|
90,741
|
|
66,559
|
|
Consumer
|
|
33,310
|
|
40,408
|
|
Overdrafts
|
|
1,238
|
|
1,377
|
|
Home equity
|
|
280,506
|
|
258,640
|
|
Total loans
|
|
2,397,073
|
|
2,298,888
|
|
Less: Allowance
for loan losses
|
|
12,735
|
|
11,218
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
2,384,338
|
|
$
|
2,287,670
|
|
An
analysis of the changes in the allowance for loan losses follows:
December 31, (in
thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Allowance for
loan losses, beginning of year
|
|
$
|
11,218
|
|
$
|
11,009
|
|
$
|
13,554
|
|
Addition
resulting from the acquisition of GulfStream Community Bank
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
loan losses from continuing operations
|
|
6,820
|
|
2,302
|
|
340
|
|
Provision for
loans losses from discontinued operations
|
|
|
|
(355
|
)
|
(902
|
)
|
Total Provision
for loan losses
|
|
6,820
|
|
1,947
|
|
(562
|
)
|
|
|
|
|
|
|
|
|
Charge offs
Banking
|
|
(3,264
|
)
|
(2,539
|
)
|
(1,496
|
)
|
Charge offs
Tax Refund Solutions
|
|
(4,246
|
)
|
(1,358
|
)
|
(2,213
|
)
|
Charge offs
Discontinued operations
|
|
|
|
(409
|
)
|
(212
|
)
|
Total Charge
offs
|
|
(7,510
|
)
|
(4,306
|
)
|
(3,921
|
)
|
|
|
|
|
|
|
|
|
Recoveries
Banking
|
|
858
|
|
776
|
|
667
|
|
Recoveries Tax
Refund Solutions
|
|
1,349
|
|
1,323
|
|
1,257
|
|
Recoveries
Discontinued operations
|
|
|
|
82
|
|
14
|
|
Total Recoveries
|
|
2,207
|
|
2,181
|
|
1,938
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, end of year
|
|
$
|
12,735
|
|
$
|
11,218
|
|
$
|
11,009
|
|
Information regarding Republics impaired loans
follows:
As of and for the years ended
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Loans with no
allocated allowance for loan losses
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Loans with
allocated allowance for loan losses
|
|
|
|
525
|
|
1,295
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
525
|
|
$
|
1,295
|
|
|
|
|
|
|
|
|
|
Amount of the
allowance for loan losses allocated
|
|
$
|
|
|
$
|
120
|
|
$
|
328
|
|
Average
investment in impaired loans
|
|
|
|
872
|
|
1,684
|
|
Interest income
recognized during impairment
|
|
|
|
|
|
|
|
Interest income
recognized on a cash basis on impaired loans
|
|
|
|
|
|
|
|
81
4. LOANS AND ALLOWANCE FOR LOAN
LOSSES
Detail
of non-performing loans and non-performing assets follows:
As of December 31, (dollars in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Loans on
non-accrual status
|
|
$
|
8,303
|
|
$
|
5,980
|
|
$
|
5,725
|
|
Loans past due
90 days or more and still on accrual
|
|
1,318
|
|
413
|
|
295
|
|
Total
non-performing loans
|
|
9,621
|
|
6,393
|
|
6,020
|
|
Other real
estate owned
|
|
795
|
|
547
|
|
452
|
|
Total
non-performing assets
|
|
$
|
10,416
|
|
$
|
6,940
|
|
$
|
6,472
|
|
Non-performing
loans to total loans
|
|
0.40
|
%
|
0.28
|
%
|
0.29
|
%
|
Non-performing
assets to total loans
|
|
0.43
|
|
0.30
|
|
0.31
|
|
Non-performing
loans include impaired loans and smaller balance homogeneous loans as defined
in Footnote 1 Summary of Significant Accounting Policies
in this section of the document.
5. SECURITIZATION
In January 2006, the Company
established TRS RAL Funding, LLC (TRS RAL, LLC), a qualified special purpose
entity (QSPE) and wholly-owned subsidiary corporation of RB&T. The QSPE
securitized and sold a portion of the RAL portfolio to an independent third
party during the first quarters of 2007 and 2006, respectively. The purpose of
the securitization was to provide a funding source for the Companys RAL
portfolio and also reduce the impact to regulatory capital.
As
part of the securitization, the Company established a two step structure to
handle the sale of the assets to third party investors. In the first step, a
sale provided for TRS RAL, LLC to purchase the assets from RB&T as
Originator and Servicer. In the second step, a sale and administration
agreement was entered into by and among TRS RAL, LLC and various other third
parties with TRS RAL, LLC retaining a residual interest in an
over-collateralization. The residual value related to the securitization is
presented as a trading security on the balance sheet and was $0 at December 31,
2007 and 2006.
Detail of Net RAL
securitization income follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Net gain on sale
of RALs
|
|
$
|
2,261
|
|
$
|
2,022
|
|
Increase in
securitization residual
|
|
1,511
|
|
749
|
|
Net RAL
securitization income
|
|
$
|
3,772
|
|
$
|
2,771
|
|
82
6. MORTGAGE BANKING ACTIVITIES
Mortgage loans held for
sale activity follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
5,724
|
|
$
|
6,582
|
|
Origination of
mortgage loans held for sale
|
|
213,858
|
|
194,124
|
|
Proceeds from
the sale of mortgage loans held for sale
|
|
(217,489
|
)
|
(196,565
|
)
|
Net gain on sale
of mortgage loans held for sale
|
|
2,185
|
|
1,583
|
|
Less: Allowance
to adjust to lower of cost or market
|
|
|
|
|
|
Ending balance
|
|
$
|
4,278
|
|
$
|
5,724
|
|
Mortgage
loans serviced for others are not reported as assets. Republic serviced loans
for others (primarily FHLMC) totaling $1.0 billion and $923 million at December 31,
2007 and 2006. Servicing loans for others generally consists of collecting
mortgage payments, maintaining escrow accounts, disbursing payments to
investors and processing foreclosures. Custodial escrow account balances
maintained in connection with serviced loans were $14.3 million and $12.3
million at December 31, 2007 and 2006.
Mortgage
banking activities primarily include residential mortgage originations and
servicing. The following table presents the components of mortgage banking
income:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Net gain on sale
of mortgage loans held for sale
|
|
$
|
2,185
|
|
$
|
1,583
|
|
$
|
2,265
|
|
Net loan
servicing income, net of amortization
|
|
788
|
|
733
|
|
486
|
|
Mortgage banking
income
|
|
$
|
2,973
|
|
$
|
2,316
|
|
$
|
2,751
|
|
Net
loan servicing income above consists of loan servicing income of $2,406,000,
$2,304,000 and $2,173,000 for the years ended 2007, 2006 and 2005 net of
amortization of $1,618,000, $1,571,000 and $1,687,000 for the same periods,
respectively.
Activity
for capitalized mortgage servicing rights is as follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
6,072
|
|
$
|
6,370
|
|
$
|
5,321
|
|
Additions
|
|
2,252
|
|
1,273
|
|
2,736
|
|
Amortization
|
|
(1,618
|
)
|
(1,571
|
)
|
(1,687
|
)
|
|
|
|
|
|
|
|
|
Balance, end of
year
|
|
$
|
6,706
|
|
$
|
6,072
|
|
$
|
6,370
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
$
|
|
|
$
|
|
|
$
|
|
|
The
fair value of capitalized MSRs was $10.3 million and $9.0 million at December 31,
2007 and 2006. The fair value for year end 2007 and 2006 was calculated using a
discount rate of 10%, prepayment speeds ranging from 190% to 353%, depending on
the stratification of the specific MSR, and a weighted average default rate of
1.5%.
The
weighted average estimated remaining life of the MSR portfolio is 5.19 years.
Estimated amortization expense for the next four years is approximately $1.2
million per year and $841,000, $741,000 and $241,000 for years five through
seven; however, actual amortization expense will be impacted by loan payoffs
and changes in estimated lives that occur during each respective year.
83
Mortgage
banking derivatives used in the ordinary course of business consist of
mandatory forward sales contracts (forward contracts) and rate lock loan
commitments. Forward contracts represent future commitments to deliver loans at
a specified price and date and are used to manage interest rate risk on loan
commitments and mortgage loans held for sale. Rate lock commitments represent
commitments to fund loans at a specific rate. These derivatives involve underlying
items, such as interest rates, and are designed to transfer risk. Substantially
all of these instruments expire within 90 days from the date of issuance.
Notional amounts are amounts on which calculations and payments are based, but
which do not represent credit exposure, as credit exposure is limited to the
amounts required to be received or paid. The approximate notional amounts and
realized gain / (loss) for mortgage banking derivatives follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Forward
contracts:
|
|
|
|
|
|
Notional amount
|
|
$
|
10,700
|
|
$
|
14,500
|
|
Gain/(loss) on
change in market value of forward contracts
|
|
(41
|
)
|
93
|
|
|
|
|
|
|
|
Rate lock loan
commitments:
|
|
|
|
|
|
Notional amount
|
|
$
|
9,635
|
|
$
|
13,443
|
|
Gain/(loss) on
change in market value of rate lock commitments
|
|
24
|
|
(38
|
)
|
Forward
contracts also contain an element of risk in the event that the counterparties
may be unable to meet the terms of such agreements. In the event the parties to
deliver commitments are unable to fulfill their obligations, the Company could
potentially incur significant additional costs by replacing the positions at
then current market rates. The Company minimizes its risk of exposure by
limiting the counterparties to those major banks and financial institutions
that meet established credit and capital guidelines. Management does not expect
any counterparty to default on their obligations and therefore, management does
not expect to incur any cost related to counterparty default.
The
Company is exposed to interest rate risk on loans held for sale and rate lock
commitments. As market interest rates increase or decrease, the fair value of
mortgage loans held for sale and rate lock commitments will decline or
increase. To offset this interest rate risk, the Company enters into
derivatives such as forward contracts to sell loans. The fair value of these
forward contracts will change as market interest rates change, and the change
in the value of these instruments is expected to largely, though not entirely,
offset the change in fair value of loans held for sale and rate lock
commitments. The objective of this activity is to minimize the exposure to
losses on rate lock commitments and loans held for sale due to market interest
rate fluctuations. The net effect of derivatives on earnings will depend on
risk management activities and a variety of other factors, including market
interest rate volatility, the amount of rate lock commitments that close, the
ability to fill the forward contracts before expiration, and the time period
required to close and sell loans.
7. PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation of
premises and equipment follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Land
|
|
$
|
6,550
|
|
$
|
6,550
|
|
Buildings and
improvements
|
|
26,694
|
|
22,501
|
|
Furniture,
fixtures and equipment
|
|
36,625
|
|
40,815
|
|
Leasehold
improvements
|
|
9,491
|
|
9,806
|
|
Construction in
progress
|
|
415
|
|
708
|
|
|
|
|
|
|
|
Total premises
and equipment
|
|
79,775
|
|
80,380
|
|
Less:
Accumulated depreciation and amortization
|
|
40,069
|
|
43,820
|
|
|
|
|
|
|
|
Premises and
equipment, net
|
|
$
|
39,706
|
|
$
|
36,560
|
|
Depreciation expense related to premises and equipment
was $5.5 million in 2007, $5.4 million in 2006 and $5.7 million in 2005.
84
8. GOODWILL AND INTANGIBLE ASSETS
The change in balance for goodwill follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Beginning of
year
|
|
$
|
10,016
|
|
$
|
|
|
Acquired
goodwill
|
|
|
|
10,016
|
|
Adjustments
|
|
152
|
|
|
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
10,168
|
|
$
|
10,016
|
|
Acquired intangible assets consisted of core deposit
intangibles with an initial gross carrying amount of $601,000 and current
accumulated amortization of $181,000 at December 31, 2007.
Aggregate amortization expense was $144,000, $37,000
and $0 for 2007, 2006 and 2005.
Estimated future amortization expense is as follows:
Year
|
|
(in thousands)
|
|
|
|
|
|
2008
|
|
$
|
122
|
|
2009
|
|
101
|
|
2010
|
|
80
|
|
2011
|
|
59
|
|
2012
|
|
37
|
|
2013
|
|
21
|
|
|
|
|
|
|
9. DEPOSITS
Time
deposits of $100,000 or more were $175 million and $172 million at December 31,
2007 and 2006.
At December 31,
2007, the scheduled maturities of all time deposits at weighted average
interest rates were as follows:
Year
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
636,797
|
|
4.62
|
%
|
2009
|
|
109,934
|
|
4.40
|
|
2010
|
|
36,126
|
|
4.77
|
|
2011
|
|
23,195
|
|
4.94
|
|
2012
|
|
8,777
|
|
4.56
|
|
Thereafter
|
|
104
|
|
4.10
|
|
|
|
|
|
|
|
Total
|
|
$
|
814,933
|
|
4.60
|
%
|
85
10. SECURITIES
SOLD UNDER AGREEMENTS TO REPURCHASE
Securities
sold under agreements to repurchase consist of short-term excess funds from
correspondent banks, repurchase agreements and overnight liabilities to deposit
customers arising from Republics treasury management program. While comparable
to deposits in their transactional nature, these overnight liabilities to
customers are in the form of repurchase agreements. Repurchase agreements
collateralized by securities are treated as financings; accordingly, the
securities involved with the agreements are recorded as assets and are held by
a safekeeping agent and the obligations to repurchase the securities are
reflected as liabilities. All securities underlying the agreements are under
Republics control.
Information regarding Securities sold under agreements
to repurchase follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Outstanding
balance at end of year
|
|
$
|
398,296
|
|
$
|
401,886
|
|
$
|
292,259
|
|
Weighted average
interest at year end
|
|
3.40
|
%
|
4.52
|
%
|
3.59
|
%
|
Average
outstanding balance during the year
|
|
$
|
433,809
|
|
$
|
374,937
|
|
$
|
359,327
|
|
Average interest
rate during the year
|
|
4.40
|
%
|
4.24
|
%
|
2.76
|
%
|
Maximum
outstanding at any month end
|
|
$
|
493,838
|
|
$
|
403,003
|
|
$
|
384,147
|
|
At December 31,
2007, Securities Sold Under Agreements to Repurchase had maturities and
weighted average interest rates as follows:
Maturity
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Overnight
|
|
$
|
330,495
|
|
3.16
|
%
|
2 30 days
|
|
1,517
|
|
4.60
|
|
30 90 days
|
|
59,600
|
|
4.60
|
|
Over 90 days
|
|
6,684
|
|
4.07
|
|
Total
|
|
$
|
398,296
|
|
3.40
|
|
Securities pledged to secure
public deposits, securities sold under agreements to repurchase and securities
held for other purposes, as required or permitted by law are as follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Carrying value
|
|
$
|
518,947
|
|
$
|
470,777
|
|
Fair value
|
|
519,834
|
|
469,148
|
|
|
|
|
|
|
|
|
|
86
11. FHLB ADVANCES
At
year-end, FHLB advances were as follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
FHLB putable
fixed interest rate advances with
a weighted average interest rate of 4.51%(1)
|
|
$
|
150,000
|
|
$
|
50,000
|
|
|
|
|
|
|
|
Overnight FHLB
advances with a interest rate of 2.50%
|
|
35,000
|
|
98,000
|
|
|
|
|
|
|
|
FHLB fixed
interest rate advances with a weighted average
interest rate of 4.19% due through 2035
|
|
293,550
|
|
498,572
|
|
|
|
|
|
|
|
Total FHLB
advances
|
|
$
|
478,550
|
|
$
|
646,572
|
|
(1) Represents
putable advances with the FHLB. These advances have original fixed rate periods
ranging from one to five years with original maturities ranging from three to
ten years if not put back to the Company earlier by the FHLB. At the end of
their respective fixed rate periods and on a quarterly basis thereafter, the
FHLB has the right to require payoff of the advances by the Company at no
penalty. During the first quarter of 2007, the Company entered into $100
million of putable advances with a final maturity of 10 years and a fixed rate
period of 3 years. Based on market conditions at this time, management does not
believe that any of its putable advances are likely to be put back to the
Company in the short-term by the FHLB.
