10-Q 1 a50622742.htm REPUBLIC BANCORP, INC. 10-Q a50622742.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________

FORM 10-Q

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

For the quarterly period ended March 31, 2013

or

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

Commission File Number: 0-24649
Logo
 
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)
 
(502) 584-3600
(Registrant’s telephone number, including area code)

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.  þ  Yes   o 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). þ  Yes   o 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  o Accelerated filer  þ Non-accelerated filer  o 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   þ    No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of April 30, 2013, was 18,518,387 and 2,267,847, respectively.
 
 
 

 

TABLE OF CONTENTS
 
 
 
2

 
 
 
 
CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)

   
March 31,
 
December 31,
   
2013
 
2012
ASSETS
           
             
Cash and cash equivalents
  $ 207,451     $ 137,691  
Securities available for sale
    421,443       438,246  
Securities to be held to maturity (fair value of $52,758 in 2013 and $46,416 in 2012)
    52,283       46,010  
Mortgage loans held for sale
    20,726       10,614  
Loans, net of allowance for loan losses of $23,563 and $23,729 (2013 and 2012)
    2,575,079       2,626,468  
Federal Home Loan Bank stock, at cost
    28,342       28,377  
Premises and equipment, net
    33,535       33,197  
Goodwill
    10,168       10,168  
Other real estate owned
    18,689       26,203  
Other assets and accrued interest receivable
    33,642       37,425  
                 
TOTAL ASSETS
  $ 3,401,358     $ 3,394,399  
                 
LIABILITIES
               
                 
Deposits
               
    Non interest-bearing
  $ 524,149     $ 479,046  
    Interest-bearing
    1,547,647       1,503,882  
Total deposits
    2,071,796       1,982,928  
                 
Securities sold under agreements to repurchase and other short-term borrowings
    120,217       250,884  
Federal Home Loan Bank advances
    572,570       542,600  
Subordinated note
    41,240       41,240  
Other liabilities and accrued interest payable
    52,800       40,045  
                 
Total liabilities
    2,858,623       2,857,697  
                 
STOCKHOLDERS' EQUITY
               
                 
Preferred stock, no par value
    -       -  
Class A Common Stock and Class B Common Stock, no par value
    4,889       4,932  
Additional paid in capital
    131,671       132,686  
Retained earnings
    400,702       393,472  
Accumulated other comprehensive income
    5,473       5,612  
                 
Total stockholders' equity
    542,735       536,702  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 3,401,358     $ 3,394,399  
 
See accompanying footnotes to consolidated financial statements.
 
 
3

 
 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data) 

   
Three Months Ended
   
March 31,
   
2013
 
2012
INTEREST INCOME:
           
Loans, including fees
  $ 31,914     $ 75,292  
Taxable investment securities
    2,040       3,267  
Federal Home Loan Bank stock and other
    447       1,028  
Total interest income
    34,401       79,587  
                 
INTEREST EXPENSE:
               
Deposits
    1,055       1,539  
Securities sold under agreements to repurchase and other short-term borrowings
    29       112  
Federal Home Loan Bank advances
    3,558       4,086  
Subordinated note
    629       630  
Total interest expense
    5,271       6,367  
                 
NET INTEREST INCOME
    29,130       73,220  
Provision for loan losses
    (625 )     11,170  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    29,755       62,050  
NON-INTEREST INCOME:
               
Service charges on deposit accounts
    3,210       3,303  
Net refund transfer fees
    12,014       71,749  
Mortgage banking income
    3,274       1,354  
Debit card interchange fee income
    1,811       1,556  
Bargain purchase gain - Tennessee Commerce Bank
    -       27,899  
Bargain purchase gain - First Commercial Bank
    1,324       -  
Gain on sale of securities available for sale
    -       56  
Other
    892       892  
Total non interest income
    22,525       106,809  
                 
NON-INTEREST EXPENSES:
               
Salaries and employee benefits
    16,114       16,971  
Occupancy and equipment, net
    5,577       6,074  
Communication and transportation
    1,030       2,661  
Marketing and development
    902       938  
FDIC insurance expense
    413       430  
Bank franchise tax expense
    1,715       1,931  
Data processing
    716       1,221  
Debit card interchange expense
    843       601  
Supplies
    354       949  
Other real estate owned expense
    889       605  
Charitable contributions
    236       2,678  
Legal expense
    430       368  
FHLB advance prepayment expense
    -       2,436  
Other
    2,083       3,290  
Total non interest expenses
    31,302       41,153  
                 
INCOME BEFORE INCOME TAX EXPENSE
    20,978       127,706  
INCOME TAX EXPENSE
    7,622       45,234  
NET INCOME
  $ 13,356     $ 82,472  
                 
BASIC EARNINGS PER SHARE:
               
Class A Common Stock
  $ 0.64     $ 3.94  
Class B Common Stock
  $ 0.63     $ 3.92  
                 
DILUTED EARNINGS PER SHARE:
               
Class A Common Stock
  $ 0.64     $ 3.92  
Class B Common Stock
  $ 0.62     $ 3.90  
 
See accompanying footnotes to consolidated financial statements.
 
