rbcaa_Current_Folio

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

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

Commission File Number: 0-24649

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.

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.

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.

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.

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.

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.

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.

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:

there was no recourse to the taxpayer customer,

no negative credit reporting on the taxpayer customer, and

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.”

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

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

Available for Sale

Held to Maturity

Amortized

Fair

Carrying

Fair

March 31, 2016 (in thousands)


PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	61

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	93

Item 4.	Controls and Procedures.	93

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	93

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	93

Item 6.	Exhibits.	94

	SIGNATURES	95