Each
FHLB advance is payable at its maturity date, with a prepayment penalty for
fixed rate advances paid off earlier than maturity. FHLB advances are
collateralized by a blanket pledge of eligible real estate loans. At December 31,
2007, Republic had available collateral to borrow an additional $545 million
from the FHLB. In addition to its borrowing line with the FHLB, Republic also
had unsecured lines of credit totaling $227 million available through various
other financial institutions.
Aggregate future
principal payments on FHLB advances, based on contractual maturity dates are
detailed below:
Year
|
|
(in thousands)
|
|
|
|
|
|
2008
|
|
$
|
173,500
|
|
2009
|
|
107,200
|
|
2010
|
|
42,370
|
|
2011
|
|
30,000
|
|
2012
|
|
20,000
|
|
Thereafter
|
|
105,480
|
|
Total
|
|
$
|
478,550
|
|
The
following table illustrates real estate loans pledged to collateralize advances
and letters of credit from the FHLB:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
First lien,
single family residential
|
|
$
|
854,000
|
|
$
|
842,000
|
|
Home equity
lines of credit
|
|
114,000
|
|
82,000
|
|
Multi-family,
commercial real estate
|
|
29,000
|
|
43,000
|
|
Commercial real
estate
|
|
39,000
|
|
|
|
|
|
|
|
|
|
|
|
87
12. SUBORDINATED NOTE
In 2005, Republic Bancorp
Capital Trust (RBCT), an unconsolidated trust subsidiary of Republic Bancorp, Inc.,
issued $40 million in Trust Preferred Securities (TPS). The TPS mature in
September, 2035 and are redeemable at the Companys option after ten years. The
TPS pay a fixed interest rate for 10 years and adjust with LIBOR thereafter.
RBCT used the proceeds from the sale of the TPS to purchase $41.2 million of
unsecured fixed/floating rate subordinated debentures. The subordinated
debentures mature in whole in September, 2035 and are redeemable at the Companys
option after ten years. The subordinated debentures are currently treated as
Tier 1 Capital for regulatory purposes and the related interest expense,
currently payable quarterly at the annual rate of 6.015%, are included in the
consolidated financial statements.
In 2004, the Company
executed an intragroup trust preferred transaction through its subsidiary
Republic Invest Co., with the purpose of providing RB&T access to
additional capital markets, if needed, in the future. On a consolidated basis,
this transaction had no impact to the capital levels and ratios of the Company.
The subordinated debentures held by RB&T, as a result of this transaction,
however, are treated as Tier 2 capital based on requirements administered by
the Banks federal banking agency. The Company could immediately modify the
transaction to provide up to $24 million to RB&T in additional capital to
assist in maintaining minimum well-capitalized regulatory ratios. These
subordinated debentures mature in whole in March, 2034.
88
13. INCOME
TAXES
Allocation
of federal income tax between current and deferred portion is as follows:
Years Ended December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Current expense
from continuing operations:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
13,932
|
|
$
|
13,216
|
|
$
|
15,077
|
|
State
|
|
298
|
|
281
|
|
199
|
|
Deferred expense
from continuing operations:
|
|
|
|
|
|
|
|
Federal
|
|
(934
|
)
|
1,148
|
|
235
|
|
State
|
|
(15
|
)
|
73
|
|
13
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,281
|
|
$
|
14,718
|
|
$
|
15,524
|
|
The
provision for income taxes differs from the amount computed at the statutory
rate as follows:
Years Ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Federal statutory
rate
|
|
35.00
|
%
|
35.00
|
%
|
35.00
|
%
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
State taxes, net
of federal tax benefit
|
|
0.49
|
|
0.54
|
|
0.30
|
|
General business
tax credits
|
|
(1.95
|
)
|
(1.29
|
)
|
(1.40
|
)
|
Other, net
|
|
1.23
|
|
0.11
|
|
0.14
|
|
|
|
|
|
|
|
|
|
Effective tax
rate
|
|
34.77
|
%
|
34.36
|
%
|
34.04
|
%
|
The
tax effects of temporary differences that give rise to the deferred tax assets
and deferred tax liabilities are as follows:
December 31, (in thousands)
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Deferred tax
assets:
|
|
|
|
|
|
|
|
Allowance for
loan losses
|
|
|
|
$
|
3,650
|
|
$
|
3,078
|
|
Unrealized
securities (gains)/losses
|
|
|
|
(98
|
)
|
749
|
|
Net operating
loss
|
|
|
|
46
|
|
46
|
|
Accrued expenses
|
|
|
|
1,916
|
|
2,007
|
|
Total deferred
tax assets
|
|
|
|
5,514
|
|
5,880
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
(294
|
)
|
(907
|
)
|
Federal Home
Loan Bank dividends
|
|
|
|
(3,984
|
)
|
(3,869
|
)
|
Stock options
|
|
|
|
(3
|
)
|
|
|
Deferred loan
fees
|
|
|
|
(861
|
)
|
(1,266
|
)
|
Mortgage
servicing rights
|
|
|
|
(2,369
|
)
|
(2,145
|
)
|
Other
|
|
|
|
(625
|
)
|
(441
|
)
|
|
|
|
|
|
|
|
|
Total deferred
tax liabilities
|
|
|
|
(8,136
|
)
|
(8,628
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax
liability
|
|
|
|
$
|
(2,622
|
)
|
$
|
(2,748
|
)
|
89
Unrecognized
Tax Benefits
The Company has not filed tax returns in certain
jurisdictions where it has conducted limited lending activity but had no
offices; therefore, the Company is open to examination for all years in which
the lending activity has occurred. The Company adopted the provisions of FIN 48
on January 1, 2007 and recognized a decrease in stockholders equity of
$359,000 for unrecognized tax benefits. The liability recorded included an
estimate of the amount of tax which would be due to those jurisdictions should
it be determined that income tax filings were required. It is the Companys
policy to recognize interest and penalties as a component of income tax expense
related to its unrecognized tax benefits. The Company is currently negotiating
settlements of past tax liabilities with certain jurisdictions under voluntary
disclosure programs.
A reconciliation
of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
(in thousands)
|
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
595
|
|
Additions based on tax
positions related to the current year
|
|
93
|
|
Additions for tax positions of
prior years
|
|
|
|
Reductions for tax positions of
prior years
|
|
(78
|
)
|
Reductions due to the statute
of limitations
|
|
|
|
Settlements
|
|
(160
|
)
|
|
|
|
|
Balance at December 31,
2007
|
|
$
|
450
|
|
Of
this total, $294,000 represents the amount of unrecognized tax benefits that,
if recognized, would favorably affect the effective income tax rate in future
periods. The Company does not expect the total amount of unrecognized tax
benefits to significantly increase or decrease in the next twelve months.
The
total amount of interest and penalties recorded in the income statement for the
year ended December 31, 2007 was $21,000, and the amount accrued for
interest and penalties at December 31, 2007 was $202,000.
The Company files income tax returns in the U.S.
federal jurisdiction. The Company is no longer subject to U.S. federal income
tax examinations by tax authorities for all years prior to and including 2003.
90
14. EARNINGS
PER SHARE
Class A
and Class B shares participate equally in undistributed earnings. The
difference in earnings per share between the two classes of common stock
results solely from the 10% per share cash dividend premium paid on Class A
Common Stock over that paid on Class B Common Stock as discussed in
Footnote 15 Stockholders Equity of this
section of the document.
A
reconciliation of the combined Class A and Class B Common Stock
numerators and denominators of the earnings per share and diluted earnings per
share computations is presented below:
Years Ended December 31, (in thousands, except per share data)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Net income from
continuing operations
|
|
$
|
24,913
|
|
$
|
28,116
|
|
$
|
30,078
|
|
Net income from
discontinued operations
|
|
|
|
235
|
|
4,987
|
|
Net income
|
|
$
|
24,913
|
|
$
|
28,351
|
|
$
|
35,065
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
20,458
|
|
20,500
|
|
20,717
|
|
Effect of
dilutive securities
|
|
382
|
|
578
|
|
853
|
|
Average shares
outstanding including dilutive securities
|
|
20,840
|
|
21,078
|
|
21,570
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share from continuing operations:
|
|
|
|
|
|
|
|
Class A
Common Share
|
|
$
|
1.22
|
|
$
|
1.38
|
|
$
|
1.46
|
|
Class B
Common Share
|
|
1.18
|
|
1.35
|
|
1.43
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share from discontinued operations:
|
|
|
|
|
|
|
|
Class A
Common Share
|
|
$
|
0.00
|
|
$
|
0.01
|
|
$
|
0.24
|
|
Class B
Common Share
|
|
0.00
|
|
0.00
|
|
0.24
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share:
|
|
|
|
|
|
|
|
Class A
Common Share
|
|
$
|
1.22
|
|
$
|
1.39
|
|
$
|
1.70
|
|
Class B
Common Share
|
|
1.18
|
|
1.35
|
|
1.67
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share from continuing operations:
|
|
|
|
|
|
|
|
Class A
Common Share
|
|
$
|
1.20
|
|
$
|
1.35
|
|
$
|
1.40
|
|
Class B
Common Share
|
|
1.16
|
|
1.32
|
|
1.37
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share from discontinued operations:
|
|
|
|
|
|
|
|
Class A
Common Share
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.23
|
|
Class B
Common Share
|
|
0.00
|
|
0.00
|
|
0.23
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share:
|
|
|
|
|
|
|
|
Class A
Common Share
|
|
$
|
1.20
|
|
$
|
1.35
|
|
$
|
1.63
|
|
Class B
Common Share
|
|
1.16
|
|
1.32
|
|
1.60
|
|
Stock options excluded from the detailed earnings per
share calculation because their impact was antidilutive are as follows:
Years Ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Antidilutive
stock options
|
|
367,819
|
|
370,512
|
|
52,424
|
|
91
15. STOCKHOLDERS
EQUITY AND REGULATORY CAPITAL MATTERS
Common Stock The Class A Common shares are entitled to cash
dividends equal to 110% of the cash dividend paid per share on Class B
Common Stock. Class A Common shares have one vote per share and Class B
Common shares have ten votes per share. Class B Common shares may be
converted, at the option of the holder, to Class A Common shares on a
share for share basis. The Class A Common shares are not convertible into
any other class of Republics capital stock.
Dividend Restrictions The Parent Companys principal source
of funds for dividend payments are dividends received from RB&T. Banking
regulations limit the amount of dividends that may be paid to the Parent
Company by the Bank without prior approval of the respective states banking
regulators. Under these regulations, the amount of dividends that may be paid
in any calendar year is limited to the current years net profits, combined
with the retained net profits of the preceding two years. At December 31,
2007, RB&T could, without prior approval, declare dividends of
approximately $61.1 million. The Company does not plan to pay dividends from
its Florida subsidiary, Republic Bank, in the foreseeable future.
Regulatory Capital Requirements RB&T, Republic Bank and the Parent
Company are each subject to regulatory capital requirements administered by
federal banking agencies. RB&T is a Kentucky chartered commercial banking
and trust corporation, and as such, it is subject to supervision and regulation
by the FDIC and the Kentucky Office of Financial Institutions. Republic Bank is
a federally chartered thrift institution, and as such, it is subject to
supervision and regulation by the Office of Thrift Supervision (OTS) and
secondarily by the FDIC, as the deposit insurer. Capital adequacy guidelines
and, additionally for banks, prompt corrective action regulations involve
quantitative measures of assets, liabilities, and certain off balance sheet
items calculated under regulatory accounting practices. Capital amounts and classifications
are also subject to qualitative judgments by regulators. Failure to meet
capital requirements can initiate regulatory action.
Prompt
corrective action regulations provide five classifications: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized, although these terms are not used to represent
overall financial condition. If adequately capitalized, regulatory approval is
required to accept brokered deposits. If undercapitalized, capital
distributions are limited, as is asset growth and expansion, and capital
restoration plans are required. At December 31, 2007 and 2006, the most
recent regulatory notifications categorized the Bank as well-capitalized under
the regulatory framework for prompt corrective action. There are no conditions
or events since that notification that management believes have changed the
institutions category.
With
regard to Republic Bank, the Qualified Thrift Lender (QTL) test requires at
least 65% of assets be maintained in housing related finance and other
specified areas. If this test is not met, limits are placed on growth,
branching, new investments, FHLB advances and dividends, or Republic Bank must
convert to a commercial bank charter. Management believes that this QTL test
was met at December 31, 2007 and 2006.
92
|
|
Actual
|
|
Minimum Requirement
for Capital Adequacy
Purposes
|
|
Minimum Requirement
to be Well Capitalized
Under Prompt
Corrective Action
Provisions
|
|
(dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Risk Based Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
Bancorp, Inc.
|
|
$
|
290,155
|
|
13.90
|
%
|
$
|
166,966
|
|
8
|
%
|
N/A
|
|
N/A
|
|
Republic
Bank & Trust Co.
|
|
272,747
|
|
13.41
|
|
162,658
|
|
8
|
|
$
|
203,323
|
|
10
|
%
|
Republic
Bank
|
|
13,296
|
|
23.70
|
|
4,488
|
|
8
|
|
5,610
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I
Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
Bancorp, Inc.
|
|
277,420
|
|
13.29
|
|
83,483
|
|
4
|
|
N/A
|
|
N/A
|
|
Republic
Bank & Trust Co.
|
|
237,018
|
|
11.66
|
|
81,329
|
|
4
|
|
121,994
|
|
6
|
|
Republic
Bank
|
|
12,840
|
|
22.89
|
|
2,244
|
|
4
|
|
3,366
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I
Leverage Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
Bancorp, Inc.
|
|
277,420
|
|
8.75
|
|
126,890
|
|
4
|
|
N/A
|
|
N/A
|
|
Republic
Bank & Trust Co.
|
|
237,018
|
|
7.66
|
|
123,781
|
|
4
|
|
154,726
|
|
5
|
|
Republic
Bank
|
|
12,840
|
|
16.59
|
|
3,520
|
|
4
|
|
4,400
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Requirement
for Capital Adequacy
Purposes
|
|
Minimum Requirement to
be Well Capitalized
Under Prompt Corrective
Action Provisions
|
|
(dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk Based
Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
Bancorp, Inc.
|
|
$
|
280,354
|
|
14.30
|
%
|
$
|
156,791
|
|
8
|
%
|
N/A
|
|
N/A
|
|
Republic
Bank & Trust Co.
|
|
253,861
|
|
13.32
|
|
152,431
|
|
8
|
|
$
|
190,538
|
|
10
|
%
|
Republic Bank
|
|
11,938
|
|
20.68
|
|
4,617
|
|
8
|
|
5,772
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
Bancorp, Inc.
|
|
269,136
|
|
13.73
|
|
78,395
|
|
4
|
|
N/A
|
|
N/A
|
|
Republic
Bank & Trust Co.
|
|
219,582
|
|
11.52
|
|
76,215
|
|
4
|
|
114,323
|
|
6
|
|
Republic Bank
|
|
11,546
|
|
20.00
|
|
2,309
|
|
4
|
|
3,463
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Leverage
Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
Bancorp, Inc.
|
|
269,136
|
|
8.92
|
|
120,768
|
|
4
|
|
N/A
|
|
N/A
|
|
Republic Bank &
Trust Co.
|
|
219,582
|
|
7.45
|
|
117,989
|
|
4
|
|
147,486
|
|
5
|
|
Republic Bank
|
|
11,546
|
|
13.12
|
|
3,520
|
|
4
|
|
4,400
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
16. STOCK PLANS AND STOCK BASED COMPENSATION
At December 31,
2007, the Company had two stock option plans and a director deferred
compensation plan. The stock option plans consist of the 1995 Stock Option Plan
(1995 Plan) and the 2005 Stock Incentive Plan (2005 Plan). With regard to
the 1995 Plan, no additional grants were made in 2007 and none will be made in
the future.
