0000921557-16-000006.txt : 20160510 0000921557-16-000006.hdr.sgml : 20160510 20160510080903 ACCESSION NUMBER: 0000921557-16-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 111 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160510 DATE AS OF CHANGE: 20160510 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24649 FILM NUMBER: 161633772 BUSINESS ADDRESS: STREET 1: REPUBLIC CORPORATE CENTER STREET 2: 601 WEST MARKET ST CITY: LOUISVILLE STATE: KY ZIP: 40202 BUSINESS PHONE: 5025843600 10-Q 1 rbca-20160331x10q.htm 10-Q rbcaa_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

 

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2016

 

or

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 0-24649

 

Picture 1

 

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Kentucky

 

61-0862051

(State of other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

601 West Market Street, Louisville, Kentucky

 

40202

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (502) 584-3600

 

 

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.   Yes    No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   No

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large accelerated filer 

 

Accelerated filer 

 

Non-accelerated filer

 

Smaller reporting company 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No

 

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of April 30, 2016, was 18,659,147 and 2,245,250.

 

 

 


 

2


 

PART I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 (in thousands)

 

 

 

 

 

 

 

 

 

March 31, 

    

December 31, 

 

 

2016

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

198,172

 

$

210,082

 

Securities available for sale

 

518,764

 

 

517,058

 

Securities held to maturity (fair value of $37,834 in 2016 and $39,196 in 2015)

 

37,841

 

 

38,727

 

Mortgage loans held for sale, at fair value

 

7,148

 

 

4,083

 

Other loans held for sale, at the lower of cost or fair value

 

981

 

 

514

 

Loans

 

3,351,969

 

 

3,326,610

 

Allowance for loan and lease losses

 

(31,475)

 

 

(27,491)

 

Loans, net

 

3,320,494

 

 

3,299,119

 

Federal Home Loan Bank stock, at cost

 

28,208

 

 

28,208

 

Premises and equipment, net

 

29,125

 

 

29,921

 

Premises, held for sale

 

1,152

 

 

1,185

 

Goodwill

 

10,168

 

 

10,168

 

Other real estate owned

 

1,280

 

 

1,220

 

Bank owned life insurance

 

53,156

 

 

52,817

 

Other assets and accrued interest receivable

 

40,276

 

 

37,187

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

4,246,765

 

$

4,230,289

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

$

800,946

 

$

634,863

 

Interest-bearing

 

1,935,700

 

 

1,852,614

 

Total deposits

 

2,736,646

 

 

2,487,477

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase and other short-term borrowings

 

319,893

 

 

395,433

 

Federal Home Loan Bank advances

 

517,500

 

 

699,500

 

Subordinated note

 

41,240

 

 

41,240

 

Other liabilities and accrued interest payable

 

39,929

 

 

30,092

 

 

 

 

 

 

 

 

Total liabilities

 

3,655,208

 

 

3,653,742

 

 

 

 

 

 

 

 

Commitments and contingent liabilities (Footnote 10)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, no par value

 

 —

 

 

 

Class A Common Stock and Class B Common Stock, no par value

 

4,915

 

 

4,915

 

Additional paid in capital

 

137,205

 

 

136,910

 

Retained earnings

 

446,309

 

 

432,673

 

Accumulated other comprehensive income

 

3,128

 

 

2,049

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

591,557

 

 

576,547

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

4,246,765

 

$

4,230,289

 

 

See accompanying footnotes to consolidated financial statements.

 

3


 

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)  

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31, 

 

 

 

2016

 

2015

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

41,429

 

$

31,591

 

Taxable investment securities

 

 

1,855

 

 

1,773

 

Federal Home Loan Bank stock and other

 

 

731

 

 

397

 

Total interest income

 

 

44,015

 

 

33,761

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,392

 

 

1,144

 

Securities sold under agreements to repurchase and other short-term borrowings

 

 

25

 

 

38

 

Federal Home Loan Bank advances

 

 

2,953

 

 

2,928

 

Subordinated note

 

 

211

 

 

629

 

Total interest expense

 

 

4,581

 

 

4,739

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

39,434

 

 

29,022

 

 

 

 

 

 

 

 

 

Provision for loan and lease losses

 

 

5,186

 

 

185

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES

 

 

34,248

 

 

28,837

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

3,140

 

 

3,039

 

Net refund transfer fees

 

 

17,078

 

 

15,335

 