 
4

 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except per share data)

 
   
Three Months Ended
   
March 31,
   
2013
 
2012
             
Net income
  $ 13,356     $ 82,472  
                 
OTHER COMPREHENSIVE INCOME (LOSS)
               
                 
Unrealized gain (loss) on securities available for sale
    (398 )     1,739  
Change in unrealized losses on securities available for sale for
               
    which a portion of an other-than-temporary impairment has
               
    been recognized in earnings
    184       (22 )
Reclassification adjustment for gains recognized in earnings
    -       (55 )
Net unrealized gains (losses)
    (214 )     1,662  
Tax effect
    75       (582 )
Net of tax
    (139 )     1,080  
                 
COMPREHENSIVE INCOME
  $ 13,217     $ 83,552  
                 
                 
                 
See accompanying footnotes to consolidated financial statements.
 
 
5

 
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2013

                                           
   
Common Stock
             
Accumulated
     
   
Class A
 
Class B
       
Additional
       
Other
 
Total
   
Shares
 
Shares
       
Paid In
 
Retained
 
Comprehensive
 
Stockholders'
(in thousands, except per share data)
 
Outstanding
 
Outstanding
 
Amount
 
Capital
 
Earnings
 
Income
 
Equity
                                           
Balance, January 1, 2013
    18,694       2,271     $ 4,932     $ 132,686     $ 393,472     $ 5,612     $ 536,702  
                                                         
Net income
    -       -       -       -       13,356       -       13,356  
                                                         
Net change in accumulated other comprehensive income
    -       -       -       -       -       (139 )     (139 )
                                                         
Dividend declared Common Stock:
                                                       
   Class A ($0.165 per share)
    -       -       -       -       (2,965 )     -       (2,965 )
   Class B ($0.150 per share)
    -       -       -       -       (340 )     -       (340 )
                                                         
Stock options exercised, net of shares redeemed
    -       -       -       -       -       -       -  
                                                         
Repurchase of Class A Common Stock
    (193 )     -       (43 )     (1,230 )     (2,821 )     -       (4,094 )
                                                         
Conversion of Class B Common Stock to Class A Common Stock
    7       (7 )     -       -       -       -       -  
                                                         
Net change in notes recveivable on Common Stock
    -       -       -       25       -       -       25  
                                                         
Deferred director compensation expense - Company Stock
    5       -       -       51       -       -       51  
                                                         
Stock based compensation expense - restricted stock
    -       -       -       74       -       -       74  
                                                         
Stock based compensation expense - options
    -       -       -       65       -       -       65  
                                                         
Balance, March 31, 2013
    18,513       2,264     $ 4,889     $ 131,671     $ 400,702     $ 5,473     $ 542,735  
 
 
See accompanying footnotes to consolidated financial statements.
 
 
6

 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2013 AND 2012 (in thousands)

   
2013
 
2012
OPERATING ACTIVITIES:
           
Net income
  $ 13,356     $ 82,472  
Adjustments to reconcile net income to net cash provided
               
    by operating activities:
               
      Depreciation, amortization and accretion, net
    462       3,057  
      Provision for loan losses
    (625 )     11,170  
      Net gain on sale of mortgage loans held for sale
    (3,284 )     (1,688 )
      Origination of mortgage loans held for sale
    (84,593 )     (53,855 )
      Proceeds from sale of mortgage loans held for sale
    77,765       55,476  
      Net realized impairment (recovery) of mortgage servicing rights
    (152 )     12  
      Net realized gain on sales, calls and impairment of securities
    -       (56 )
      Net gain on sale of other real estate owned
    (277 )     (137 )
      Writedowns of other real estate owned
    366       226  
      Deferred director compensation expense - Company Stock
    51       54  
      Stock based compensation expense
    139       402  
      Bargain purchase gains on acquisitions
    (1,324 )     (27,899 )
      Net change in other assets and liabilities:
               
         Accrued interest receivable
    309       (699 )
         Accrued interest payable
    30       (168 )
         Other assets
    2,862       7,832  
         Other liabilities
    12,782       42,143  
              Net cash provided by operating activities
    17,867       118,342  
                 
INVESTING ACTIVITIES:
               
Net cash received in FDIC-assisted transactions
    -       846,399  
Purchases of securities available for sale
    (19,697 )     (2,688 )
Purchases of securities to be held to maturity
    (10,000 )     -  
Proceeds from calls, maturities and paydowns of securities available for sale
    36,476       54,652  
Proceeds from calls, maturities and paydowns of securities to be held to maturity
    3,710       1,031  
Proceeds from sales of securities available for sale
    -       35,224  
Proceeds from sales of Federal Home Loan Bank stock
    35       -  
Proceeds from sales of other real estate owned
    8,261       6,270  
Net change in loans
    54,016       (73,072 )
Net purchases of premises and equipment
    (1,573 )     (1,371 )
              Net cash provided by investing activities
    71,228       866,445  
                 