The
Company recorded stock option compensation expense of $961,000 and $844,000
during 2007 and 2006. Since the stock options are incentive stock options and
there were no disqualifying dispositions, no tax benefit related to this
expense was recognized. No options were modified during the years ended December 31,
2007, 2006 and 2005.
The
2005 Plan permits the grant of stock options and stock awards for up to
3,307,500 shares of common stock. The Company believes that such awards better
align the interests of its employees with those of its shareholders. Options
awards generally become fully exercisable at the end of five to six years of
continued employment and must be exercised within one year from the date the options
become exercisable. There were no Class B stock options outstanding during
each of the periods presented. All stock options have an exercise price that is
at least equal to the fair market value of the Companys stock on the date the
options were granted. All shares issued under the above mentioned plans came
from authorized and unissued shares. Currently, the Company has a sufficient number of shares to satisfy
expected share option exercises.
The
fair value of each stock option granted is estimated on the date of grant using
the Black-Scholes based stock option valuation model. This model requires the
input of subjective assumptions that will usually have a significant impact on
the fair value estimate. Expected volatilities are based on historical
volatility of Republics stock and other factors. Expected dividends are based
on dividend trends and the market price of Republics stock price at grant.
Republic uses historical data to estimate option exercises and employee
terminations within the valuation model. The risk-free rate for periods within
the contractual life of the option is based on the U.S. Treasury yield curve at
the time of grant.
The
weighted average assumptions for options granted during the year and the
resulting estimated weighted average fair values per share used in the
Black-Scholes option pricing model are as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
4.66
|
%
|
4.53
|
%
|
3.75
|
%
|
Expected
dividend yield
|
|
1.98
|
|
1.59
|
|
1.48
|
|
Expected life of
options (in years)
|
|
6.00
|
|
6.00
|
|
5.55
|
|
Expected stock
price volatility
|
|
22.31
|
%
|
22.23
|
%
|
27.92
|
%
|
Estimated fair
value per share
|
|
$
|
5.52
|
|
$
|
6.16
|
|
$
|
6.17
|
|
|
|
|
|
|
|
|
|
|
|
|
94
The
following table summarizes stock option activity for 2007:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
Options
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
Class A
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
January 1, 2007
|
|
1,690,314
|
|
$
|
14.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
12,000
|
|
22.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(202,744
|
)
|
8.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or
expired
|
|
(75,360
|
)
|
15.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2007
|
|
1,424,210
|
|
$
|
14.80
|
|
2.68
|
|
$
|
6,264,000
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested and
expected to vest
|
|
1,350,735
|
|
$
|
14.52
|
|
1.70
|
|
$
|
6,173,262
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
(vested) at December 31, 2007
|
|
189,707
|
|
$
|
8.66
|
|
0.28
|
|
$
|
1,730,000
|
|
Information related to
the stock option plan during each year follows:
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Intrinsic value
of options exercised
|
|
$
|
2,232
|
|
$
|
3,032
|
|
$
|
953
|
|
Cash received
from option exercised
|
|
1,377
|
|
754
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
executive officer employees had loans outstanding of $862,000 and $843,000 at December 31,
2007 and 2006 that were originated to fund stock option exercises.
Unrecognized
stock option compensation expense related to unvested awards (net of estimated
forfeitures) for 2008 and beyond is estimated as follows:
Year
|
|
(in thousands)
|
|
|
|
|
|
2008
|
|
$
|
804
|
|
2009
|
|
618
|
|
2010
|
|
411
|
|
2011
|
|
353
|
|
2012 and
thereafter
|
|
145
|
|
|
|
|
|
Total
|
|
$
|
2,331
|
|
In November 2004,
the Companys Board of Directors approved a Non Qualified Deferred Compensation
Plan (the Plan). The Plan governs the deferral of board and committee fees of
non-employee members of the Board of Directors. Members of the Board of
Directors may defer up to 100% of their board and committee fees for a
specified period ranging from two to five years. The value of the deferred
director compensation account is deemed invested in Company stock and is
immediately vested. On a quarterly basis, the Company reserves shares of
Republics stock within the Companys stock option plan for ultimate
distribution to Directors at the end of the deferral period. The Plan has not
and will not materially impact the Company, as director compensation expense
has been and will continue to be recorded when incurred.
95
The
following table presents information on director deferred compensation shares
reserved for the periods shown:
|
|
2007
|
|
2006
|
|
Years ended December 31,
|
|
Deferred
Shares
|
|
Weighted Average
Market Price at
Date of Deferral
|
|
Deferred
Shares
|
|
Weighted Average
Market Price at Date
of Deferral
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
12,545
|
|
$
|
20.02
|
|
6,085
|
|
$
|
19.53
|
|
Awarded
|
|
8,249
|
|
17.79
|
|
6,460
|
|
20.48
|
|
Released
|
|
(640
|
)
|
19.47
|
|
|
|
|
|
Balance, end of
period
|
|
20,154
|
|
$
|
17.65
|
|
12,545
|
|
$
|
20.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director deferred compensation has been expensed as
follows:
Years ended December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Director
deferred compensation expense
|
|
$
|
146
|
|
$
|
133
|
|
|
|
|
|
|
|
|
|
17. BENEFIT PLANS
Republic maintains a 401(k) plan for full time
employees who have been employed for 1,000 hours in a plan year and have
reached the age of 21. Participants in the plan have the option to contribute
from 1% to 25% of their annual compensation. Republic matches 50% of
participant contributions up to 5% of each participants annual compensation.
Republics contribution may increase if the Company achieves certain operating
goals. Republics matching contributions were $658,000, $607,000 and $879,000
for the years ended December 31, 2007, 2006 and 2005. The Company did not
contribute a bonus 401(k) match payment in 2007 and 2006 because the
Company failed to achieve its required income goals to pay the match. The bonus
match totaled $300,000 in 2005.
Republic
also maintains an Employee Stock Ownership Plan (ESOP) for the benefit of its
employees. Shares in the ESOP are allocated to eligible employees based on the
principal payments of the associated loan over the term of the loan, which is
ten years. Participants become fully vested in allocated shares after five
years of credited service and may receive their distributions in the form of
cash or stock. At December 31, 2007, approximately 49,000 unallocated
shares had a fair value of $808,000.
Years Ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Unearned shares
allocated to participants in the plan
|
|
45,939
|
|
42,559
|
|
40,055
|
|
Compensation
expense
|
|
$
|
850,000
|
|
$
|
852,000
|
|
$
|
809,000
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company maintains a death benefit for the Chairman of the Company equal to
three times the average compensation paid for the two years proceeding death.
Upon a change in control, defined as a sale or assignment of more than 55% of
the outstanding stock of the Company, the death benefit is canceled.
96
18. LEASES,
TRANSACTIONS WITH AFFILIATES AND RELATED PARTY TRANSACTIONS
Republic
leases office facilities under operating leases from Republics Chairman and
from partnerships in which Republics Chairman, Chief Executive Officer and
Vice Chairman are partners. Rent expense for the years ended December 31,
2007, 2006 and 2005 under these leases was $2,261,000, $2,245,000 and
$1,997,000. Total rent expense on all operating leases was $4.3 million, $4.6
million and $3.3 million for the years ended December 31, 2007, 2006 and
2005. Total minimum lease commitments under non cancelable operating leases are
as follows:
(in thousands)
|
|
Affiliate
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
2,151
|
|
$
|
2,842
|
|
$
|
4,993
|
|
2009
|
|
1,879
|
|
2,835
|
|
4,714
|
|
2010
|
|
1,628
|
|
2,590
|
|
4,218
|
|
2011
|
|
904
|
|
2,327
|
|
3,231
|
|
2012
|
|
|
|
1,835
|
|
1,835
|
|
Thereafter
|
|
|
|
11,468
|
|
11,468
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,562
|
|
$
|
23,897
|
|
$
|
30,459
|
|
A
director of Republic Bancorp, Inc. is the President and Chief Executive
Officer of a company that leases space to Republic. Fees paid to the Company
totaled $13,000 for each of the years ended December 31, 2007, 2006 and
2005.
A
director of Republic Bancorp, Inc. is the President of an insurance agency
that is agent of record for the Companys workers compensation insurance.
Commissions paid to the insurance agency totaled $96,000, $55,000 and $38,000
in 2007, 2006 and 2005.
A
director of RB&T is counsel for a local law firm. Fees paid by Republic to
this firm totaled $168,000, $163,000 and $127,000 in 2007, 2006 and 2005.
Loans
made to executive officers and directors of Republic and their related
interests during 2007 are as follows:
|
|
(in thousands)
|
|
|
|
|
|
Beginning
balance
|
|
$
|
19,955
|
|
Change
in related party status
|
|
5,436
|
|
New
loans
|
|
6,251
|
|
Repayments
|
|
(7,251
|
)
|
|
|
|
|
Total
|
|
$
|
24,391
|
|
Deposits
from executive officers, directors, and their affiliates totaled $18.9 million,
$24.0 million and $10.6 million at December 31, 2007, 2006 and 2005.
97
19. OFF BALANCE SHEET RISKS,
COMMITMENTS AND CONTINGENT LIABILITIES
Republic
is a party to financial instruments with off balance sheet risk in the normal
course of business in order to meet the financing needs of its customers. These
financial instruments primarily include commitments to extend credit and
standby letters of credit. The contract or notional amounts of these
instruments reflect the potential future obligations of Republic pursuant to
those financial instruments. Creditworthiness for all instruments is evaluated
on a case by case basis in accordance with Republics credit policies.
Collateral from the customer may be required based on managements credit
evaluation of the customer and may include business assets of commercial
customers, as well as personal property and real estate of individual customers
or guarantors.
Republic
also extends binding commitments to customers and prospective customers. Such
commitments assure the borrower of financing for a specified period of time at
a specified rate. The risk to Republic under such loan commitments is limited
by the terms of the contracts. For example, Republic may not be obligated to
advance funds if the customers financial condition deteriorates or if the
customer fails to meet specific covenants. An approved but unfunded loan
commitment represents a potential credit risk once the funds are advanced to
the customer. Unfunded loan commitments also represent liquidity risk since the
customer may demand immediate cash that would require funding and interest rate
risk as market interest rates may rise above the rate committed. In addition,
since a portion of these loan commitments normally expire unused, the total
amount of outstanding commitments at any point in time may not require future
funding.
As of December 31,
2007, exclusive of mortgage banking loan commitments discussed in Footnote 1 Summary of Significant Accounting Policies, Republic had
outstanding loan commitments of $487 million, which included unfunded home
equity lines of credit totaling $326 million. At December 31, 2006,
Republic had outstanding loan commitments of $476 million, which included
unfunded home equity lines of credit totaling $315 million. These commitments
generally have variable rates.
Standby
letters of credit are conditional commitments issued by Republic to guarantee
the performance of a customer to a third party. The terms and risk of loss
involved in issuing standby letters of credit are similar to those involved in
issuing loan commitments and extending credit. Commitments outstanding under
standby letters of credit totaled $38 million and $9 million at December 31,
2007 and 2006. Approximately $14 million of the 2007 increase relates to a
single letter of credit that originated during the second quarter.
At December 31,
2007, Republic had $12 million in letters of credit from the FHLB issued on
behalf of the Banks customers as compared to $72 million at December 31,
2006. Approximately $12 million of these letters of credit were used as credit
enhancements for client bond offerings at December 31, 2007 and 2006,
respectively. The remaining $60 million letter of credit at December 31,
2006 was used to collateralize a public funds deposit, which was classified in
short-term borrowings. These letters of credit reduce Republics available
borrowing line at the FHLB. Republic uses a blanket pledge of eligible real
estate loans to secure the letters of credit.
98
20. FAIR
VALUE OF FINANCIAL INSTRUMENTS
The estimated
fair value of financial instruments has been determined by Republic using
available market information and appropriate valuation methodologies. However,
judgment of management is required to interpret market data to develop
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts Republic could realize in a market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
|
|
2007
|
|
2006
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
December 31, (in
thousands)
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
86,177
|
|
$
|
86,177
|
|
$
|
81,613
|
|
$
|
81,613
|
|
Securities
available for sale
|
|
528,471
|
|
528,750
|
|
505,869
|
|
503,727
|
|
Securities to be
held to maturity
|
|
51,886
|
|
52,794
|
|
58,045
|
|
58,824
|
|
Mortgage loans
held for sale
|
|
4,278
|
|
4,310
|
|
5,724
|
|
5,750
|
|
Loans
|
|
2,397,073
|
|
2,412,190
|
|
2,298,888
|
|
2,291,580
|
|
Allowance for
loan losses
|
|
12,735
|
|
12,735
|
|
11,218
|
|
11,218
|
|
Federal Home
Loan Bank stock
|
|
23,955
|
|
23,955
|
|
23,111
|
|
23,111
|
|
Accrued interest
receivable
|
|
14,053
|
|
14,053
|
|
14,081
|
|
14,081
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Non
interest-bearing accounts
|
|
$
|
279,457
|
|
$
|
279,457
|
|
$
|
279,026
|
|
$
|
279,026
|
|
Transaction
accounts
|
|
874,422
|
|
874,422
|
|
751,993
|
|
751,993
|
|
Time deposits
|
|
814,933
|
|
824,428
|
|
661,703
|
|
661,597
|
|
Securities sold
under agreements to
|
|
|
|
|
|
|
|
|
|
repurchase and
other short-term borrowings
|
|
398,296
|
|
398,296
|
|
401,886
|
|
401,886
|
|
Subordinated
note
|
|
41,240
|
|
41,142
|
|
41,240
|
|
39,991
|
|
Federal Home
Loan Bank advances
|
|
478,550
|
|
475,520
|
|
646,572
|
|
638,251
|
|
Accrued interest
payable
|
|
7,407
|
|
7,407
|
|
6,742
|
|
6,742
|
|
Cash and
Cash Equivalents
The carrying amount represents a reasonable estimate of fair value.
Securities
Available for Sale, Securities to be Held to Maturity and Federal Home Loan
Bank Stock Fair
value equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities. It was not practicable to determine the fair value of FHLB Stock
due to restrictions placed on its transferability.
Mortgage
Loans Held for Sale
Estimated fair value is based on the market value of the loan including the
amount of fees deferred in accordance with SFAS 91 Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leasesan amendment of FASB Statements No. 13, 60, and 65 and a rescission
of FASB Statement No. 17.
Loans,
Net The fair value is estimated by discounting the future cash
flows using the interest rates at which similar loans would be made to borrowers
with similar credit ratings for the same remaining maturities.
Deposits The fair value of demand deposits,
savings accounts and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed maturity certificates of
deposit is estimated using the interest rates offered for deposits of similar
remaining maturities.
Securities
Sold Under Agreements to Repurchase and Other Short-term Borrowings The carrying amount represents
managements estimate of fair value.
Subordinated
Note Rates
currently available to the Company with similar terms and remaining maturities
are used to establish fair value of existing debt.
99
Federal
Home Loan Bank Advances The fair value is estimated based on the estimated present value of
future cash outflows using the rates at which similar loans with the same
remaining maturities could be obtained.
Accrued
Interest Receivable/Payable The carrying amount represents managements estimate
of fair value.
Commitments
to Extend Credit
The fair value of commitments to extend credit is based upon the difference
between the interest rate at which Republic is committed to make the loans and
the rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities, adjusted for the estimated
volume of loan commitments expected to close. The fair value of such
commitments is not considered material.
Commitments
to Sell Loans and Loan Sales Contracts The fair value of commitments to sell loans is
based upon the difference between the interest rates at which Republic is
committed to sell the loans and the quoted secondary market price for similar
loans. The fair value of such commitments is not considered material.