Mortgage banking income

 

 

1,261

 

 

1,353

 

Interchange fee income

 

 

2,123

 

 

2,194

 

Republic Processing Group program fees

 

 

319

 

 

228

 

Net gains (losses) on other real estate owned

 

 

248

 

 

(119)

 

Increase in cash surrender value of bank owned life insurance

 

 

339

 

 

349

 

Other

 

 

413

 

 

607

 

Total noninterest income

 

 

24,921

 

 

22,986

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

17,083

 

 

15,277

 

Occupancy and equipment, net

 

 

5,419

 

 

5,201

 

Communication and transportation

 

 

1,073

 

 

1,046

 

Marketing and development

 

 

507

 

 

585

 

FDIC insurance expense

 

 

658

 

 

674

 

Bank franchise tax expense

 

 

2,451

 

 

2,401

 

Data processing

 

 

1,333

 

 

966

 

Interchange related expense

 

 

904

 

 

1,007

 

Supplies

 

 

449

 

 

361

 

Other real estate owned expense

 

 

80

 

 

219

 

Legal and professional fees

 

 

823

 

 

1,615

 

Other

 

 

1,761

 

 

1,722

 

Total noninterest expenses

 

 

32,541

 

 

31,074

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAX EXPENSE

 

 

26,628

 

 

20,749

 

INCOME TAX EXPENSE

 

 

8,893

 

 

6,961

 

NET INCOME

 

$

17,735

 

$

13,788

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE:

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.86

 

$

0.66

 

Class B Common Stock

 

 

0.78

 

 

0.65

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER SHARE:

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.85

 

$

0.66

 

Class B Common Stock

 

 

0.77

 

 

0.64

 

 

 

 

 

 

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE:

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.198

 

$

0.187

 

Class B Common Stock

 

 

0.180

 

 

0.170

 

 

See accompanying footnotes to consolidated financial statements.

 

4


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  (UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2016

    

2015

 

 

 

 

 

 

 

 

 

 

Net income

$

17,735

 

$

13,788

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of derivatives used for cash flow hedges

 

(571)

 

 

(396)

 

 

Reclassification amount for derivative losses realized in income

 

87

 

 

101

 

 

Change in unrealized gain (loss) on securities available for sale

 

2,292

 

 

1,238

 

 

Change in unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings

 

(149)

 

 

(22)

 

 

Net unrealized gains

 

1,659

 

 

921

 

 

Tax effect

 

(580)

 

 

(322)

 

 

Total other comprehensive income, net of tax

 

1,079

 

 

599

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

$

18,814

 

$

14,387

 

 

 

See accompanying footnotes to consolidated financial statements.

 

5


 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

Accumulated

 

 

 

 

    

Class A

    

Class B

    

    

 

    

Additional

    

    

 

    

Other

    

Total

 

 

Shares

 

Shares

 

 

 

 

Paid In

 

Retained

 

Comprehensive

 

Stockholders’

(in thousands)

 

Outstanding

 

Outstanding

 

Amount

 

Capital

 

Earnings

 

Income

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2016

 

18,652

 

2,245

 

$

4,915

 

$

136,910

 

$

432,673

 

$

2,049

 

$

576,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 —

 

 

 —

 

 

 —

 

 

17,735

 

 

 —

 

 

17,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in accumulated other comprehensive income

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,079

 

 

1,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared Common Stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A Shares

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(3,695)

 

 

 —

 

 

(3,695)

Class B Shares

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(404)

 

 

 —

 

 

(404)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised, net of shares redeemed

 

3

 

 —

 

 

 —

 

 

55

 

 

 —

 

 

 —

 

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in notes receivable on Class A Common Stock

 

 —

 

 —

 

 

 —

 

 

(83)

 

 

 —

 

 

 —

 

 

(83)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred director compensation expense - Class A Common Stock

 

4

 

 —

 

 

 —

 

 

62

 

 

 —

 

 

 —

 

 

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense - performance stock units

 

 —

 

 —

 

 

 —

 

 

127

 

 

 —

 

 

 —

 

 

127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense - restricted stock

 

 —

 

 —

 

 

 —

 

 

72

 

 

 —

 

 

 —

 

 

72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense - stock options

 

 —

 

 —

 

 

 —

 

 

62

 

 

 —

 

 

 —

 

 

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2016

 

18,659

 

2,245

 

$

4,915

 

$

137,205

 

$

446,309

 

$

3,128

 

$

591,557

 

See accompanying footnotes to consolidated financial statements.