FINANCING ACTIVITIES:
               
Net change in deposits
    88,868       (632,628 )
Net change in securities sold under agreements to repurchase and other short-term borrowings
    (130,667 )     (4,512 )
Payments of Federal Home Loan Bank advances
    (30 )     (541,037 )
Proceeds from Federal Home Loan Bank advances
    30,000       20,000  
Repurchase of Common Stock
    (4,094 )     -  
Net proceeds from Common Stock options exercised
    -       117  
Cash dividends paid
    (3,412 )     (3,194 )
              Net cash used in financing activities
    (19,335 )     (1,161,254 )
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
    69,760       (176,467 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    137,691       362,971  
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 207,451     $ 186,504  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
Cash paid during the period for:
               
    Interest
  $ 5,302     $ 6,535  
    Income taxes
    2,169       1,037  
                 
SUPPLEMENTAL NONCASH DISCLOSURES
               
Transfers from loans to real estate acquired in settlement of loans
  $ 897     $ 8,722  
Loans provided for sales of other real estate owned
    61       382  
 
See accompanying footnotes to consolidated financial statements.
 
 
7

 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – MARCH 31, 2013 AND 2012 (UNAUDITED) AND DECEMBER 31, 2012


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”) and Republic Bank (“RB”) (collectively referred together as the “Bank”), and 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.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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. generally accepted accounting principles (“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, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. 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, 2012.

As of March 31, 2013, the Company was divided into three distinct business operating segments: Traditional Banking, Mortgage Banking and Republic Processing Group (“RPG”). During the second quarter of 2012, the Company realigned the previously reported Tax Refund Solutions (“TRS”) segment as a division of the newly formed RPG segment. Along with the TRS division, Republic Payment Solutions (“RPS”) and Republic Credit Solutions (“RCS”) also operate as divisions of the RPG segment.

Traditional Banking and Mortgage Banking (collectively “Core Banking”)

Republic operates 44 banking centers, primarily in the retail banking industry, and conducts its Core Banking operations predominately in metropolitan Louisville, Kentucky; Central Kentucky; Northern Kentucky; Southern Indiana; metropolitan Tampa, Florida; metropolitan Cincinnati, Ohio; metropolitan Nashville, Tennessee; metropolitan Minneapolis, Minnesota and through an Internet banking delivery channel.

Effective January 27, 2012, RB&T acquired specific assets and assumed substantially all of the deposits and certain other liabilities of Tennessee Commerce Bank (“TCB”), headquartered in Franklin, Tennessee from the Federal Deposit Insurance Corporation (“FDIC”), as receiver for TCB. This acquisition of a failed bank represented a single banking center located in metropolitan Nashville and was RB&T’s initial entrance into the Tennessee market. See additional discussion under Footnote 2 “2012 Acquisitions of Failed Banks” in this section of the filing.

Effective September 7, 2012 RB&T acquired specific assets and assumed substantially all of the liabilities of First Commercial Bank (“FCB”), headquartered in Bloomington, Minnesota from the FDIC, as receiver for FCB. This acquisition of a failed bank represented a single banking center located in metropolitan Minneapolis and was RB&T’s initial entrance into the Minnesota market. See additional discussion under Footnote 2 “2012 Acquisitions of Failed Banks” in this section of the filing.

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 real estate, commercial and consumer loans. 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. In June 2011 the Bank began offering its warehouse lending product. With this product, the Bank provides short-term, revolving credit facilities to mortgage bankers across the nation. These credit facilities are secured by single family, first lien residential real estate loans.

Other sources of Core Banking income include service charges on deposit accounts, debit card interchange fee income, title insurance commissions, fees charged to customers for trust services 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”).
 
 
8

 
 
Core Banking operating expenses consist primarily of salaries and employee benefits, occupancy and equipment expenses, communication and transportation costs, marketing and development expenses, FDIC insurance expense, and various 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.

Republic Processing Group

Nationally, through RB&T, RPG facilitates the receipt and payment of federal and state tax refund products under the TRS division. Nationally, through RB, the RPS division is an issuing bank offering general purpose reloadable prepaid debit cards through third party program managers. Nationally, through RB&T, the RCS division is preparing to pilot short-term consumer credit products on-line.

Reclassifications and recasts – Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on prior years’ net income. Additionally, as discussed  in Footnote 2 “2012 Acquisitions of Failed Banks,” during the first quarter of 2013 the Bank posted adjustments to the First Commercial Bank acquired assets in the determination of day-one fair values, which resulted in a $1.3 million increase to the bargain purchase gain.
 
 
9

 
 
2.  2012 ACQUISITIONS OF FAILED BANKS
 
OVERVIEW

Republic implemented an acquisition strategy in early 2012 to selectively grow its franchise as a complement to its internal growth strategies. During 2012, RB&T acquired two failed institutions in FDIC-assisted transactions. RB&T acquired certain assets and assumed certain liabilities of Tennessee Commerce Bank (“TCB”) during the first quarter of 2012 and First Commercial Bank (“FCB”) during the third quarter of 2012. The Company did not raise capital to complete either of these acquisitions.