Financial
Guarantees
Estimated fair value is based on current fees or costs that would be charged to
enter or terminate such arrangements and is not material.
The
fair value estimates presented herein are based on pertinent information
available to management as of December 31, 2007 and 2006. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and,
therefore, estimates of fair value may differ significantly from the amounts
presented.
21. BUSINESS
COMBINATIONS
On October 3, 2006,
the Company acquired 100% of the outstanding shares of GulfStream Community
Bank of Port Richey, Florida. The Company subsequently changed the name of the
federally chartered thrift institution to Republic Bank. Operating results of
Republic Bank have been included in the consolidated financial statements since
the date of the acquisition. The purpose of the acquisition was to establish
market share in the greater Tampa, Florida market, expand the Companys
customer base, enhance deposit fee income, provide an opportunity to market
additional products and services to new customers, and reduce operating costs
through economies of scale.
The aggregate purchase
price was $18.6 million, paid in cash. The purchase price resulted in
approximately $10 million in goodwill and $601,000 in core deposit intangibles.
The core deposit intangible asset is being amortized over 7 years, using an
accelerated method. Goodwill will not be amortized but instead evaluated
periodically for impairment. Goodwill and intangible assets are not deducted
for tax purposes.
The
following table summarizes the estimated fair value of assets acquired and
liabilities assumed at the date of acquisition:
(in thousands)
|
|
|
|
Securities
available for sale
|
|
$
|
8,476
|
|
Securities to be
held to maturity
|
|
1,967
|
|
Federal Home
Loan Bank stock
|
|
121
|
|
Loans, net
|
|
43,850
|
|
Premises and
equipment
|
|
4,166
|
|
Goodwill
|
|
10,016
|
|
Core deposit
intangibles
|
|
601
|
|
Other assets
|
|
193
|
|
Total assets
acquired
|
|
69,390
|
|
|
|
|
|
Deposits
|
|
(54,140
|
)
|
Other
liabilities
|
|
(974
|
)
|
Total
liabilities assumed
|
|
(55,114
|
)
|
|
|
|
|
Net assets
acquired
|
|
$
|
14,276
|
|
100
22. PARENT
COMPANY CONDENSED FINANCIAL INFORMATION
BALANCE
SHEETS
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
5,740
|
|
$
|
12,577
|
|
Due from
subsidiaries
|
|
519
|
|
1,011
|
|
Investment in
subsidiaries
|
|
286,199
|
|
267,475
|
|
Other assets
|
|
3,413
|
|
783
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
295,871
|
|
$
|
281,846
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
note
|
|
$
|
41,240
|
|
$
|
41,240
|
|
Other
liabilities
|
|
5,771
|
|
3,258
|
|
Stockholders
equity
|
|
248,860
|
|
237,348
|
|
|
|
|
|
|
|
Total
liabilities and stockholders equity
|
|
$
|
295,871
|
|
$
|
281,846
|
|
STATEMENTS OF INCOME
Years Ended December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Income and
expenses:
|
|
|
|
|
|
|
|
Dividends from
subsidiary
|
|
$
|
10,951
|
|
$
|
8,376
|
|
$
|
10,788
|
|
Interest income
|
|
376
|
|
1,244
|
|
584
|
|
Other income
|
|
36
|
|
38
|
|
40
|
|
Less:
|
|
|
|
|
|
|
|
Interest expense
|
|
2,515
|
|
2,515
|
|
960
|
|
Other expenses
|
|
380
|
|
361
|
|
440
|
|
|
|
|
|
|
|
|
|
Income before
income tax benefit
|
|
8,468
|
|
6,782
|
|
10,012
|
|
Income tax
benefit
|
|
862
|
|
728
|
|
367
|
|
|
|
|
|
|
|
|
|
Income before
equity in undistributed net income of subsidiaries
|
|
9,330
|
|
7,510
|
|
10,379
|
|
Equity in
undistributed net income of subsidiaries
|
|
15,583
|
|
20,841
|
|
24,686
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,913
|
|
$
|
28,351
|
|
$
|
35,065
|
|
101
STATEMENTS OF CASH FLOWS
Years Ended December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,913
|
|
$
|
28,351
|
|
$
|
35,065
|
|
Adjustments to
reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
Equity in
undistributed net income of subsidiaries
|
|
(15,583
|
)
|
(20,841
|
)
|
(24,686
|
)
|
Director
deferred compensation Parent Company
|
|
62
|
|
62
|
|
56
|
|
Change in due
from subsidiary
|
|
492
|
|
457
|
|
426
|
|
Change in other
assets
|
|
(2,630
|
)
|
1,017
|
|
1,213
|
|
Change in other
liabilities
|
|
2,194
|
|
(317
|
)
|
(1,394
|
)
|
|
|
|
|
|
|
|
|
Net cash
provided by operating activities
|
|
9,448
|
|
8,729
|
|
10,680
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
GulfStream Community Bank (Republic Bank)
|
|
|
|
(18,569
|
)
|
|
|
Additional
investment in Republic Bank
|
|
|
|
(5,000
|
)
|
|
|
Investment in
Republic Bank & Trust Co. of Indiana
|
|
|
|
|
|
(5,000
|
)
|
Investment in
unconsolidated subsidiary
|
|
|
|
|
|
(1,240
|
)
|
Dividends on
unallocated ESOP shares
|
|
(33
|
)
|
(43
|
)
|
(44
|
)
|
|
|
|
|
|
|
|
|
Net cash used in
investing activities
|
|
(33
|
)
|
(23,612
|
)
|
(6,284
|
)
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
repurchases
|
|
(9,324
|
)
|
(699
|
)
|
(9,820
|
)
|
Net proceeds
from Common Stock options exercised
|
|
1,351
|
|
611
|
|
202
|
|
Cash dividends
paid
|
|
(8,279
|
)
|
(7,055
|
)
|
(6,020
|
)
|
Net proceeds
from subordinated note
|
|
|
|
|
|
41,240
|
|
|
|
|
|
|
|
|
|
Net cash (used
in) provided by financing activities
|
|
(16,252
|
)
|
(7,143
|
)
|
25,602
|
|
|
|
|
|
|
|
|
|
Net (decrease)
increase in cash and cash equivalents
|
|
(6,837
|
)
|
(22,026
|
)
|
29,998
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of year
|
|
12,577
|
|
34,603
|
|
4,605
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of year
|
|
$
|
5,740
|
|
$
|
12,577
|
|
$
|
34,603
|
|
102
23. OTHER
COMPREHENSIVE INCOME (LOSS)
December 31, (in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains on available for sale securities
|
|
$
|
2,426
|
|
$
|
2,943
|
|
$
|
(4,038
|
)
|
Reclassification
adjustment for losses (gains) realized in income
|
|
(8
|
)
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
Net unrealized
gains
|
|
2,418
|
|
2,643
|
|
(4,038
|
)
|
Tax effect
|
|
(846
|
)
|
(925
|
)
|
1,413
|
|
|
|
|
|
|
|
|
|
Net of tax
amount
|
|
$
|
1,572
|
|
$
|
1,718
|
|
$
|
(2,625
|
)
|
24. SEGMENT
INFORMATION
The reportable segments are determined by the type of
products and services offered, distinguished between banking operations,
mortgage banking operations and Tax Refund Solutions. As discussed throughout
this document, the Company substantially exited the deferred deposit business
during the first quarter of 2006; therefore, the deferred deposit segment
operations, which was previously reported as a fourth segment, is presented as
discontinued operations. Loans, investments and deposits provide the majority
of revenue from banking operations; servicing fees and loan sales provide the
majority of revenue from mortgage banking operations; RAL fees, ERC/ERD fees
and Net RAL securitization income provide the majority of the revenue from Tax
Refund Solutions; and fees for providing deferred deposits or payday loans
historically represented the primary revenue source for the deferred deposit
segment. All Company segments are domestic.
The accounting policies used for Republics reportable
segments are the same as those described in the summary of significant
accounting policies. Income taxes are allocated based on income before income
tax expense. Transactions among reportable segments are made at fair value.
Segment information for the years ended December 31,
is as follows:
103
|
|
Year Ended December 31, 2007
|
|
(dollars in thousands)
|
|
Banking
|
|
Tax Refund
Solutions
|
|
Mortgage
Banking
|
|
Total Continuing
Operations
|
|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$
|
87,433
|
|
$
|
6,659
|
|
$
|
386
|
|
$
|
94,478
|
|
$
|
|
|
Provision
for loan losses
|
|
3,923
|
|
2,897
|
|
|
|
6,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic
Refund Check fees
|
|
|
|
4,189
|
|
|
|
4,189
|
|
|
|
Net RAL
securitization income
|
|
|
|
3,772
|
|
|
|
3,772
|
|
|
|
Mortgage
banking income
|
|
|
|
|
|
2,973
|
|
2,973
|
|
|
|
Other
revenue
|
|
27,914
|
|
(64
|
)
|
(992
|
)
|
26,858
|
|
|
|
Total
non interest income
|
|
27,914
|
|
7,897
|
|
1,981
|
|
37,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non interest expenses
|
|
79,091
|
|
7,359
|
|
806
|
|
87,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
operating profit
|
|
32,333
|
|
4,300
|
|
1,561
|
|
38,194
|
|
|
|
Income
tax expense
|
|
11,243
|
|
1,495
|
|
543
|
|
13,281
|
|
|
|
Net
income
|
|
$
|
21,090
|
|
$
|
2,805
|
|
$
|
1,018
|
|
$
|
24,913
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
$
|
2,886,104
|
|
$
|
274,889
|
|
$
|
4,366
|
|
$
|
3,165,359
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin
|
|
2.99
|
%
|
17.23
|
%
|
2.94
|
%
|
3.17
|
%
|
|
|
|
|
Year Ended December 31, 2006
|
|
(dollars in thousands)
|
|
Banking
|
|
Tax Refund
Solutions
|
|
Mortgage Banking
|
|
Total Continuing
Operations
|
|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
$
|
82,314
|
|
$
|
5,665
|
|
$
|
319
|
|
$
|
88,298
|
|
$
|
498
|
|
Provision for
loan losses
|
|
2,268
|
|
34
|
|
|
|
2,302
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic
Refund Check fees
|
|
|
|
4,102
|
|
|
|
4,102
|
|
|
|
Net RAL
securitization income
|
|
|
|
2,771
|
|
|
|
2,771
|
|
|
|
Mortgage banking
income
|
|
|
|
|
|
2,316
|
|
2,316
|
|
|
|
Other revenue
|
|
23,188
|
|
158
|
|
(835
|
)
|
22,511
|
|
500
|
|
Total non
interest income
|
|
23,188
|
|
7,031
|
|
1,481
|
|
31,700
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non
interest expenses
|
|
68,533
|
|
5,530
|
|
799
|
|
74,862
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross operating
profit
|
|
34,701
|
|
7,132
|
|
1,001
|
|
42,834
|
|
359
|
|
Income tax
expense
|
|
11,908
|
|
2,464
|
|
346
|
|
14,718
|
|
124
|
|
Net income
|
|
$
|
22,793
|
|
$
|
4,668
|
|
$
|
655
|
|
$
|
28,116
|
|
$
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
3,044,983
|
|
$
|
205
|
|
$
|
1,599
|
|
$
|
3,046,787
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
margin
|
|
3.02
|
%
|
60.50
|
%
|
3.46
|
%
|
3.22
|
%
|
|
|
104
|
|
Year Ended December 31, 2005
|
|
(dollars in thousands)
|
|
Banking
|
|
Tax Refund
Solutions
|
|
Mortgage Banking
|
|
Total Continuing
Operations
|
|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
$
|
76,403
|
|
$
|
8,807
|
|
$
|
437
|
|
$
|
85,647
|
|
$
|
8,697
|
|
Provision for
loan losses
|
|
(616
|
)
|
956
|
|
|
|
340
|
|
(902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic
Refund Check fees
|
|
|
|
6,083
|
|
|
|
6,083
|
|
|
|
Mortgage banking
income
|
|
|
|
|
|
2,751
|
|
2,751
|
|
|
|
Other revenue
|
|
20,860
|
|
99
|
|
(986
|
)
|
19,973
|
|
31
|
|
Total non
interest income
|
|
20,860
|
|
6,182
|
|
1,765
|
|
28,807
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non
interest expenses
|
|
61,902
|
|
5,647
|
|
963
|
|
68,512
|
|
2,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross operating
profit
|
|
35,977
|
|
8,386
|
|
1,239
|
|
45,602
|
|
7,561
|
|
Income tax
expense
|
|
12,247
|
|
2,855
|
|
422
|
|
15,524
|
|
2,574
|
|
Net income
|
|
$
|
23,730
|
|
$
|
5,531
|
|
$
|
817
|
|
$
|
30,078
|
|
$
|
4,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
2,721,221
|
|
$
|
1,770
|
|
$
|
6,617
|
|
$
|
2,729,608
|
|
$
|
5,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
margin
|
|
3.07
|
%
|
108.39
|
%
|
3.61
|
%
|
3.42
|
%
|
|
|
105
25. SUMMARY
OF QUARTERLY FINANCIAL DATA (UNAUDITED)
In February 2006,
the Bank substantially exited the payday loan business. For financial reporting
purposes, the payday loan business segment has been treated as a discontinued
operation. All current period and prior period income statement data has been
restated to reflect continuing operations absent of the payday loan business.
Presented below is a
summary of the consolidated quarterly financial data for the years ended December 31,
2007 and 2006.
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
(dollars in thousands, except per share data)
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
49,705
|
|
$
|
49,033
|
|
$
|
47,933
|
|
$
|
52,426
|
|
Interest
expense
|
|
26,150
|
|
27,368
|
|
25,924
|
|
25,177
|
|
Net
interest income
|
|
23,555
|
|
21,665
|
|
22,009
|
|
27,249
|
|
Provision
for loan losses
|
|
1,617
|
|
1,376
|
|
147
|
|
3,680
|
|
Net
interest income after provision for loan losses
|
|
21,938
|
|
20,289
|
|
21,862
|
|
23,569
|
|
Non
interest income*
|
|
9,344
|
|
7,506
|
|
8,808
|
|
12,134
|
|
Non
interest expenses
|
|
21,478
|
|
21,278
|
|
21,530
|
|
22,970
|
|
Income
from continuing operations before income tax expense
|
|
9,804
|
|
6,517
|
|
9,140
|
|
12,733
|
|
Income
tax expense from continuing operations
|
|
3,398
|
|
2,285
|
|
3,171
|
|
4,427
|
|
Income
from continuing operations before discontinued operations, net of income tax
expense
|
|
6,406
|
|
4,232
|
|
5,969
|
|
8,306
|
|
Income
from discontinued operations before income tax expense
|
|
|
|
|
|
|
|
|
|
Income
tax expense from discontinued operations
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net of income tax expense
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
6,406
|
|
4,232
|
|
5,969
|
|
8,306
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.32
|
|
0.21
|
|
0.29
|
|
0.40
|
|
Class B
Common Stock
|
|
0.31
|
|
0.20
|
|
0.28
|
|
0.40
|
|
Basic
earnings per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.00
|
|
0.00
|
|
0.00
|
|
0.00
|
|
Class B
Common Stock
|
|
0.00
|
|
0.00
|
|
0.00
|
|
0.00
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.32
|
|
0.21
|
|
0.29
|
|
0.40
|
|
Class B
Common Stock
|
|
0.31
|
|
0.20
|
|
0.28
|
|
0.40
|
|
Diluted
earnings per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.31
|
|
0.21
|
|
0.28
|
|
0.39
|
|
Class B
Common Stock
|
|
0.30
|
|
0.20
|
|
0.28
|
|
0.38
|
|
Diluted
earnings per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.00
|
|
0.00
|
|
0.00
|
|
0.00
|
|
Class B
Common Stock
|
|
0.00
|
|
0.00
|
|
0.00
|
|
0.00
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.31
|
|
0.21
|
|
0.28
|
|
0.39
|
|
Class B
Common Stock
|
|
0.30
|
|
0.20
|
|
0.28
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* The Company recorded a non recurring insurance
settlement gain of $1.9 million during the fourth quarter of 2007 related to
the final settlement of insurance proceeds in connection with the Companys
corporate center fire which occurred in late 2006.