 

6


 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 

(in thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

 

2016

    

2015

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

$

17,735

 

$

13,788

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Amortization on investment securities, net

 

135

 

 

154

 

Accretion on loans, net

 

(873)

 

 

(310)

 

Depreciation of premises and equipment

 

1,716

 

 

1,577

 

Amortization of mortgage servicing rights

 

305

 

 

338

 

Provision for loan and lease losses

 

5,186

 

 

185

 

Net gain on sale of mortgage loans held for sale

 

(1,095)

 

 

(1,222)

 

Origination of mortgage loans held for sale

 

(36,992)

 

 

(45,835)

 

Proceeds from sale of mortgage loans held for sale

 

35,022

 

 

40,697

 

Origination of other loans held for sale

 

(44,068)

 

 

(2,071)

 

Proceeds from sale of other loans held for sale

 

43,601

 

 

2,071

 

Net gain realized on sale of other real estate owned

 

(248)

 

 

(365)

 

Writedowns of other real estate owned

 

 —

 

 

484

 

Deferred director compensation expense - Company Stock

 

62

 

 

67

 

Stock based compensation expense

 

261

 

 

78

 

Increase in cash surrender value of bank owned life insurance

 

(339)

 

 

(349)

 

Net change in other assets and liabilities:

 

 

 

 

 

 

Accrued interest receivable

 

(180)

 

 

(78)

 

Accrued interest payable

 

54

 

 

9

 

Other assets

 

(2,390)

 

 

1,127

 

Other liabilities

 

7,878

 

 

6,329

 

Net cash provided by operating activities

 

25,770

 

 

16,674

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of securities available for sale

 

(370,084)

 

 

(767,299)

 

Proceeds from calls, maturities and paydowns of securities available for sale

 

370,390

 

 

740,141

 

Proceeds from calls, maturities and paydowns of securities held to maturity

 

882

 

 

850

 

Net change in outstanding warehouse lines of credit

 

(7,257)

 

 

(103,724)

 

Purchase of loans, including premiums paid

 

(23,188)

 

 

(19,531)

 

Net change in other loans

 

4,274

 

 

10,370

 

Proceeds from sales of other real estate owned

 

588

 

 

2,630

 

Net purchases of premises and equipment

 

(887)

 

 

(374)

 

Net cash used in investing activities

 

(25,282)

 

 

(136,937)

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Net change in deposits

 

249,169

 

 

322,035

 

Net change in securities sold under agreements to repurchase and other short-term borrowings

 

(75,540)

 

 

(23,574)

 

Payments of Federal Home Loan Bank advances

 

(182,000)

 

 

(198,000)

 

Proceeds from Federal Home Loan Bank advances

 

 —

 

 

87,000

 

Net proceeds from Common Stock options exercised

 

55

 

 

119

 

Cash dividends paid

 

(4,082)

 

 

(3,846)

 

Net cash provided by (used in) financing activities

 

(12,398)

 

 

183,734

 

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(11,910)

 

 

63,471

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

210,082

 

 

72,878

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

198,172

 

$

136,349

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

$

4,527

 

$

4,730

 

Income taxes

 

156

 

 

585

 

 

 

 

 

 

 

 

SUPPLEMENTAL NONCASH DISCLOSURES:

 

 

 

 

 

 

Transfers from loans to real estate acquired in settlement of loans

$

656

 

$

332

 

Loans provided for sales of other real estate owned

 

256

 

 

2,090

 

 

See accompanying footnotes to consolidated financial statements.

 

7


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – MARCH  31, 2016 and 2015 AND DECEMBER 31, 2015 (UNAUDITED)

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation — 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” or the “Bank”) and Republic Insurance Services, Inc. (the “Captive”). The Bank is a Kentucky-based, state chartered non-member financial institution. The Captive is a wholly-owned insurance subsidiary of the Company that provides property and casualty insurance coverage to the Company and the Bank as well as eight other third-party insurance captives for which insurance may not be available or economically feasible.  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.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to the consolidated financial statements and footnotes thereto included in Republic’s Form 10-K for the year ended December 31, 2015.