RB&T determined that the acquisitions of these failed banks constituted “business acquisitions” as defined by Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their estimated fair values, as required. Fair values are determined over a measurement period based on the requirements of ASC Topic 820, Fair Value Measurements and Disclosures. The measurement period for day-one fair values begins on the acquisition date and ends the earlier of: (a) the day management believes it has all the information necessary to determine day-one fair values; or (b) one year following the acquisition date. In many cases, the determination of these day-one fair values requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to recast adjustments, which are retrospective adjustments to reflect new information existing at the acquisition date affecting day-one fair values. More specifically, recast adjustments for loans and other real estate owned are made as market value data, such as appraisals, are received by RB&T. Increases or decreases to day-one fair values are reflected with a corresponding increase or decrease to goodwill or bargain purchase gain.

Tennessee Commerce Bank

On January 27, 2012, RB&T acquired specific assets and assumed substantially all of the deposits and specific other liabilities of TCB, headquartered in Franklin, Tennessee from the FDIC, as receiver for TCB, pursuant to the terms of a Purchase and Assumption Agreement — Whole Bank; All Deposits entered into among RB&T, the FDIC as receiver of TCB and the FDIC. On January 30, 2012, TCB’s sole location re-opened as a division of RB&T.

RB&T acquired approximately $221 million in notional assets from the FDIC as receiver for TCB. In addition, RB&T also recorded a receivable from the FDIC for approximately $785 million, which represented the net difference between the assets acquired and the liabilities assumed adjusted for the discount RB&T received for the acquisition. The FDIC paid approximately $771 million of this receivable on January 30, 2012 with the remaining $14 million paid on February 15, 2012.

During the first quarter of 2012, the Bank recorded an initial bargain purchase gain of $27.9 million as a result of the TCB acquisition. The bargain purchase gain was realized because the overall price paid by RB&T was substantially less than the fair value of the TCB assets acquired and liabilities assumed in the acquisition. In the second and third quarters of 2012, the Bank posted adjustments to the acquired assets for its FDIC-assisted acquisition in the determination of day-one fair values and recorded a net decrease to the bargain purchase gain of $285,000, as additional information relative to the day-one fair values became available.

 
10

 

Information obtained subsequent to January 27, 2012 and through September 30, 2012 was considered in forming TCB estimates of cash flows and collateral values as of the January 27, 2012 acquisition date, i.e., TCB’s day-one fair values. Day-one fair values for TCB were considered final as of September 30, 2012, which is the date RB&T believed it had all the information necessary to determine TCB’s day-one fair values.

A summary of the assets acquired and liabilities assumed in the TCB acquisition, including 2012 recast adjustments, follows:
 
Tennessee Commerce Bank
 
January 27, 2012
                         
   
As Previously Reported
 
As Recasted
   
Contractual
 
Fair Value
 
2012 Recast
 
Fair
(in thousands)
 
Amount
 
Adjustments
 
Adjustments
 
Value
Assets acquired:
                       
                         
Cash and cash equivalents
  $ 61,943     $ (89 )   $ (2 )   $ 61,852  
Securities available for sale
    42,646       -       -       42,646  
Loans to be repurchased by the FDIC, net of discount
    19,800       (2,797 )     -       17,003  
Loans
    79,112       (22,666 )     830       57,276  
Federal Home Loan Bank stock, at cost
    2,491       -       -       2,491  
Other assets and accrued interest receivable
    945       (60 )     -       885  
Other real estate owned
    14,189       (3,359 )     (1,113 )     9,717  
Core deposit intangible
    -       64       -       64  
Discount
    (56,970 )     56,970       -       -  
FDIC settlement receivable
    784,545       -       -       784,545  
Total assets acquired
  $ 948,701     $ 28,063     $ (285 )   $ 976,479  
                                 
Liabilities assumed:
                               
                                 
Deposits
                               
    Non interest-bearing
  $ 19,754     $ -     $ -     $ 19,754  
    Interest-bearing
    927,641       54       -       927,695  
Total deposits
    947,395       54       -       947,449  
                                 
Accrued income taxes payable
    -       9,988       (100 )     9,888  
Other liabilities and accrued interest payable
    1,306       110       -       1,416  
                                 
Total liabilities assumed
  $ 948,701     $ 10,152     $ (100 )   $ 958,753  
                                 
Equity
                               
                                 
Bargain purchase gain, net of taxes
    -       17,911       (185 )     17,726  
                                 
Total liabilities assumed and equity
  $ 948,701     $ 28,063     $ (285 )   $ 976,479  
 
 
11

 
 
A summary of the net assets acquired from the FDIC and the estimated fair value adjustments as of the TCB acquisition date follows:
 
Tennessee Commerce Bank
 
January 27, 2012
         
Second Quarter
 
Third Quarter
     
   
As Previously
 
2012 Recast
 
2012 Recast
 
As
(in thousands)
 