106
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
(dollars in thousands, except
per share data)
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
46,614
|
|
$
|
43,778
|
|
$
|
41,775
|
|
$
|
44,373
|
|
Interest expense
|
|
25,590
|
|
22,925
|
|
20,723
|
|
19,004
|
|
Net interest
income
|
|
21,024
|
|
20,853
|
|
21,052
|
|
25,369
|
|
Provision for
loan losses
|
|
289
|
|
110
|
|
573
|
|
1,330
|
|
Net interest
income after provision for loan losses
|
|
20,735
|
|
20,743
|
|
20,479
|
|
24,039
|
|
Non interest
income
|
|
7,363
|
|
6,482
|
|
7,016
|
|
10,839
|
|
Non interest
expenses
|
|
19,266
|
|
17,562
|
|
18,193
|
|
19,841
|
|
Income from
continuing operations before income tax expense
|
|
8,832
|
|
9,663
|
|
9,302
|
|
15,037
|
|
Income tax
expense from continuing operations
|
|
2,896
|
|
3,309
|
|
3,337
|
|
5,176
|
|
Income from
continuing operations before discontinued operations, net of income tax
expense
|
|
5,936
|
|
6,354
|
|
5,965
|
|
9,861
|
|
Income (loss)
from discontinued operations before income tax expense
|
|
14
|
|
522
|
|
(3
|
)
|
(174
|
)
|
Income tax
expense (benefit) from discontinued Operations
|
|
4
|
|
182
|
|
(2
|
)
|
(60
|
)
|
Income (loss)
from discontinued operations, net of income tax expense
|
|
10
|
|
340
|
|
(1
|
)
|
(114
|
)
|
Net income
|
|
5,946
|
|
6,694
|
|
5,964
|
|
9,747
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.29
|
|
0.31
|
|
0.29
|
|
0.48
|
|
Class B
Common Stock
|
|
0.28
|
|
0.30
|
|
0.28
|
|
0.48
|
|
Basic earnings
per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
Class A Common
Stock
|
|
0.00
|
|
0.02
|
|
0.00
|
|
0.00
|
|
Class B
Common Stock
|
|
0.00
|
|
0.02
|
|
0.00
|
|
(0.01
|
)
|
Basic earnings
per share:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.29
|
|
0.33
|
|
0.29
|
|
0.48
|
|
Class B
Common Stock
|
|
0.28
|
|
0.32
|
|
0.28
|
|
0.47
|
|
Diluted earnings
per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.28
|
|
0.30
|
|
0.28
|
|
0.47
|
|
Class B
Common Stock
|
|
0.27
|
|
0.29
|
|
0.28
|
|
0.46
|
|
Diluted earnings
per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.00
|
|
0.02
|
|
0.00
|
|
(0.01
|
)
|
Class B
Common Stock
|
|
0.00
|
|
0.02
|
|
0.00
|
|
0.00
|
|
Diluted earnings
per share:
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
0.28
|
|
0.32
|
|
0.28
|
|
0.46
|
|
Class B
Common Stock
|
|
0.27
|
|
0.31
|
|
0.28
|
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
Item 9. Changes
in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
As of the end of the
period covered by this report, an evaluation was carried out by Republic
Bancorp, Inc.s management, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934). Based upon that evaluation, the Companys
Chief Executive Officer and Chief Financial Officer concluded that disclosure
controls and procedures were effective as of the end of the period covered by
this report. In addition, no change in the Companys internal control over
financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934) occurred during the fourth quarter of the
Companys fiscal year ended December 31, 2007 that has materially
affected, or is reasonably likely to materially affect, internal control over
financial reporting.
Managements
Report on Internal Control Over Financial Reporting, the Report of Independent
Registered Public Accounting Firm on Internal Control Over Financial Reporting
and the Report of Independent Registered Public Accounting Firm on Financial
Statements, thereon are set forth under Item 8 Financial
Statements and Supplementary Data.
Item 9B. Other Information.
None
PART III
Item 10. Directors, Executive
Officers and Corporate Governance.
The
information required by this Item appears under the headings PROPOSAL ONE: ELECTION OF DIRECTORS, SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE and THE BOARD OF
DIRECTORS AND ITS COMMITTEES of the Proxy Statement of Republic
Bancorp, Inc. for the 2008 Annual Meeting of Shareholders to be held April 23,
2008 (Proxy Statement), all of which is incorporated herein by reference.
Item 11. Executive Compensation.
Information
under the sub-heading Director Compensation
and under the headings CERTAIN INFORMATION AS TO
MANAGEMENT and COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION of the Proxy Statement is
incorporated herein by reference.
108
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity
Compensation Plan Information
The following
table sets forth information regarding Republics Common Stock that may be
issued upon exercise of options, warrants and rights under all equity
compensation plans as of December 31, 2007. There were no equity
compensation plans not approved by security holders at December 31, 2007.
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Plan Category
|
|
Number of Securities to
be Issued Upon
Exercise of Outstanding
Options, Warrants and
Rights
|
|
Weighted-
Average Exercise
Price of
Outstanding
Options, Warrants
and Rights
|
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
|
|
1995 Stock
Option Plan
|
|
1,045,504
|
(1)
|
$
|
11.80
|
|
|
|
2005 Stock
Incentive Plan
|
|
378,706
|
(1)
|
23.08
|
|
2,928,794
|
|
|
|
|
|
|
|
|
|
|
(1) Represents
options issued for Class A Common Stock only. Options for Class B
Common Stock have been authorized but are not issued.
Additional information
required by this Item appears under the heading SHARE
OWNERSHIP of the Proxy Statement, which is incorporated herein by
reference.
Item 13. Certain Relationships
and Related Transactions, and Director Independence.
Information
required by this Item is under the headings COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION and CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS of the
Proxy Statement, all of which is incorporated herein by reference.
Item 14. Principal Accounting
Fees and Services.
Information
required by this Item appears under the heading INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM of the Proxy Statement and is
incorporated herein by reference.
109
PART IV
Item 15. Exhibits and Financial
Statement Schedules.
(a)(1) Financial Statements:
The
following are included under Item 8 Financial Statements and
Supplementary Data:
Managements
Report on Internal Control Over Financial Reporting
Report
of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
Report
of Independent Registered Public Accounting Firm on Financial Statements
Consolidated
balance sheets December 31, 2007 and 2006
Consolidated
statements of income and comprehensive income years ended December 31,
2007, 2006 and 2005
Consolidated
statements of stockholders equity years ended December 31, 2007, 2006
and 2005
Consolidated
statements of cash flows years ended December 31, 2007, 2006 and 2005
Notes
to consolidated financial statements
(a)(2) Financial Statements Schedules:
Financial
statement schedules are omitted because the information is not applicable.
(a)(3) Exhibits:
The
Exhibit Index of this report is incorporated herein by reference. The management
contracts and compensatory plans or arrangements required to be filed as
exhibits to this Form 10-K pursuant to Item 15(b) are noted in the Exhibit Index.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
REPUBLIC BANCORP, INC.
|
|
|
|
|
March 14,
2008
|
By:
|
Steven
E. Trager
|
|
President &
Chief Executive Officer
|
110
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following
persons on behalf of the registrant and in the capacities indicated.
/s/
Bernard M. Trager
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Chairman
of the Board and Director
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March 14,
2008
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Bernard
M. Trager
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/s/
Steven E. Trager
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President,
Chief Executive
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March 14,
2008
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Steven
E. Trager
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Officer &
Director
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/s/
A. Scott Trager
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Vice
Chairman and Director
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March 14,
2008
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A.
Scott Trager
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/s/
Kevin Sipes
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Chief
Financial Officer and
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March 14,
2008
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Kevin
Sipes
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Chief
Accounting Officer
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/s/
Charles E. Anderson
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Director
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March 14,
2008
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Charles
E. Anderson
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/s/
Michael T. Rust
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Director
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March 14,
2008
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Michael
T. Rust
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/s/
Sandra Metts Snowden
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Director
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March 14,
2008
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Sandra
Metts Snowden
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/s/
R. Wayne Stratton
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Director
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March 14,
2008
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R.
Wayne Stratton
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/s/
Susan Stout Tamme
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Director
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March 14,
2008
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Susan
Stout Tamme
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111
INDEX TO EXHIBITS
No.
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Description
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3(i)
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Articles
of Incorporation of Registrant, as amended (Incorporated by reference to
Exhibit 3(i) to the Registration Statement on Form S-1 of
Registrant (Registration No. 333-56583))
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3(ii)
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Bylaws
of Registrant, as amended (Incorporated by reference to
Exhibit 3(ii) to the Registration Statement on Form S-1 of
Registrant (Registration No. 333-56583))
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3(iii)
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Amended
Bylaws (Incorporated by reference to Exhibit 10.1 of Registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
2006 (Commission File Number: 0-24649))
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4.1
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Provisions
of Articles of Incorporation of Registrant defining rights of security
holders (see Articles of Incorporation, as amended, of Registrant
incorporated as Exhibit 3(i) herein)
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4.2
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Agreement
Pursuant to Item 601 (b)(4)(iii) of Regulation S-K (Incorporated by
reference to Exhibit 4.2 of the Annual Report on Form 10-K of
Registrant for the year ended December 31, 1997 (Commission File Number:
33-77324))
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10.01*
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Officer
Compensation Continuation Agreement with Steven E. Trager, dated
January 12, 1995 (Incorporated by reference to Exhibit 10.1 to
Registrants Annual Report on Form 10-K for the year ended
December 31, 1995 (Commission File Number: 33-77324))
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10.02*
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Officer
Compensation Continuation Agreement with Steven E. Trager effective
January 1, 2006 (Incorporated by reference to Exhibit 10.34 of
Registrants Form 10-K for the year ended December 31, 2005
(Commission File Number: 0-24649))
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10.03*
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Officer
Compensation Continuation Agreement with A. Scott Trager, dated
January 12, 1995 (Incorporated by reference to Exhibit 10.5 to
Registrants Annual Report on Form 10-K for the year ended
December 31, 1995 (Commission File Number: 33-77324))
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10.04*
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Officer
Compensation Continuation Agreement with A. Scott Trager effective
January 1, 2006 (Incorporated by reference to Exhibit 10.35 of
Registrants Form 10-K for the year ended December 31, 2005
(Commission File Number: 0-24649))
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10.05*
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Officer
Compensation Continuation Agreement with David Vest, dated January 12,
1995 (Incorporated by reference to Exhibit 10.10 of Registrants Annual
Report on Form 10-K for the year ended December 31, 2003
(Commission File Number: 0-24649))
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10.06*
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Officer
Compensation Continuation Agreement with David Vest effective January 1,
2006 (Incorporated by reference to Exhibit 10.37 of Registrants
Form 10-K for the year ended December 31, 2005 (Commission File
Number: 0-24649))
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10.07*
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Officer
Compensation Continuation Agreement with Kevin Sipes, dated June 15,
2001 (Incorporated by reference to Exhibit 10.23 of Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001
(Commission File Number: 0-24649))
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10.08*
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Officer
Compensation Continuation Agreement with Kevin Sipes effective
January 1, 2006 (Incorporated by reference to Exhibit 10.38 of
Registrants Form 10-K for the year ended December 31, 2005
(Commission File Number: 0-24649))
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10.09*
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Death
Benefit Agreement with Bernard M. Trager dated September 10, 1996
(Incorporated by reference to Exhibit 10.9 to Registrants Annual Report
on Form 10-K for the year ended December 31, 1996 (Commission File
Number: 33-77324))
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112
No.
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Description
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10.10
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
August 1, 1982, relating to 2801 Bardstown Road, Louisville
(Incorporated by reference to Exhibit 10.11 of Registrants Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File Number: 0-24649))
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10.11
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Lease
between Republic Bank & Trust Company and Teeco Properties, dated
May 1, 2002, relating to property at 601 West Market Street
(Incorporated by reference to exhibit 10.1 of Registrants Quarterly Report
on Form 10-Q for the quarter ended March 31, 2002 (Commission File
Number: 0-24649))
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10.12
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Lease
between Republic Bank & Trust Company and Teeco Properties, as of
October 1, 2006, relating to property at 601 West Market Street,
Louisville, KY. (Incorporated by reference to exhibit 99.1 of Registrants
Form 8-K filed September 25, 2006 (Commission File Number:
0-24649))
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10.13
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Lease
between Republic Bank & Trust Company and Teeco Properties, dated
October 1, 2005, relating to property at 601 West Market Street,
Louisville, KY, amending and modifying previously filed exhibit 10.1 of
Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002 (Incorporated by reference to exhibit 10.1 of
Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005 (Commission File Number: 0-24649))
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10.14
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
July 1, 1993, as amended, relating to 661 South Hurstbourne Parkway,
Louisville (Incorporated by reference to Exhibit 10.12 of Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File Number: 0-24649))
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10.15
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
August 2, 1993, as amended, relating to 661 South Hurstbourne Parkway,
Louisville (Incorporated by reference to Exhibit 10.16 of Registrants
Annual Report on Form 10-K for the year ended December 31, 2004
(Commission File Number: 0-24649))
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10.16
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
August 31, 1993, as amended, relating to 661 South Hurstbourne Parkway,
Louisville (Incorporated by reference to Exhibit 10.12 of Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File Number: 0-24649))
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10.17
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
September 1, 1995, as amended, relating to 661 South Hurstbourne
Parkway, Louisville (Incorporated by reference to Exhibit 10.18 of
Registrants Annual Report on Form 10-K for the year ended
December 31, 2003 (Commission File Number: 0-24649))
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10.18
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
February 16, 1996, as amended, relating to 661 South Hurstbourne
Parkway, Louisville (Incorporated by reference to Exhibit 10.19 of
Registrants Annual Report on Form 10-K for the year ended
December 31, 2003 (Commission File Number: 0-24649))
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10.19
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
January 21, 1998, as amended, relating to 661 South Hurstbourne Parkway,
Louisville (Incorporated by reference to Exhibit 10.20 of Registrants
Annual Report on Form 10-K for the year ended December 31, 2003
(Commission File Number: 0-24649))
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10.20
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
September 11, 1998, as amended, relating to 661 South Hurstbourne
Parkway, Louisville (Incorporated by reference to Exhibit 10.21 of
Registrants Annual Report on Form 10-K for the year ended
December 31, 2003 (Commission File Number: 0-24649))
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113
No.