 

As of March 31, 2016, the Company was divided into four distinct business operating segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking and Republic Processing Group (“RPG”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” activities. The RPG segment includes the following divisions: Tax Refund Solutions (“TRS”), Refund Payment Solutions (“RPS”) and Republic Credit Solutions (“RCS”). TRS generates the majority of RPG’s income, with the relatively smaller divisions of RPG, RPS and RCS, considered immaterial for separate and independent segment reporting. All divisions of the RPG segment operate through the Bank. 

 

 

8


 

Core Bank (includes Traditional Banking, Warehouse Lending and Mortgage Banking segments)

 

The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of March 31, 2016, in addition to Internet Banking and Correspondent Lending delivery channels, Republic had 40 full-service banking centers with locations as follows:

 

·

Kentucky — 32

·

Metropolitan Louisville — 19

·

Central Kentucky — 8

·

Elizabethtown — 1

·

Frankfort — 1

·

Georgetown — 1

·

Lexington — 4

·

Shelbyville — 1

·

Western Kentucky — 2

·

Owensboro — 2

·

Northern Kentucky — 3

·

Covington — 1

·

Florence — 1

·

Independence — 1

·

Southern Indiana — 3

·

Floyds Knobs — 1

·

Jeffersonville — 1

·

New Albany — 1

·

Metropolitan Tampa, Florida — 2

·

Metropolitan Cincinnati, Ohio — 1

·

Metropolitan Nashville, Tennessee — 2

 

Republic’s headquarters are located in Louisville, which is the largest city in Kentucky based on population.

 

Core Banking results of operations are primarily 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 Core Banking assets represent investment securities and commercial and consumer loans primarily secured by real estate and/or personal property. Interest-bearing liabilities primarily consist of interest-bearing deposit accounts, securities sold under agreements to repurchase, as well as short-term and long-term borrowing sources. Federal Home Loan Bank (“FHLB”) advances have traditionally been a significant borrowing source for the Bank.

 

Other sources of Core Banking income include service charges on deposit accounts, debit and credit card interchange fee income, title insurance commissions, fees charged to clients for trust services, increases in the cash surrender value of Bank Owned Life Insurance (“BOLI”) and revenue generated from Mortgage Banking activities. Mortgage Banking activities represent both the origination and sale of loans in the secondary market and the servicing of loans for others, primarily the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”).

 

Core Banking operating expenses consist primarily of salaries and employee benefits, occupancy and equipment expenses, communication and transportation costs, data processing, interchange related expenses, marketing and development expenses, Federal Deposit Insurance Corporation (“FDIC”) insurance expense, franchise tax expense and various other general and administrative costs. Core Banking results of operations are significantly impacted by general economic and competitive conditions, particularly changes in market interest rates, government laws and policies and actions of regulatory agencies.

 

The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the Nation through its Warehouse segment in the form of warehouse lines of credit.  These credit facilities are secured by single family, first lien residential real estate loans. Outstanding balances on these credit facilities may be subject to significant fluctuations consistent with the overall market demand for mortgage loans.

 

9


 

Primarily from its Warehouse clients, the Core Bank acquires for investment single family, first lien mortgage loans that meet the Core Bank’s specifications through its Correspondent Lending channel. Substantially all loans purchased through the Correspondent Lending channel are purchased at a premium. 

 

Republic Processing Group

Tax Refund Solutions division — Republic, through its TRS division, is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products through third-party tax preparers located throughout the Nation, as well as tax-preparation software providers. Substantially all of the business generated by the TRS division occurs in the first half of the year. The TRS division traditionally operates at a loss during the second half of the year, during which time the division incurs costs preparing for the upcoming year’s first quarter tax season.

Refund Transfers (“RTs”) are products whereby a tax refund is issued to the taxpayer after the Bank has received the refund from the federal or state government. There is no credit risk or borrowing cost associated with these products because they are only delivered to the taxpayer upon receipt of the tax refund directly from the governmental paying authority. Fees earned on RTs, net of rebates, are reported as noninterest income under the line item “Net refund transfer fees.”

TRS offered its new Easy Advance (“EA”) tax credit product during the first quarter of 2016. The EA product had the following features during the period it was offered through February 29, 2016:

·

An advance amount of $750 per taxpayer customer;

·

No fee for the EA charged to the taxpayer customer;

·

All fees for the product were paid by the tax preparer or tax software company (collectively, the “Tax Providers”) with a restriction prohibiting the Tax Providers from passing along the fees to the taxpayer customer;

·

No requirement that the taxpayer customer pay for another bank product, such as an RT;

·

Multiple funds disbursement methods, including direct deposit, prepaid card, check or the Walmart Direct2Cash®  product, based on the taxpayer customer’s election;

·

Repayment to the Bank was deducted from the taxpayer customer’s tax refund proceeds; and

·

If an insufficient refund to repay the EA occurred:

o

there was no recourse to the taxpayer customer, 

o

no negative credit reporting on the taxpayer customer, and

o

no collection efforts against the taxpayer customer.