Reported
 
Adjustments
 
Adjustments
 
Recasted
                         
Assets acquired, at contractual amount
  $ 221,126     $ -     $ -     $ 221,126  
Liabilities assumed, at contractual amount
    (948,701 )     -       -       (948,701 )
Net liabilities assumed per the P&A Agreement
    (727,575 )     -       -       (727,575 )
                                 
Contractual discount
    (56,970 )     -       -       (56,970 )
Net receivable from the FDIC
  $ (784,545 )   $ -     $ -     $ (784,545 )
                                 
Fair value adjustments:
                               
    Loans
  $ (22,666 )   $ 919     $ (89 )   $ (21,836 )
    Discount for loans to be repurchased by the FDIC
    (2,797 )     -       -       (2,797 )
    Other real estate owned
    (3,359 )     (1,000 )     (113 )     (4,472 )
    Other assets and accrued interest receivable
    (60 )     -       -       (60 )
    Core deposit intangible
    64       -       -       64  
    Deposits
    (54 )     -       -       (54 )
    All other
    (199 )     (15 )     13       (201 )
Total fair value adjustments
    (29,071 )     (96 )     (189 )     (29,356 )
                                 
Discount
    56,970       -       -       56,970  
Bargain purchase gain, pre-tax
  $ 27,899     $ (96 )   $ (189 )   $ 27,614  
 
On January 27, 2012, RB&T did not immediately acquire the TCB banking facility, including outstanding lease agreements and furniture, fixtures and equipment. During the third quarter of 2012, RB&T renegotiated a new lease with the landlord related to the sole banking facility and acquired all related data processing equipment and fixed assets totaling approximately $573,000.


First Commercial Bank

On September 7, 2012, RB&T acquired specific assets and assumed substantially all of the liabilities of FCB, headquartered in Bloomington, Minnesota from the FDIC, as receiver for FCB, pursuant to the terms of a Purchase and Assumption Agreement — Whole Bank; All Deposits, entered into among RB&T, the FDIC as receiver of FCB and the FDIC. On September 10, 2012, FCB’s sole location re-opened as a division of RB&T.

RB&T acquired approximately $215 million in notional assets from the FDIC as receiver for FCB. In addition, RB&T also recorded a receivable from the FDIC for approximately $64 million, which represented the net difference between the assets acquired and the liabilities assumed adjusted for the discount RB&T received for the acquisition. The FDIC paid substantially all of this receivable to RB&T on September 10, 2012.

During the third quarter of 2012, the Bank recorded an initial bargain purchase gain of $27.1 million as a result of the FCB acquisition. The bargain purchase gain was realized because the overall price paid by RB&T was substantially less than the fair value of the FCB assets acquired and liabilities assumed in the acquisition. During the fourth quarter of 2012, RB&T posted adjustments to the acquired assets for its FDIC-assisted acquisition in the determination of day-one fair values and recorded a net increase to the bargain purchase gain of $712,000, as additional information relative to the day-one fair values became available. During the first quarter of 2013, RB&T posted an additional increase of $1.3 million to the bargain purchase gain.
 
 
12

 
 
Information obtained subsequent to September 7, 2012 and through the date of this filing was considered in forming FCB estimates of cash flows and collateral values as of the September 7, 2012 acquisition date, i.e., FCB’s day-one fair values.

While future recasts of the FCB bargain purchase gain are possible, management does not currently anticipate additional future adjustments to the FCB bargain purchase gain, as a significant amount of information is now available to management regarding the assets and liabilities in the acquisition and a significant amount of the assets acquired have been resolved in some manner.  As a result, management considers the measurement period for the FCB day-one fair values to be closed as of March 31, 2013 but reserves the right to make future adjustments if material information that existed as of the acquisition date of September 7, 2012 becomes available.

A summary of the assets acquired and liabilities assumed in the FCB acquisition, including recast adjustments, follows:
 
First Commercial Bank
 
September 7, 2012
                         
   
As Previously Reported
 
As Recasted
               
2012 & 2013
     
   
Contractual
 
Fair Value
 
Recast
 
Fair
(in thousands)
 
Amount
 
Adjustments
 
Adjustments
 
Value
Assets acquired :
                       
                         
Cash and cash equivalents
  $ 10,524     $ -     $ -     $ 10,524  
Securities available for sale
    12,002       -       -       12,002  
Loans
    171,744       (44,214 )     2,821       130,351  
Federal Home Loan Bank stock, at cost
    407       -       -       407  
Other assets and accrued interest receivable
    829       (95 )     -       734  
Other real estate owned
    19,360       (8,389 )     (785 )     10,186  
Core deposit intangible
    -       559       -       559  
Discount
    (79,412 )     79,412       -       -  
FDIC settlement receivable
    64,326       -       -       64,326  
Total assets acquired
  $ 199,780     $ 27,273     $ 2,036     $ 229,089  
                                 
Liabilities assumed:
                               
                                 
Deposits:
                               