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Description
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10.21
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
February 1, 2004, as amended, relating to 661 South Hurstbourne Parkway,
Louisville (Incorporated by reference to Exhibit 10.1 of Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004
(Commission File Number: 0-24649))
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10.22
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
February 1, 1999, as amended, relating to 661 South Hurstbourne Parkway
(Incorporated by reference to Exhibit 10.17 of Registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999 (Commission
File Number: 0-24649))
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10.23
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
February 1, 2000, as amended, relating to 661 South Hurstbourne Parkway
(Incorporated by reference to Exhibit 10.21 of Registrants Annual
Report on Form 10-K for the year ended December 31, 1999
(Commission File Number: 0-24649))
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10.24
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
July 1, 2003, as amended, relating to 661 South Hurstbourne Parkway,
Louisville (Incorporated by reference to Exhibit 10.2 of Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
(Commission File Number: 0-24649))
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10.25
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
September 1, 2005, as amended, relating to 661 South Hurstbourne
Parkway, Louisville, KY, amending and modifying previously filed exhibit
10.12 of Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 (Incorporated by reference to Exhibit 10.2 of
Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005 (Commission File Number: 0-24649))
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10.26
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
August 1, 1999, as amended, relating to 9600 Brownsboro Road
(Incorporated by reference to Exhibit 10.18 of Registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999 (Commission
File Number: 0-24649))
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10.27
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
February 1, 2000, as amended, relating to 9600 Brownsboro Road
(Incorporated by reference to Exhibit 10.22 of Registrants Annual
Report on Form 10-K for the year ended December 31, 1999
(Commission File Number: 0-24649))
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10.28
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
May 1, 2003, as amended, relating to 9600 Brownsboro Road (Incorporated
by reference to Exhibit 10.1 of Registrants Annual Report on
Form 10-K for the quarter ended June 30, 2003 (Commission File
Number: 0-24649))
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10.29
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
November 1, 2005, as amended, relating to 9600 Brownsboro Road
(Incorporated by reference to Exhibit 10.33 of Registrants
Form 10-K for the year ended December 31, 2005 (Commission File
Number: 0-24649))
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10.30
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Lease
between Jaytee Properties and InsBanc, Inc., dated February 3,
2003, as amended by Republic Bank & Trust Company relating to 9600
Brownsboro Road, Louisville, KY. (Incorporated by reference to
Exhibit 10.1 of Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006 (Commission File Number: 0-24649))
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10.31
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Assignment
and Assumption of Lease by Republic Bank & Trust Company with the
consent of Jaytee Properties, dated May 1, 2006, relating to 9600
Brownsboro Road, Louisville, KY. (Incorporated by reference to
Exhibit 10.1 of Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006 (Commission File Number: 0-24649))
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114
No.
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Description
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10.32
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1995
Stock Option Plan (as amended to date) (Incorporated by reference to
Registrants Form S-8 filed November 30, 2004 (Commission File
Number: 333-120856))
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10.33*
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Form of
Stock Option Agreement for Directors and Executive Officers (Incorporated by
reference to Exhibit 10.2 of Registrants Form 10-Q for the quarter
ended September 30, 2004 (Commission File Number: 0-24649))
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10.34
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2005
Stock Incentive Plan (Incorporated by reference to Form 8-K filed
March 18, 2005 (Commission File Number: 0-24649))
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10.35*
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Republic
Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee
Deferred Compensation (Incorporated by reference to Form S-8 filed
April 13, 2005 (Commission File Number: 333-120857))
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10.36
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Junior
Subordinated Indenture, Amended and Restated Trust Agreement, and Guarantee
Agreement (Incorporated by reference to Exhibit 10.26 of Registrants
Form 8-K filed August 19, 2005 (Commission File Number: 0-24649))
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10.37
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Right
of First Offer Agreement by and among Republic Bancorp, Inc., Teebank
Family Limited Partnership, Bernard M. Trager and Jean S. Trager.
(Incorporated by reference to Exhibit 10.1 of Registrants Form 8-K
filed September 19, 2007 (Commission File Number: 0-24649))
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10.38**
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Program
Agreement dated September 19, 2007, between Republic Bank &
Trust Company and Jackson Hewitt Inc. (Incorporated by reference to
Exhibit 10.31 of Registrants Form 10-Q filed November 9, 2007
(Commission File Number: 0-24649))
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10.39**
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Technology
Services Agreement dated September 19, 2007, between Republic
Bank & Trust Company and
Jackson Hewitt Technology Services LLC (Incorporated by reference to
Exhibit 10.32 of Registrants Form 10-Q filed November 9, 2007
(Commission File Number: 0-24649))
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10.40
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Lease
between Republic Bank & Trust Company and Jaytee Properties, dated
January 17, 2008, as amended, relating to 9600 Brownsboro Road
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10.41
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Ground
lease between Republic Bank & Trust Company and Jaytee Properties,
relating to 9600 Brownsboro Road, dated January 17, 2008, as amended,
relating to 9600 Brownsboro Road
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21
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Subsidiaries
of Republic Bancorp, Inc.
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23
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Consent
of Crowe Chizek and Company LLC
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31.1
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Certification
of Principal Executive Officer, pursuant to Rules 13a-14(a) of the
Sarbanes-Oxley Act of 2003
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31.2
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Certification
of Principal Financial Officer, pursuant to Rules 13a-14(a) of the
Sarbanes-Oxley Act of 2003
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32.1***
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Certification
of Principal Executive Officer, pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
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32.2***
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Certification
of Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
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115
* Denotes
management contracts and compensatory plans or arrangements required to be
filed as exhibits to this Form 10-K pursuant to Item 15(b).
** Confidential
treatment has been requested for the redacted portions of this agreement. A
complete copy of the agreement, including the redacted portions, has been filed
separately with the Securities and Exchange Commission.
*** This
certification shall not be deemed filed for purposes of Section 18 of
the Securities Exchange Act of 1934, or otherwise subject to the liability of
that section, nor shall it be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
116
EX-10.40
2
a08-2554_1ex10d40.htm
EX-10.40
EXHIBIT 10.40
FIRST AMENDMENT TO REPUBLIC BANK BUILDING LEASE
This First Amendment
dated January 17, 2008, is made to the Republic Bank Building Lease
effectively dated November 1, 2005 between The Jaytee Properties Limited
Partnership, a Kentucky limited partnership, hereinafter referred to as Landlord
and Republic Bank & Trust Company, hereinafter referred to as the Tenant.
As parties hereto, Landlord and Tenant hereby agree to further modify and amend
their original Lease Agreement as hereafter set forth.
Landlord and Tenant agree
that the following terms of the Lease shall be amended to increase the square
footage under lease by adding, effective February 3, 2008, an additional
1,189 square feet on the first floor at $22.00 per square foot and by adding,
effective January 17, 2008, an additional 3,000 square feet on the second
floor at $22.00 per square foot, all additional space located in the Republic
Bank Building. The Tenants rent for the Premises referenced herein, totaling
8,249 square feet, shall be increased to $14,445.83 per month, subject to
adjustment on a pro-rated basis for the partial initial months, as applicable.
The additional leased space shall be subject to and in accordance with the
terms and conditions of that original lease referenced herein and this First
Amendment. Any improvements or alterations to the additional leased space shall
be at the expense of Tenant and subject to the prior approval of Landlord.
Specifically, the original lease provisions shall be amended and re-stated as
follows:
ARTICLE I. PREMISES
SECTION 1. Tenant
leases from Landlord and Landlord leases to Tenant the following premises and
additional premises, (collectively referred to as Premises):
Being approximately 4,060
rentable square feet of rentable office space (hereinafter called the Original
Premises) located on the first floor of the Republic Bank Building
(hereinafter called the Building) located at 9600 Brownsboro Road, Jefferson
County, Ky., and; also being an additional 1,189 rentable square feet of
rentable office space (hereinafter called the First Floor Premises) located
on the first floor in the Building located at 9600 Brownsboro Road, Jefferson
County, Ky., and; also being an additional 3,000 rentable square feet of
rentable office space (hereinafter called the Second Floor Premises) located
on the second floor in the Building located at 9600 Brownsboro Road, Jefferson
County, Ky.
SECTION 2 and SECTION 3
of ARTICLE 1 under the original Lease are unchanged and remain in force.
ARTICLE II. TERM
SECTION 1. As to the
original Premises, Landlord leases that portion only of the Original Premises
to Tenant, and Tenant hires and takes the Original Premises from Landlord, for
a term of five (5) Lease Years commencing on November 1, 2005, (the Lease
Commencement Date) and expiring at midnight on the last day of the sixtieth
month thereafter, October 31, 2010, unless sooner terminated pursuant to
the terms hereof. Lease Year shall mean a year period beginning on the first
day of a month, which is the first calendar month of the term of the Lease and
ending on the day before the anniversary of the first day of such year.
As to the First Floor
Premises and the Second Floor Premises, both, singularly or collectively, at
the discretion of Tenant, and subject to thirty (30) days advance written
notice to Landlord of termination, shall be on a month to month term.
Notwithstanding the above, said term on the First Floor Premises and the Second
Floor Premises shall not exceed the term of the original Lease, or in the
alternative any option term, exercised as set forth under the original Lease
for the Original Premises.
SECTION 2. Tenant
shall have one (1) five -year option to renew this Lease for an additional
five-year period as to the Original Premises and on a month to month basis for
a maximum of five years as to the First Floor Premises and the Second Floor
Premises. The option rental fee shall be the same as set forth during the
initial term of the original Lease, as amended, plus a rent adjustment
proportionate to the increase in the Consumer Price Index for all urban
consumers during the initial five-year term of the Lease. Tenant shall notify
Landlord of Tenants intent to exercise the option herein provided within 90
days of the expiration of the initial term or this option to renew shall
expire.
1
ARTICLE III. RENT
SECTION 1. Tenant
shall pay to Landlord, at Landlords office in the Building or at such place as
Landlord may from time to time designate, as monthly rental for the Premises as
of the effective dates set forth in this First Amendment, the sum of $6,766.00
for the Original Premises, plus $ 2,179.83 for the First Floor Premises, plus
$5,500.00 for the Second Floor Premises with rent for the First Floor and
Second Floor Premises subject to a
partial month proration in accordance with their respective effective dates as
otherwise set forth in this First Amendment.
The terms and provisions
of the original Lease, as amended, shall continue in full force and effect
except as modified and amended herein.
REPUBLIC
BANK & TRUST COMPANY
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JAYTEE
PROPERTIES
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BY: /s/ Kevin
Sipes
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BY: /s/ Steve
Trager
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2
EX-10.41
3
a08-2554_1ex10d41.htm
EX-10.41
EXHIBIT
10.41
SPRINGHURST
GROUND LEASE
THIS GROUND LEASE, dated
this 17th day of January, 2008, is between The Jaytee Properties Limited
Partnership, a Kentucky limited partnership, hereinafter referred to as
Landlord and Republic Bank & Trust Company, a Kentucky corporation,
hereinafter referred to as the Tenant. As parties hereto, Landlord and Tenant
agree as follows:
RECITALS
A. Landlord
is the owner in fee simple of the land described in this Lease.
B. Landlord
desires to lease said land to Tenant, and Tenant desires to lease said land
from Landlord, pursuant to the terms, covenants and conditions set forth
herein.
NOW, THEREFORE, in
consideration of the mutual covenants and promises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged, Landlord and Tenant covenant and agree as follows:
TERMS AND
CONDITIONS
SECTION 1. Definitions.
As used in this Lease, the following terms and phrases shall have the following
meanings:
(a) Commencement
Date shall be January 17, 2008.
(b) Demised
Premises shall mean all that certain tract of land, consisting of
approximately 2.0 acres, located at 9600 Brownsboro Road, Louisville, KY, as
more particularly described on EXHIBIT A attached hereto and made a part
hereof, together with any and all improvements, appurtenances, rights,
privileges and easements benefiting, belonging or pertaining thereto, and any
right, title and interest of Landlord in and to any land lying in the bed of
any street, road or highway (open or proposed) to the center line thereof, in
front of or adjoining said tract of land.
(c) Hazardous
Substances shall mean any and all hazardous substances, toxic materials,
pollutants, contaminants, hazardous or toxic wastes as defined in any federal,
state, county or municipal law, rule, regulation or ordinance, including,
without limitation, asbestos.
(d) Improvements
shall mean any and all landscaping, structures, driveways, sidewalks, parking
areas and other improvements constructed, erected or located on the Demised
Premises.
(e) Permitted
Exceptions shall mean (i) governmental laws, ordinances and regulations
affecting the Demised Premises, (ii) liens for ad valorem real property
taxes and assessments due and payable in the year of the Commencement Date and
thereafter, and (iii) easements, restrictions and stipulations of record.
(f) Permitted
Use shall mean the operation of a restaurant selling food and beverages for
on- or off-premises consumption including drive-through service.
(g) Plans
and Specifications shall mean the plans and specifications for the initial
construction of the Improvements (parking lot).
(h) Taking
Date shall mean the later of (i) the date that possession shall be taken
or condemned by any lawful authority, or (ii) the date on which the right
to compensation and damage accrues under the law applicable to the Demised
Premises.
(i) Taxes
shall mean any and all taxes, special and general assessments, and other
governmental impositions and charges of every kind and nature whatsoever,
extraordinary as well as ordinary, and each and every installment thereof which
shall be charged, levied, laid, assessed, imposed, become due and payable, or
liens upon, for or with respect to all or any part of the Demised Premises, the
Improvements, appurtenances or equipment owned by Tenant thereon or therein or
any
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part thereof, together
with all interest and penalties thereon, under or by virtue of all present or
future laws, ordinances, orders, rules and regulations of federal, state,
county and municipal governments and of all other governmental authorities
whatsoever.
(j) Term
shall mean the initial term of this Lease, which shall be for a period of fifteen
(15) years beginning on the Commencement Date and continuing until midnight on
January 16, 2023. Notwithstanding the above, Tenant may terminate this Lease,
without cause, at the end of any calendar month with 30 days prior written
notice to Landlord, at which time Landlord will pay to Tenant the prorated
value of Tenants improvement over the remaining 15-year term of the Lease.
(k) Utility
Expenses shall mean any and all charges for water, natural gas, electricity,
sewer, drainage, telephone, cable television and other utility service
furnished to the Demised Premises during the Term.
SECTION 2. Demised
Premises. Landlord leases to Tenant, and Tenant leases from Landlord, the
following Demised Premises, upon and subject to the terms, covenants and
conditions contained herein as follows:
Being a portion comprised
of approximately 2.0 acres of a certain real estate parcel totaling
approximately 5.33 acres located at the rear of the Republic Bank Building,
9600 Brownsboro Road in Jefferson County, Kentucky.
Tenant shall complete
paving/parking improvements on the approximately 2.0 acre portion of real
estate located at 9600 Brownsboro Road.
SECTION 3. Term.
On the date hereof, Landlord shall be obligated to perform the terms, covenants
and conditions contained herein, for a period of fifteen years unless this
Lease is earlier terminated by Tenant, in which case Tenant at the end of any
calendar month with 30 days prior written notice to Landlord, at which time
Landlord will pay to Tenant the prorated value of Tenants improvement over the
remaining 15-year term of the Lease. Tenant shall be deemed to rent the Demised
Premises on a month to month basis. The Term shall commence on the Commencement
Date, at which time, Landlord and Tenant shall then become obligated to perform
all terms, covenants and conditions contained herein.
SECTION
4. Rent.
(a) Annual
Rent. During the Initial Term, Tenant covenants and agrees to pay Landlord,
without offset, deduction, or previous demand, Annual Rent in the amount of
($0.00). The parking lot Improvements paid for by Tenant constitute adequate
consideration on behalf of Tenant. The cost of those Improvements is agreed to
be $276,500.00.
SECTION
5. Representations and Warranties. The parties represent and warrant
that:
(a) Authority.
Landlord and Tenant possess full right, power and authority to execute, deliver
and perform this Lease, and when executed all parties having an interest in the
Demised Premises shall be lawfully bound pursuant to the terms, covenants and
conditions of this Lease.
(b) Fee
Simple Title. Landlord possesses and will possess on the date hereof, fee
simple title to the Demised Premises, subject only to the Permitted Exceptions,
and Landlord possesses full right and power to lease the Demised Premises to
Tenant.
(c) Breach
of Other Agreements. The execution and delivery of this Lease, the
consummation of the transaction provided for herein, and the fulfillment of the
terms, covenants and conditions hereof, will not result in a breach of any
term, covenant or condition of, or constitute a default under, any agreement or
instrument to which Landlord or Tenant is a party, or by which Landlord,
Tenant, or the Demised Premises is bound, including, without limitation, any
judgment, decree or order of any court or governmental body, or any applicable
law, ordinance, rule or regulation.
(d) Eminent
Domain. No eminent domain or similar condemnation proceeding affecting all
or any part of the Demised Premises is now pending or, to the best of Landlords
knowledge, threatened.