Fees paid by the Tax Providers to the Company for the EA product are reported as interest income on loans under the line item “Loans, including fees.” EAs during the first quarter of 2016 were generally repaid within three weeks after the taxpayer customer’s tax return was submitted to the applicable tax authority. Unpaid EAs are generally charged-off within 81 days after the taxpayer customer’s tax return is submitted to the applicable tax authority.

 

Republic Payment Solutions division — The RPS division is an issuing bank offering general-purpose reloadable prepaid cards through third-party program managers.

 

The Company reports fees related to RPS programs under “Republic Processing Group program fees.” Additionally, the Company’s portion of interchange revenue generated by prepaid card transactions is reported as noninterest income under “Interchange fee income.”

 

Republic Credit Solutions division — The RCS division offers short-term consumer credit products. In general, the credit products are unsecured, small dollar consumer loans with maturities of 30-days-or-more, and are dependent on various factors including the consumer’s ability to repay.  Depending on the structure of the RCS loan product,  up to 100% of the loans originated may be sold.  The RCS division sold $44 million and $2 million of short-term consumer loans during the first three months of 2016 and 2015.

 

The Company reports RCS loans originated for investment under “Loans,” while loans originated for sale are reported under “Other loans held for sale.”  The RCS loans that are held for sale are carried at the lower of cost or fair value. The Company reports interest income and loan origination fees earned on RCS loans under “Loans, including fees,” while any premiums or discounts related to RCS loans that are sold are reported as noninterest income under “Republic Processing Group program fees.” 

10


 

 

Accounting Standards Update (“ASU”) ASU No. 2016-2, Leases (Topic 842)

 

This ASU is a standard that applies to all lease contracts. A lease contract is defined as a contract, or part of a contract, that conveys the right to control the use of an asset for a period in exchange for consideration. Most leases are considered operating leases, which are not accounted for on the lessees’ balance sheets. The significant change under this ASU is that those operating leases will be recorded on the balance sheet. 

 

Under this ASU, after determining that a contract contains a lease, a lessee will need to evaluate whether the lease is a finance or an operating lease at the commencement of a new lease and upon change in the lease term or change in the lessee’s option to purchase the asset. The classification criteria for distinguishing between finance leases and operating leases under this ASU are substantially similar to the classification criteria for distinguishing between capital leases and operating leases under previous GAAP. All leases, whether finance or operating, will be on balance sheet unless they are subject to a short-term (12 months or less) lease accounting policy election. The lease term includes periods subject to an option to extend the lease if the lessee is reasonably certain to exercise that option. This means leases of 12 months or less with extension options that meet that criteria will be recorded on the balance sheet.

 

Finance leases under this ASU will recognize amortization expense on the asset separately from interest expense on the liability, similar to capital lease guidance under existing GAAP. Operating leases under this ASU will recognize lease expense that includes amortization expense on the leased asset and interest on the liability.

 

The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is a lessee for a material level of operating leases and is analyzing the impact of this ASU on its consolidated financial statements.

 

 

 

 

 

11


 

2. PENDING BUSINESS ACQUISITION

 

Effective October 6, 2015, the Company and Cornerstone Bancorp, Inc. (“Cornerstone”), the parent company of Cornerstone Community Bank (“CCB”), entered into an Agreement and Plan of Merger (the “Agreement”) pursuant to which the Company will acquire Cornerstone, with CCB merging into RB&T.  Cornerstone and CCB are headquartered in St. Petersburg, Florida.

 

Under the terms of the Agreement, the Company will acquire all of Cornerstone’s outstanding common stock in an all-cash transaction, resulting in a total cash payment to Cornerstone’s existing shareholders and stock option holders of approximately $32 million.  The Company will fund the cash payment through existing resources on-hand.

 

The acquisition is expected to close during the second quarter of 2016.  On March 31, 2016, Cornerstone operated four banking centers in the Tampa, Florida metropolitan statistical area, with approximately $250 million in total assets, approximately $190 million in loans and approximately $210 million in deposits. 