    Non interest-bearing
  $ 7,197     $ -     $ -     $ 7,197  
    Interest-bearing
    189,057       (3 )     -       189,054  
Total deposits
    196,254       (3 )     -       196,251  
                                 
Federal Home Loan Bank advances
    3,002       63       -       3,065  
Accrued income taxes payable
    -       9,706       712       10,418  
Other liabilities and accrued interest payable
    524       101       -       625  
                                 
Total liabilities assumed
  $ 199,780     $ 9,867     $ 712     $ 210,359  
                                 
Equity:
                               
                                 
Bargain purchase gain, net of taxes
    -       17,406       1,324       18,730  
                                 
Total liabilities assumed and equity
  $ 199,780     $ 27,273     $ 2,036     $ 229,089  
 
 
13

 
 
A summary of the net assets acquired from the FDIC and the estimated fair value adjustments as of the FCB acquisition date follows:
 
First Commercial Bank
 
September 7, 2012
         
Fourth Quarter
 
First Quarter
     
   
As Previously
 
2012 Recast
 
2013 Recast
 
As
(in thousands)
 
Reported
 
Adjustments
 
Adjustments
 
Recasted
                         
Assets acquired, at contractual amount
  $ 214,866     $ -     $ -     $ 214,866  
Liabilities assumed, at contractual amount
    (199,780 )     -       -       (199,780 )
Net liabilities assumed per the P&A Agreement
    15,086       -       -       15,086  
                                 
Contractual discount
    (79,412 )     -       -       (79,412 )
Net receivable from the FDIC
  $ (64,326 )   $ -     $ -     $ (64,326 )
                                 
Fair value adjustments:
                               
    Loans
  $ (44,214 )   $ 423     $ 2,398     $ (41,393 )
    Other real estate owned
    (8,389 )     289       (1,074 )     (9,174 )
    Other assets and accrued interest receivable
    (95 )     -       -       (95 )
    Core deposit intangible
    559       -       -       559  
    Deposits
    3       -       -       3  
    Federal Home Loan Bank advances
    (63 )     -       -       (63 )
    All other
    (101 )     -       -       (101 )
Total fair value adjustments
    (52,300 )     712       1,324       (50,264 )
                                 
Discount
    79,412       -       -       79,412  
Bargain purchase gain, pre-tax
  $ 27,112     $ 712     $ 1,324     $ 29,148  
 
On September 7, 2012, RB&T did not immediately acquire the FCB banking facility, including outstanding lease agreements and furniture, fixtures and equipment. RB&T acquired all data processing equipment and fixed assets totaling approximately $328,000 during the fourth quarter of 2012. During the first quarter of 2013, RB&T renegotiated a new lease with the landlord related to the sole banking facility and acquired all related data processing equipment and fixed assets totaling approximately $233,000.
 
 
14

 
 
FAIR VALUE METHODS ASSOCIATED WITH THE ACQUISITIONS OF FAILED BANKS

The following is a description of the methods used to determine the fair values of significant assets and liabilities at the respective acquisition dates as presented throughout:

Cash and Due from Banks and Interest-bearing Deposits in Banks – The carrying amount of these assets, adjusted for any cash items deemed uncollectible by management, was determined to be a reasonable estimate of fair value based on their short-term nature.

Investment Securities – Investment securities were acquired at fair value from the FDIC. The fair values provided by the FDIC were reviewed and considered reasonable based on RB&T’s understanding of the marketplace. FHLB stock was acquired at cost, as it is not practicable to determine its fair value given restrictions on its marketability.

With the TCB acquisition, RB&T acquired $43 million in securities at fair value. The majority of the securities acquired were subsequently sold or called during the first quarter of 2012 with RB&T realizing a net gain on the corresponding transactions of approximately $56,000. The Bank sold these securities because management determined that the acquired securities did not fit within the Bank’s traditional investment strategies.

With the FCB acquisition, RB&T acquired $12 million in securities at fair value. The nature of these securities acquired were consistent with RB&T’s existing investment portfolio and RB&T elected not to sell these securities.

Loans – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting current market rates for new originations of comparable loans adjusted for the risk inherent in the cash flow estimates.

Certain loans that were deemed to be collateral dependent were valued based on the fair value of the underlying collateral. These estimates were based on the most recently available real estate appraisals with certain adjustments made based on the type of property, age of appraisal, current status of the property and other related factors to estimate the current value of the collateral.

With the TCB acquisition, RB&T purchased approximately $99 million in loans with a fair value of approximately $74 million. During 2012, the FDIC repurchased approximately $20 million of TCB loans at a price of par less the original discount of $3 million that RB&T received when it purchased the loans. Loans repurchased by the FDIC were valued at the contractual amount reduced by the applicable discount.

With the FCB acquisition, RB&T purchased approximately $172 million in loans with a fair value of approximately $128 million.
 