(e) Outstanding
Contract. No outstanding option to purchase, contract of sale or lease
exists with respect to all or any part of the Demised Premises, except for this
Lease.
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(f) Litigation.
No litigation or proceeding before any commission, agency or other
administrative authority is pending or, to the best of Landlords knowledge,
threatened against or affecting the Demised Premises or arising out of or by
virtue of the ownership or use by Landlord of the Demised Premises. No pending
or threatened judicial, municipal or administrative proceeding exists which
affects the Demised Premises, or in which Landlord is or may be a party by
reason of the ownership or use by Landlord of all or any part of the Demised
Premises. No outstanding decree, order or award exists with respect to
Landlord, or all or any part of the Demised Premises.
(g) Landlord
warrants that there is no easement, deed restriction, subdivision restriction
or regulation of any lawful governmental agency, authority or instrumentality
having jurisdiction over the Demised Premises exists which will adversely
affect or impair the intended use of the Demised Premises by Tenant, or
adversely affect or impair the access to or from the Demised Premises.
(h) Landlord
warrants that the current conditional use zoning of the Demised Premises
permits the use of the Demised Premises for the Permitted Use.
(i) Tenant
has obtained all approvals, permits and licenses necessary to develop and
operate the Demised Premises for the intended use of Tenant.
(j) Tenant
has verified that the utility services currently available to the Demised
Premises, including, without limitation, electric, natural gas, telephone,
water, sanitary sewer, storm sewer, drainage and cable television, are in
capacities adequate for the intended use of the Demised Premises by Tenant and
are available by proper easement.
(k) Tenant
has verified that adequate access exists to the Demised Premises from and over
any and all roads, streets, lanes and highways adjacent to or adjoining the
Demised Premises.
(l) Landlord
represents to Tenant, that to the best of Landlords knowledge, that
(A) the Demised Premises was not used for the storage, generation,
manufacture or disposal of any Hazardous Substance, (B) no Hazardous
Substance is or was located in, on or under the Demised Premises, and
(C) no underground storage tank is located in, on or under the Demised
Premises.
(m) Landlord
warrants that the Demised Premises is not located in a flood hazard area as
designated by any governmental agency, authority or instrumentality.
SECTION 6. Zoning.
Tenant shall, at its sole cost and expense, apply for and obtain any zoning,
zoning variances, changes or consents that may be necessary for the Permitted
Use. Tenant may contest, through appropriate legal proceedings, any adverse
administrative or legislative action in connection therewith. Landlord shall
cooperate fully with Tenant to obtain such necessary zoning, zoning variances,
changes or consents, and shall execute such application forms, pleadings and
similar documents as may be required by the governmental authorities or courts
having jurisdiction over the Demised Premises.
SECTION 7. No Net
Lease. It is the intention of the parties that the Landlord shall be
responsible for and that all costs, utilities, taxes and expenses and
obligations relating to the Demised Premises, except for maintenance expense,
which shall be a cost to Tenant.
SECTION
8. Construction of the Improvements.
(a) Commencement.
Tenant shall, at its sole cost and expense, begin construction of the
Improvements in accordance with the Plans and Specifications. Any material
changes to the Plans and Specifications shall require the prior written approval
of Landlord, which approval shall not be unreasonably withheld or delayed.
Construction of the Improvements shall be performed in compliance with all then
applicable codes, zoning ordinances and any other laws, rules, regulations and
ordinances of any governmental jurisdiction.
(b) Contractors.
In constructing the Improvements, Tenant shall require such persons or entities
to waive their right to place a lien against the interest of Landlord in the
Demised Premises and if so placed as a result of the construction of the
Improvements, Tenant shall cause same to be removed and any such lien right to
be satisfied.
SECTION
9. Use of the Demised Premises.
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Tenant shall use the
Demised Premises for the Permitted Use and for no other purpose, which shall be
for parking. Tenant shall not use or occupy, or permit all or any part of the
Demised Premises to be used or occupied for any unlawful or illegal business,
use or purpose, or in any manner constituting a nuisance of any kind.
SECTION
10. Taxes and Utility Expenses.
Payment.
During the Term, Landlord shall pay and discharge as and when the same shall
become due and payable, all Taxes and Utility Expenses. Landlord shall be
deemed to have complied with this Section 12(a) if payment of the Taxes and the
Utility Expenses are made either within any period allowed by law or by the
governmental authority imposing the same during which payment is permitted
without penalty or interest, or before the same shall become a lien on the
Demised Premises. Landlord shall, upon request, produce and exhibit to Tenant
satisfactory evidence of such payment.
SECTION
11. Repairs, Alterations and Replacements; Hazardous Substances.
(a) Tenant
to Repair and Maintain. Tenant shall, at all times during the Term and at
its sole cost and expense, keep and maintain the Improvements in good repair
and condition (ordinary wear and tear excepted) and shall use all reasonable
precaution to prevent waste or damage thereto. Landlord shall not be
required to make any repairs, additions, alterations or replacements in or to
the Demised Premises or the Improvements during the Term.
(b) Additions,
Alterations and Replacements. Subject to all applicable restrictions,
zoning ordinances and other governmental regulations, Tenant may, at its sole
cost and expense, and at any time and from time to time, make such repairs,
additions, alterations and replacements in and to the Improvements, as Tenant
deems desirable, subject to Landlords prior written approval, which approval
shall not be unreasonably withheld.
(c) Title
to the Improvements. Title to the Improvements and any repair, addition,
alteration or replacement thereto shall remain the property of Landlord, and
Landlord alone shall be entitled to deduct all depreciation on Landlords
income tax returns for same. At the expiration or other termination of this
Lease, the Improvements shall become the property of Landlord, but Tenant may
remove any and all trade fixtures, equipment and other personal property of
Tenant from the Demised Premises; provided that Tenant shall, at its
sole cost and expense, repair any damage to the Demised Premises or the
Improvements caused by said removal.
(d) Hazardous
Substances. Landlord represents and warrants that there are no Hazardous
Substances brought upon, kept, stored, generated, manufactured, disposed of, or
used in or about the Demised Premises prior to Tenants possession. Tenant
represents and warrants that it shall not cause or permit any Hazardous
Substance to be brought upon, kept, stored, generated, manufactured, disposed
of, or used in or about the Demised Premises by Tenant, its agents, employees,
contractors or invitees except for cleaning supplies used in the ordinary
course of business and in compliance with all applicable laws. Tenant shall be
fully liable for any and all costs and expenses related to the generation,
manufacture, use, storage or disposal of a Hazardous Substance on the Demised
Premises by Tenant, its agents, employees, contractors and invitees. Tenant
shall defend, indemnify and hold harmless Landlord and
its agents from and against any and all claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses (including, without
limitation, reasonable attorneys fees, consultants fees, court costs and
litigation expenses) of whatever kind or nature known or unknown, contingent or
otherwise, arising out of or any way related to a Hazardous Substance brought
onto the Demised Premises by Tenant.. The terms, covenants and conditions of
this Section shall be in addition to any other obligation and liability that
either party may have at law or in equity, and shall survive the expiration or
other termination of this Lease.
SECTION
12. Requirements of Public Authority.
(a) Tenant
to Comply. During the Term, Tenant shall, at its sole cost and expense,
observe and comply with all present and future laws, ordinances, orders, rules
and regulations of the federal, state, county, municipal and other governmental
authorities affecting all or any part of the Demised Premises or the
Improvements whether the same are in force at the Commencement Date or which
may in the future be passed, enacted or directed. Tenant shall pay any and all
costs, expenses, liabilities, losses, damages, fines, penalties, claims and
demands incurred by Landlord, including, without limitation, reasonable
attorneys fees and expenses, that may in any manner arise out of or be imposed
because of the failure of Tenant to comply with this Section 14.
(b) Right
to Contest. Tenant may contest by appropriate legal proceeding conducted in
good faith, in the name of Tenant, Landlord or both, without cost or expense to
Landlord, the validity or application of any law, ordinance, order, rule or
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regulation of the nature
referred to in Section 14(a) and, if by the terms of any such law, ordinance,
order, rule or regulation, compliance therewith may legally be delayed pending
the prosecution of any such proceeding, then Tenant may delay such compliance
therewith until the final determination of such proceeding.
(c) Assistance
by Landlord. Landlord shall execute and deliver any appropriate instruments
which may be necessary or proper to permit Tenant to contest the validity or
application of any such law, ordinance, order, rule or regulation and shall
fully cooperate with Tenant in such contest.
SECTION
13. Covenant Against Liens.
(a) Tenants
Discharge of Lien and Indemnity. If, because of any act or omission of
Tenant, its agents, employees, subtenants or contractors, any mechanics lien,
materialmans lien or other lien, charge, claim or order for the payment of
money shall be filed against the Demised Premises, then Tenant shall, at its
sole cost and expense, cause the same to be discharged of record or bonded off
within 30 days after the date the lien, charge, claim or order is filed against
the Demised Premises. Tenant shall indemnify and save harmless Landlord against
and from any and all costs, damages, liabilities, suits, penalties, claims and
demands resulting there from, including, without limitation, reasonable
attorneys fees and expenses, that arise as a result of Tenants breach of this
covenant.
(b) Failure
by Tenant to Discharge. If Tenant fails to comply with this covenant, then
in addition to any other right or remedy available to Landlord under this Lease
or otherwise, Landlord may, at its option, discharge such lien, charge, claim
or order, in which event Tenant shall pay Landlord an amount equal to the
amount of the lien, charge, claim or order thus discharged by Landlord plus any
attorneys fees incurred by Landlord.
(c) Tenants
Work. It is agreed and understood that any lien, charge, claim or order for
payment arising out of work or materials in connection with the Improvements
shall solely encumber the leasehold estate of Tenant in the Demised Premises,
and upon the expiration or other termination of this Lease, said lien, charge,
claim or order shall be extinguished, without further force or effect, as to
the Demised Premises, the Improvements and Landlord.
SECTION
14. Access to the Demised Premises.
(a) By
Tenant. Tenant or its representatives may, at any reasonable time after the
date hereof, enter the Demised Premises for any purpose, including, without
limitation, making surveys, taking soil borings, inspecting the Demised
Premises and any existing improvements, and making architectural or engineering
reports and studies.
(b) By
Landlord. Landlord, its agents and representatives may enter upon the
Demised Premises at all reasonable times, to examine, inspect or exhibit the
Demised Premises to prospective purchasers and prospective tenants.
SECTION 15. Assignment
and Subletting. Tenant may not assign all or any part of this Lease, or
sublease all or any part of the Demised Premises, without the consent of
Landlord, which consent shall not be unreasonably withheld.
SECTION
16. Indemnity.
(a) By
Tenant. Tenant shall defend, indemnify and save harmless Landlord from and
against any and all liability, damage, penalty, judgment, cost and expense,
including, without limitation, reasonable attorneys fees and expenses, arising
from loss, damage or injury to person or property sustained by anyone on or
about the Demised Premises resulting from any act or omission of Tenant, its
agents, employees, subtenants or contractors. Tenant shall, at its sole cost
and expense, defend, indemnify and save harmless Landlord against any and all
suits or actions (just or unjust) which may be brought against Landlord or in
which Landlord may be impleaded with others upon any claim(s) related to the
Demised Premises on or after the date hereof, except as may result from an act,
omission or negligence of Landlord, its agents, employees or contractors.
(b) By
Landlord. Landlord shall defend, indemnify and save harmless Tenant from
and against any and all liability, damage, penalty, judgment, cost and expense,
including, without limitation, reasonable attorneys fees and expenses, arising
from loss, damage or injury to person or property sustained by anyone on or
about the Demised Premises resulting from any act or omission of Landlord, its
agents, employees or contractors. Landlord shall, at its sole cost and expense,
defend, indemnify and save harmless Tenant against any and all suits or actions
(just or unjust) which may be brought against Tenant or in which Tenant may be
impleaded with others upon any claim(s) related to the Demised Premises prior
to the date hereof, except as may result from an act, omission or negligence of
Tenant, its agents, employees, subtenants or contractors.
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SECTION
17. Insurance.
(a) Required
of Tenant. During the Term, Tenant shall, at its sole cost and expense,
obtain and maintain or cause to be obtained and maintained in full force and
effect with an insurance company or companies licensed to do business in the
State of Kentucky:
(i) commercial general liability insurance in
a combined single limit of at least $1,000,000 with respect to injury or death
to any person(s) or damage to property;
(ii) casualty insurance with extended coverage
and other commonly used endorsements, including, without limitation,
replacement/repair cost, lightning, vandalism, malicious mischief and
earthquake, covering the Improvements, equal to the full insurable value
thereof;
(iii) during construction of the Improvements,
adequate builders risk insurance, including, without limitation, workers
compensation insurance, covering all risks normally covered by such policies;
(iv) such other insurance as may be reasonably
determined by Landlord.
(b) Certificates
of Insurance. Tenant shall, upon request by Landlord, deliver certificates
of insurance to Landlord at the beginning of the Term and thereafter not less
than 15 days prior to the expiration of any policy. Insurance shall be non-cancelable
without 20 days prior written notice to Landlord, and any certificate shall
state that the insurer will notify Landlord of cancellation at least 20 days
prior thereto. All insurance shall name Landlord as an additional insured.
(c) Tenants
Blanket Policy. Any insurance may, at Tenants election, be carried under a
blanket policy covering the Demised Premises and any other properties of
Tenant.
(d) Failure
by Tenant to Insure. If Tenant should fail to pay any insurance premium
required under this Section 19, then Landlord may, but shall not be obligated
to, pay such insurance premium and charge the amount of such insurance premium
to Tenant.
(e) Insurance
Proceeds. During the Term, all casualty insurance proceeds shall be paid to
Tenant, subject, however, to the prior rights of any Leasehold Mortgagee.
SECTION 18. Waiver of
Subrogation. Landlord and Tenant waive any and all claim and right of recovery
against the other and all persons claiming by, through or under them to the
extent that such claim or right of recovery is covered by insurance, and all
insurance policies carried by either party covering the Demised Premises,
including, without limitation, contents, fire and casualty insurance, shall
expressly waive any right of the insurer to proceed against the other party.
SECTION 19. Damage or
Destruction.
(a) Damage
or Destruction. If the Improvements are damaged or destroyed by fire or
other casualty, Tenant shall, at Tenants sole cost and expense, repair or
rebuild the Improvements. Tenant shall commence such repairs or rebuilding as
soon as reasonably possible, and Tenant shall thereafter diligently pursue the
completion of any such rebuilding or repair. Any insurance proceeds shall be
placed in an interest bearing account with a bank mutually acceptable to
Landlord, Tenant and Leasehold Mortgagee. Such insurance proceeds shall be
deposited under such conditions that they may be withdrawn to meet Tenants
periodic construction draws and other costs incidental to rebuilding and
repairing the Improvements; provided that such withdrawals are supported
by estimates and payment certificates of the architect supervising the
rebuilding and repairing, certifying that the amount of that construction draw
is the correct amount based upon work performed and materials stored on the
Demised Premises. Any insurance proceeds remaining after rebuilding and
repairing is completed and any interest earned on said insurance proceeds shall
be the property of and belong to Tenant.
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SECTION
20. Eminent Domain.
(a) Total
or Disabling Condemnation. If during the Term all of the Demised Premises
shall be taken or condemned for a public or quasi-public purpose by any lawful
authority having the power of eminent domain, or conveyance made in lieu
thereof, or if a partial taking or condemnation of the Demised Premises by such
authority, or conveyance made in lieu thereof, renders the same untenantable
(as defined hereinafter), then in either event Tenant may terminate this Lease
as of the Taking Date, and will be entitled to a return of its Improvement
costs on a pro-rata basis covering the 15-year term of the Lease.