 

 

3. INVESTMENT SECURITIES

 

Securities Available for Sale

 

The gross amortized cost and fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (“AOCI”) were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Gross

    

Gross

    

    

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

March 31, 2016 (in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and U.S. Government agencies

 

$

286,518

 

$

1,331

 

$

(7)

 

$

287,842

 

Private label mortgage backed security

 

 

4,037

 

 

946

 

 

 —

 

 

4,983

 

Mortgage backed securities - residential

 

 

93,333

 

 

3,224

 

 

(36)

 

 

96,521

 

Collateralized mortgage obligations

 

 

108,057

 

 

906

 

 

(499)

 

 

108,464

 

Freddie Mac preferred stock

 

 

 —

 

 

166

 

 

 —

 

 

166

 

Mutual fund

 

 

2,500

 

 

35

 

 

 —

 

 

2,535

 

Corporate bonds

 

 

15,007

 

 

 —

 

 

(154)

 

 

14,853

 

Trust preferred security

 

 

3,416

 

 

 —

 

 

(16)

 

 

3,400

 

Total securities available for sale

 

$

512,868

 

$

6,608

 

$

(712)

 

$

518,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Gross

    

Gross

    

    

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

December 31, 2015 (in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and U.S. Government agencies

 

$

286,914

 

$

59

 

$

(494)

 

$

286,479

 

Private label mortgage backed security

 

 

4,037

 

 

1,095

 

 

 —

 

 

5,132

 

Mortgage backed securities - residential

 

 

88,968

 

 

3,395

 

 

(95)

 

 

92,268

 

Collateralized mortgage obligations

 

 

113,972

 

 

748

 

 

(1,052)

 

 

113,668

 

Freddie Mac preferred stock

 

 

 —

 

 

173

 

 

 —

 

 

173

 

Mutual fund

 

 

1,000

 

 

11

 

 

 —

 

 

1,011

 

Corporate bonds

 

 

15,009

 

 

16

 

 

(103)

 

 

14,922

 

Trust preferred security

 

 

3,405

 

 

 —

 

 

 —

 

 

3,405

 

Total securities available for sale

 

$

513,305

 

$

5,497

 

$

(1,744)

 

$

517,058

 

 

12


 

Securities Held to Maturity

 

The carrying value, gross unrecognized gains and losses, and fair value of securities held to maturity were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

 

    

Gross

    

Gross

    

    

 

 

 

 

Carrying

 

Unrecognized

 

Unrecognized

 

Fair

 

March 31, 2016 (in thousands)

 

Value

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and U.S. Government agencies

 

$

513

 

$

3

 

$

 —

 

$

516

 

Mortgage backed securities - residential

 

 

52

 

 

6

 

 

 —

 

 

58

 

Collateralized mortgage obligations

 

 

32,276

 

 

139

 

 

(58)

 

 

32,357

 

Corporate bonds

 

 

5,000

 

 

 —

 

 

(97)

 

 

4,903

 

Total securities held to maturity

 

$

37,841

 

$

148

 

$

(155)

 

$

37,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

 

    

Gross

    

Gross

    

    

 

 

 

 

Carrying

 

Unrecognized

 

Unrecognized

 

Fair

 

December 31, 2015 (in thousands)

 

Value

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and U.S. Government agencies

 

$

515

 

$

1

 

$

 —

 

$

516

 

Mortgage backed securities - residential

 

 

53

 

 

6

 

 

 —

 

 

59

 

Collateralized mortgage obligations

 

 

33,159

 

 

464

 

 

 —

 

 

33,623

 

Corporate bonds

 

 

5,000

 

 

 —

 

 

(2)

 

 

4,998

 

Total securities held to maturity

 

$

38,727

 

$

471

 

$

(2)

 

$

39,196

 

 

At March 31, 2016 and December 31, 2015, 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.

 

Sales of Securities Available for Sale

 

During the three months ended March 31, 2016 and 2015 there were no sales or calls of securities available for sale.

 

Investment Securities by Contractual Maturity

 

The amortized cost and fair value of the investment securities portfolio by contractual maturity at March 31, 2016 follows. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities

 

Securities

 

 

 

Available for Sale

 

Held to Maturity

 

 

    

Amortized

    

Fair

    

Carrying

    

Fair

 

March 31, 2016 (in thousands)