 
15

 
 
The composition of acquired loans as of the respective acquisition dates follows:
 
Tennessee Commerce Bank
 
January 27, 2012
   
As Previously Reported
 
As Recasted
   
Contractual
 
Fair Value
 
2012 Recast
 
Fair
(in thousands)
 
Amount
 
Adjustments
 
Adjustments
 
Value
                         
Residential real estate
  $ 22,693     $ (4,076 )   $ 243     $ 18,860  
Commercial real estate
    18,646       (6,971 )     1,988       13,663  
Real estate construction
    14,877       (2,681 )     (1,972 )     10,224  
Commercial
    13,224       (6,939 )     496       6,781  
Home equity
    6,220       (606 )     24       5,638  
Consumer:
                               
    Credit cards
    608       (22 )     -       586  
    Overdrafts
    672       (621 )     -       51  
    Other consumer
    2,172       (750 )     51       1,473  
Total loans
  $ 79,112     $ (22,666 )   $ 830     $ 57,276  
 
First Commercial Bank
 
September 7, 2012
   
As Previously Reported
 
As Recasted
               
2012 & 2013
     
   
Contractual
 
Fair Value
 
Recast
 
Fair
(in thousands)
 
Amount
 
Adjustments
 
Adjustments
 
Value
                         
Residential real estate
  $ 48,409     $ (9,634 )   $ 180     $ 38,955  
Commercial real estate
    82,161       (12,330 )     (1,746 )     68,085  
Real estate construction
    14,918       (6,182 )     316       9,052  
Commercial
    25,475       (16,060 )     4,120       13,535  
Home equity
    404       (3 )     -       401  
Consumer:
                               
    Credit cards
    -       -       -       -  
    Overdrafts
    6       -       -       6  
    Other consumer
    371       (5 )     (49 )     317  
Total loans
  $ 171,744     $ (44,214 )   $ 2,821     $ 130,351  
 
The following tables present the purchased loans that are included within the scope of ASC Topic 310-30 at the respective acquisition dates:
 
Tennessee Commerce Bank
 
January 27, 2012
   
As Previously
 
2012 Recast
 
As
 (in thousands)
 
Reported
 
Adjustments
 
Recasted
                   
Contractually-required principal and interest payments
  $ 52,278     $ -     $ 52,278  
Non-accretable difference
    (21,308 )     903       (20,405 )
Cash flows expected to be collected
    30,970       903       31,873  
Accretable yield
    (425 )     (73 )     (498 )
   Fair value of loans
  $ 30,545     $ 830     $ 31,375  
 
 
16

 
 
First Commercial Bank
 
September 7, 2012
         
2012 & 2013
     
   
As Previously
 
Recast
 
As
 (in thousands)
 
Reported
 
Adjustments
 
Recasted
                   
Contractually-required principal and interest payments
  $ 116,940     $ 4,213     $ 121,153  
Non-accretable difference
    (33,523 )     4,640       (28,883 )
Cash flows expected to be collected
    83,417       8,853       92,270  
Accretable difference
    (2,827 )     (1,819 )     (4,646 )
   Fair value of loans
  $ 80,590     $ 7,034     $ 87,624  
 
The following table presents a rollforward of the accretable discount on the purchased loans within the scope of ASC Topic 310-30 for the three months ended March 31, 2013:
 
   
Tennessee
 
First
     
   
Commerce
 
Commercial
 
Total
 (in thousands)
 
Bank
 
Bank
 
Acquired Banks
                   
                   
Balance as of January 1, 2013
  $ (319 )   $ (2,912 )   $ (3,231 )
Transfers between non-accretable and accretable
    (984 )     -       (984 )
Accreted/(Amortized) into interest income on loans,
                       
  including loan fees
    991       641       1,632  
Net recast adjustment
    -       283       283  
Ending balance, March 31, 2013
  $ (312 )   $ (1,988 )   $ (2,300 )
 
Changes between the accretable and non-accretable components within the respective measurement periods for FCB were deemed to be the result of facts and circumstances that existed the day of the acquisition and became known to RB&T after the fact. Thus, any adjustments between the two categories within the measurement period were deemed to be recast adjustments to the bargain purchase gain.

Core Deposit Intangible – In its assumption of the deposit liabilities for the 2012 acquisitions, RB&T believed that the customer relationships associated with these deposits had intangible value, although this value was anticipated to be modest given the nature of the deposit accounts and the anticipated rapid account run-off since acquired. RB&T recorded a core deposit intangible asset of $64,000 and $559,000 related to the TCB and FCB acquisitions. The fair value of these intangible assets were estimated based on a discounted cash flow methodology that gave appropriate consideration to type of deposit, deposit retention, cost of the deposit base, and net maintenance cost attributable to customer deposits.

OREO – OREO is presented at fair value, which is the estimated value that management expects to receive when the property is sold, net of related costs to sell. These estimates were based on the most recently available real estate appraisals, with certain adjustments made based on the type of property, age of appraisal, current status of the property and other related factors to estimate the current value of the property.

RB&T acquired $14 million in OREO related to the TCB acquisition, which was reduced by a $3 million fair value adjustment as of January 27, 2012. Subsequent to the first quarter, RB&T posted a net negative recast adjustment of $1 million to OREO to mark several properties to market based on appraisals received.