(b) Partial
Non-Disabling Condemnation. If during the Term the partial taking or
condemnation for a public or quasi-public purpose by any lawful authority
having the power of eminent domain, or conveyance made in lieu thereof, does
not render the Demised Premises unusable for its intended purpose, then Tenant
shall immediately commence restoration of the Demised Premises, and shall
complete same with all reasonable diligence, to a condition comparable to the
condition of the Demised Premises at the time of such taking or condemnation.
This Lease shall automatically terminate as of the Taking Date for the portion
of the Demised Premises taken or condemned and if the parking lot spaces are
reduced by a taking, the like share of the costs of the Improvements shall be
refunded by Landlord to Tenant pro-rated over the remaining term of the Lease
or until such time the parking spaces are restored.
(c) Allocation
of Condemnation Award. If any taking or condemnation occurs in a judicial
proceeding in which specific condemnation awards are made separately to
Landlord and Tenant, then in that event such condemnation awards shall be
binding upon Landlord and Tenant, and shall limit and define the rights of each
party in and to such condemnation awards. Both Landlord and Tenant may seek a
condemnation award for their respective interests. Condemnation awards awarded
by virtue of the taking or condemnation of all or any part of the Improvements
and/or the Demised Premises, whether by consent of the parties or any judicial
proceeding, where condemnation awards are not made to Landlord and Tenant
separately, shall be divided between Landlord and Tenant giving consideration
to the value of the rights and interests of each party in and to the
Improvements and the Demised Premises. Tenant may claim and recover from such
lawful authority causing the taking or condemnation, but not from Landlord,
such compensation as may be separately awarded or recoverable by Tenant or
Tenants subtenants, in their own right on account of any and all damages to
Tenants and Tenants subtenants businesses by reason of such taking or
condemnation, and any condemnation award which may be made under federal, state
or local law for moving expenses, for the taking of personal property, or for
damages for business interruption or displacement.
SECTION 21. Quiet
Enjoyment. Tenant shall, upon observing and keeping all other terms,
covenants and conditions of this Lease on its part to be kept, have quiet
possession and enjoyment of the Demised Premises during the Term.
SECTION
22. Events of Default.
(a) Events
of Default by Tenant. The following shall be deemed events of default by
Tenant hereunder:
(i) Tenants
failure to perform any term, covenant or condition contained herein on Tenants
part to be kept or performed, and the continuance of such failure without the
curing of same for a period of 30 days after receipt by Tenant of written
notice from Landlord specifying in detail the nature of such failure to
perform; and
(b) Time
Period to Cure. In the event that Landlord gives Tenant written notice of a
non-monetary default and Tenant cannot cure such non-monetary default within
said 30-day period, then such non-monetary default shall not be deemed to
continue as long as Tenant, after receiving such written notice, proceeds to
cure such non-monetary default as soon as reasonably possible and continues to
take all steps necessary to cure the same within a period of time which, under
all prevailing circumstances, is reasonable.
SECTION
23. Rights and Remedies.
Of Landlord.
If Tenant does not cure its default within the applicable cure period(s), then
Landlord shall be entitled to (i) re-enter the Demised Premises and remove
all persons and property there from by any suitable action or proceeding at law
and repossess and enjoy the Demised Premises, (ii) repair, alter, or
change the Demised Premises as it deems fit, (iii) relet at any time all
or any part of the Demised Premises, (iv) terminate this Lease; provided
that such termination shall not release Tenant from any of its obligations
contained in this Lease for the balance of the Term, (v) cure the default
and assess against Tenant the cost of curing the default, or (vi) exercise any
other remedy available at law or in equity. All rights and remedies available
herein or at law or in equity shall be cumulative with each other upon the
election of Landlord. The exercise by Landlord of any right or remedy granted
in this Section 23(a) shall not relieve Tenant from the obligation to pay the
Annual Rent and any other amount
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due hereunder, and to
fulfill all other terms, covenants and conditions required by this Lease, at
the time and in the manner provided herein. Tenant throughout the Term shall
pay Landlord, no later than the last day of each calendar month, the amount of
the costs due to Landlord resulting from such default by Tenant, less
the proceeds received by Landlord from reletting the Demised Premises. Any
excess rent or amounts received by Landlord over and above sums due Landlord by
Tenant from reletting the Demised Premises as a result of such default by
Tenant shall remain the sole property of Landlord.
(a) Not
Required of Landlord. Landlord shall not be required to (i) relet the
Demised Premises, (ii) exercise any other right or remedy granted to
Landlord hereunder, or (iii) minimize the loss of Tenant as a result of
the default of Tenant. If Landlord attempts to relet the Demised Premises, then
Landlord shall be the sole judge as to whether or not a proposed tenant is
suitable and acceptable.
SECTION 24. Waivers.
Failure of Landlord or Tenant to complain of any act or omission on the part of
the other party, no matter how long the same may continue, shall not be deemed
to be a waiver by said party of any of its rights or remedies provided herein,
at law, in equity or by statute. No waiver by Landlord or Tenant at any time,
express or implied, of any breach of any term, covenant or condition of this
Lease shall be deemed a waiver of a breach of any other term, covenant or
condition of this Lease or a consent to any subsequent breach of the same or
any other term, covenant or condition. No cure by Landlord of any breach of any
term, covenant or condition of this Lease by Tenant shall be deemed to be a
waiver by Landlord of such breach.
SECTION 25. Force
Majeure. In the event that Landlord or Tenant shall be delayed, hindered
in, or prevented from the performance of any act required hereunder by reason
of an act of God, strike, lockout, labor trouble, inability to procure
materials, failure of power, restrictive governmental law, ordinance, rule or
regulation, riot, insurrection, war, or the act, failure to act, or default of
the other party, or other reason beyond their control, then performance of such
act shall be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equal to the period
of such delay.
SECTION
26. Notice.
(a) Delivery.
Any notice, approval or consent authorized or required by this Lease shall be
in writing and (i) delivered personally, (ii) sent postage prepaid by
certified mail or registered mail, return receipt requested, or (iii) sent
by a nationally recognized overnight carrier that guarantees next day delivery,
directed to the other party at the address set forth in this Section 26 or such
other parties or addresses as may be designated by Landlord or Tenant by notice
given from time to time in accordance with this Section 26:
To Landlord:
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The Jaytee Properties Limited
Partnership
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601 W. Market St.
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Louisville, KY 40202
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Attention:
Mr. Steve Trager
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To Tenant:
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Republic Bank &
Trust Company
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601 W. Market St.
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Louisville, KY 40202
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Attention:
Mr. Mike Beckwith
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(b) Receipt.
A notice, approval or consent given in accordance with this Section 31 shall be
deemed received (i) upon delivering it in person, (ii) three days
after depositing it in an office of the United States Postal Service or any
successor governmental agency, or (iii) one day after giving it to a
nationally recognized overnight carrier.
SECTION 27. Estoppel
Certificates. Either party shall, without charge, at any time and from time
to time hereafter, within 15 days after written request, certify by written
instrument duly executed and acknowledged to any mortgagee, purchaser, or any
other person, firm or corporation specified in such request: (a) as to
whether this Lease has been modified or amended, and if so, to attach such
modification or amendment to the estoppel certificate; (b) as to the
validity, force and effect of this Lease, in accordance with its tenor as then
constituted; (c) as to the existence of any default hereunder; (d) as
to the existence of any offset, counterclaim or defense thereto on the part of
such other party; (e) as to the commencement and expiration dates of the
Term; and (f) as to any other matters reasonably requested. Any such
estoppel certificate may be relied upon by the party requesting it and any
other person, firm or corporation to whom the same may be exhibited or
delivered, and the contents of such estoppel certificate, shall be binding on
the party executing same.
8
SECTION 28. Governing
Law. This Lease and the performance thereof shall be governed, interpreted,
construed and regulated by the laws of the Commonwealth of Kentucky.
SECTION 29. Partial
Invalidity. If any term, covenant or condition of this Lease or the
application thereof to any person or circumstance shall, at any time or to any
extent, be deemed invalid, illegal or unenforceable, then the remainder of this
Lease, or the application of such term, covenant or condition to persons or
circumstances other than those as to which it is held invalid, illegal or
unenforceable, shall not be affected thereby, and each term, covenant and
condition of this Lease shall be valid, legal and enforceable to the fullest
extent permitted by law.
SECTION 30. Short Form
of Lease. The parties hereto shall, at any time and at the request of
either party, execute a short form of lease in recordable form, setting forth a
description of the Demised Premises, the Term and any other portions hereof,
except the rent provisions, as either party may request.
SECTION 31. Construction
of this Lease. Whenever the singular number is used herein, the same shall
include the plural, and the masculine gender shall include the feminine and
neuter genders, and vice versa, as the context shall require. This Lease may be
executed in several counterparts, each of which shall be an original, but all
of which shall constitute one and the same instrument. Landlord and Tenant
shall mean only the owner at the time of Landlords or Tenants interest
herein, and upon any sale or assignment of the interest of either Landlord or
Tenant herein, then their respective successors and/or assigns shall, during
the term of their ownership of their respective estates herein, be deemed to be
Landlord or Tenant, as the case may be. This Lease was drafted by counsel for
one of the parties hereto as a matter of convenience only, and shall not be
construed against or in favor of either party on such basis.
SECTION 32. Entire
Agreement. No oral statement or prior written matter shall have any force
or effect. Tenant is not relying on any representations or warranties other
than those contained in this Lease. This Lease shall not be modified, amended
or canceled except in a writing executed by all parties.
SECTION 33. Benefit
and Binding Effect. Except as otherwise expressly provided herein, the
terms, covenants and conditions contained in this Lease shall be binding upon,
and shall inure to the benefit of, Landlord, Tenant and their respective heirs,
legal representatives, successors and assigns.
SECTION 34. Attorneys
Fees and Expenses. In the event that a dispute arises between the parties
with respect to this Lease, or either party is required to retain legal counsel
to enforce any term, covenant or condition of this Lease, then the prevailing
party shall be entitled to recover from the non-prevailing party any and all
reasonable attorneys fees and expenses resulting there from.
SECTION 35. Real
Estate Commission. Landlord and Tenant each warrant and represent to the
other that neither has engaged or dealt with any real estate agent or broker in
connection with the transaction contemplated by this Lease. Landlord and Tenant
shall be solely responsible for and shall pay any and all real estate, brokers
or finders commissions or fees which may be payable as a result of the actions
of Landlord or Tenant. Landlord and Tenant shall indemnify and hold the other
harmless from and against any and all claims, damages and causes of action
resulting from the claims of any real estate agent or broker.
SECTION 36. Surrender.
On the expiration or other termination of this Lease, Tenant shall quit and
surrender to Landlord the Demised Premises, free and clear of all liens,
encumbrances and title matters, except for the Permitted Exceptions and
easements approved by Landlord during the Term. The Improvements shall be in
good condition and repair, ordinary wear, tear and damage by casualty excepted.
SECTION 37. Section
Headings. The section headings used herein are for reference and
convenience purposes only, and shall not enter into the interpretation hereof.
[NEXT
PAGE IS SIGNATURE PAGE]
9
IN WITNESS WHEREOF,
Landlord and Tenant duly executed this Lease as of the date first set forth
above, but actually on the dates set forth below.
LANDLORD:
|
|
TENANT:
|
|
|
|
|
|
|
The Jaytee Properties
Limited Partnership
|
|
Republic Bank &
Trust Company
|
|
|
|
|
|
|
By:
|
/s/ Steve Trager
|
|
By:
|
/s/ Kevin Sipes
|
|
|
|
|
|
|
Title:
|
General Partner
|
|
Title:
|
EVP & CFO
|
|
|
|
|
|
Date:
|
January 17, 2008
|
|
Date:
|
January 17, 2008
|
|
|
|
|
|
|
|
|
|
|
10
EX-21
4
a08-2554_1ex21.htm
EX-21
EXHIBIT 21
Subsidiaries of Republic Bancorp, Inc.****
Name of Subsidiary
|
|
State or other Jurisdiction of Incorporation
|
|
|
|
Republic
Bank & Trust Company
|
|
|
Kentucky
|
|
|
|
|
Republic Bank
|
|
|
Federally
chartered thrift
|
|
|
|
|
Republic Invest
Co.
|
|
|
Delaware
|
|
|
|
|
Republic Capital
LLC
|
|
|
Delaware
|
|
|
|
|
Republic Bancorp
Capital Trust
|
|
|
Delaware
|
|
|
|
|
Subsidiaries of
Republic Bank & Trust Company****
|
|
|
|
**** Certain
subsidiaries are not listed since, considered in the aggregate as a single
subsidiary, they would not constitute a significant subsidiary at December 31,
2007.
1
EX-23
5
a08-2554_1ex23.htm
EX-23
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We consent to the incorporation by reference in
Registration Statement Nos. 333-91511, 333-120856, 333-120857, and 333-130740
on Form S-8 of Republic Bancorp, Inc. of our reports dated March 12,
2008 with respect to the consolidated financial statements of Republic Bancorp, Inc.,
and the effectiveness of internal control over financial reporting, which
reports appear in this Annual Report on Form 10-K of Republic Bancorp, Inc.
for the year ended December 31, 2007.
|
|
Louisville,
Kentucky
|
March 14,
2008
|
1
EX-31.1
6
a08-2554_1ex31d1.htm
EX-31.1
EXHIBIT 31.1
SECTION 302 CERTIFICATION OF PRINCIPAL
EXECUTIVE OFFICER
I, Steven E. Trager,
President and Chief Executive Officer of Republic Bancorp, Inc., certify
that:
1) I have reviewed this annual report on Form 10-K
of Republic Bancorp, Inc.;
2) Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;
3) Based on my knowledge, the financial
statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of and for the periods presented
in this annual report;
4) The registrants other certifying officer
and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed
in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5) The registrants other certifying officer
and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting, which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the
registrants internal control over financial reporting.
|
|
Steven E. Trager
|
President and Chief Executive Officer
|
|
Date: March 14, 2008
|
1
EX-31.2
7
a08-2554_1ex31d2.htm
EX-31.2
EXHIBIT 31.2
SECTION 302 CERTIFICATION OF PRINCIPAL
FINANCIAL OFFICER
I, Kevin Sipes, Executive Vice President, Chief
Financial Officer and Chief Accounting Officer of Republic Bancorp, Inc.,
certify that:
1) I have reviewed this annual report on Form 10-K
of Republic Bancorp, Inc.;
2) Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;
3) Based on my knowledge, the financial
statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of and for the periods presented
in this annual report;
4) The registrants other certifying officer
and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed
in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5) The registrants other certifying officer
and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting, which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the
registrants internal control over financial reporting.
|
|
Kevin Sipes
|
Executive Vice
President, Chief Financial Officer and Chief Accounting Officer
|
|
Date:
March 14, 2008
|
1
EX-32.1
8
a08-2554_1ex32d1.htm
EX-32.1
EXHIBIT 32.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
Pursuant to 18 U.S.C. §
1350, the undersigned officer of Republic Bancorp, Inc. (the Company),
hereby certifies that the Companys Annual Report on Form 10-K for the
year ended December 31, 2007 (the Report) fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and that the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 14, 2008
|
|
|
|
|
Steven E. Trager
|
|
President and
Chief Executive Officer
|
The foregoing
certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not
being filed as part of the Report or as a separate disclosure document.
1
EX-32.2
9
a08-2554_1ex32d2.htm
EX-32.2
EXHIBIT 32.2
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
Pursuant to 18 U.S.C. §
1350, the undersigned officer of Republic Bancorp, Inc. (the Company),
hereby certifies that the Companys Annual Report on Form 10-K for the
year ended December 31, 2007 (the Report) fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and that the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date:
March 14, 2008
|
|
|
|
|
Kevin Sipes
Executive Vice President, Chief Financial Officer
and Chief Accounting Officer
|
The foregoing
certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not
being filed as part of the Report or as a separate disclosure document.
1
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