RB&T acquired $19 million in OREO related to the FCB acquisition, which was reduced by a $8 million fair value adjustment as of September 7, 2012. During the fourth quarter of 2012, RB&T posted a net positive recast adjustment of $289,000 to OREO to mark several properties to market based on appraisals received. During the first quarter of 2013, RB&T posted an additional negative recast adjustment of $1.1 million to the OREO acquired in the FCB acquisition.

FHLB Advances – RB&T acquired $3 million in FHLB advances related to the FCB acquisition. The advances were marked to market as of the acquisition date based on their early termination penalties as of that date. RB&T paid off the advances during the third quarter of 2012 at no additional loss beyond the fair value adjustment as of their date of acquisition.

 
17

 
 
Deposits – The fair values used for the demand and savings deposits that comprise the acquisition accounts acquired, by definition, equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the interest rates embedded on such time deposits.

RB&T assumed $947 million in deposits at estimated fair value in connection with the TCB acquisition. As permitted by the FDIC, within seven days of the acquisition date, RB&T had the option to disclose to TCB’s deposit customers that it was repricing the acquired deposit portfolios. In addition, depositors had the option to withdraw funds without penalty. RB&T chose to re-price all of the acquired TCB interest-bearing deposits, including transaction, time and brokered deposits with an effective date of January 28, 2012. This re-pricing triggered time and brokered deposit run-off consistent with management’s expectations. Through March 31, 2013, approximately 97% of the assumed TCB interest-bearing deposit account balances had exited RB&T, with no penalty on the applicable time and brokered deposits. At March 31, 2013, RB&T had $34 million of deposits remaining from the TCB acquisition.

RB&T assumed $196 million in deposits at estimated fair value in connection with the FCB acquisition. RB&T chose to re-price all of the acquired FCB time deposits with an effective date of October 1, 2012. This re-pricing triggered certificate of deposit run-off consistent with management’s expectations. Through March 31, 2013, approximately 74% of the assumed interest-bearing deposit account balances had exited RB&T, with no penalty on the applicable time and brokered deposits. At March 31, 2013, RB&T had $56 million of deposits remaining from the FCB acquisition.

The composition of deposits assumed at fair value as of the respective 2012 acquisition dates follows:
 
Tennessee Commerce Bank
 
January 27, 2012
   
Contractual
 
Fair Value
 
Recast
 
Fair
(in thousands)
 
Amount
 
Adjustments
 
Adjustments
 
Value
                         
Demand
  $ 3,190     $ -     $ -     $ 3,190  
Money market accounts
    11,338       -       -       11,338  
Savings
    91,859       -       -       91,859  
Individual retirement accounts*
    15,486       -       -       15,486  
Time deposits, $100,000 and over*
    278,825       -       -       278,825  
Other certificates of deposit*
    108,003       14       -       108,017  
Brokered certificates of deposit*
    418,940       40       -       418,980  
                                 
Total interest-bearing deposits
    927,641       54       -       927,695  
Total non interest-bearing deposits
    19,754       -       -       19,754  
                                 
Total deposits
  $ 947,395     $ 54     $ -     $ 947,449  
 
 
First Commercial Bank
 
September 7, 2012
   
Contractual
 
Fair Value
 
Recast
 
Fair
(in thousands)
 
Amount
 
Adjustments
 
Adjustments
 
Value
                         
Demand
  $ 4,003     $ -     $ -     $ 4,003  
Money market accounts
    38,187       -       -       38,187  
Savings
    -       -       -       -  
Individual retirement accounts*
    16,780       -       -       16,780  
Time deposits, $100,000 and over*
    14,740       -       -       14,740  
Other certificates of deposit*
    62,033       -       -       62,033  
Brokered certificates of deposit*
    53,314       (3 )     -       53,311  
                                 
Total interest-bearing deposits
    189,057       (3 )     -       189,054  
Total non interest-bearing deposits
    7,197       -       -       7,197  
                                 
Total deposits
  $ 196,254     $ (3 )   $ -     $ 196,251  
                                 
* - denotes a time deposit
                               
 
 
18

 
 
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 (loss) were as follows:
 
   
Gross
 
Gross
 
Gross
     
   
Amortized
 
Unrealized
 
Unrealized
 
Fair
March 31, 2013 (in thousands)
 
Cost
 
Gains
 
Losses
 
Value
                         
U.S. Treasury securities and
                       
    U.S. Government agencies
  $ 38,954     $ 454     $ (4 )   $ 39,404  
Private label mortgage backed security
    5,501       187       -       5,688  
Mortgage backed securities - residential
    171,021       6,186       -       177,207  
Collateralized mortgage obligations
    197,547       2,003       (406 )     199,144  
Total securities available for sale
  $ 413,023     $ 8,830     $ (410 )   $ 421,443  
                                 
                                 
   
Gross
 
Gross
 
Gross
       
   
Amortized
 
Unrealized
 
Unrealized
 
Fair