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 September 30, 2016

or

☐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 October 31, 2016, was 18,616,873 and 2,245,174.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	69
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	110
Item 4.	Controls and Procedures.	110
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings.	110
Item 1A.	Risk Factors	111
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	112
Item 6.	Exhibits.	113
	SIGNATURES	114

2

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

	September 30,		December 31,
	2016		2015
ASSETS
Cash and cash equivalents	$	302,167	$	210,082
Securities available for sale		489,905		517,058
Securities held to maturity (fair value of $34,651 in 2016 and $39,196 in 2015)		34,539		38,727
Mortgage loans held for sale, at fair value		8,442		4,083
Consumer loans held for sale, at fair value		1,691		—
Consumer loans held for sale, at the lower of cost or fair value		1,093		514
Loans		3,823,031		3,326,610
Allowance for loan and lease losses		(30,436)		(27,491)
Loans, net		3,792,595		3,299,119
Federal Home Loan Bank stock, at cost		28,208		28,208
Premises and equipment, net		43,385		31,106
Goodwill		16,300		10,168
Other real estate owned		2,435		1,220
Bank owned life insurance		61,392		52,817
Other assets and accrued interest receivable		45,125		37,187
TOTAL ASSETS	$	4,827,277	$	4,230,289
LIABILITIES
Deposits:
Noninterest-bearing	$	947,602	$	634,863
Interest-bearing		2,188,291		1,852,614
Total deposits		3,135,893		2,487,477
Securities sold under agreements to repurchase and other short-term borrowings		152,458		395,433
Federal Home Loan Bank advances		862,500		699,500
Subordinated note		41,240		41,240
Other liabilities and accrued interest payable		34,626		30,092
Total liabilities		4,226,717		3,653,742
Commitments and contingent liabilities (Footnote 9)		—		—
STOCKHOLDERS’ EQUITY
Preferred stock, no par value		—		—
Class A Common Stock and Class B Common Stock, no par value		4,906		4,915
Additional paid in capital		137,682		136,910
Retained earnings		454,998		432,673
Accumulated other comprehensive income		2,974		2,049
Total stockholders’ equity		600,560		576,547
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,827,277	$	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				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
INTEREST INCOME:
Loans, including fees	$	41,597	$	34,040	$	120,772	$	99,247
Taxable investment securities		1,942		1,733		5,817		5,285
Federal Home Loan Bank stock and other		395		334		1,500		1,058
Total interest income		43,934		36,107		128,089		105,590
INTEREST EXPENSE:
Deposits		1,620		1,068		4,359		3,233
Securities sold under agreements to repurchase and other short-term borrowings		11		17		51		72
Federal Home Loan Bank advances		2,664		2,982		8,590		8,907
Subordinated note		241		616		680		1,874
Total interest expense		4,536		4,683		13,680		14,086
NET INTEREST INCOME		39,398		31,424		114,409		91,504
Provision for loan and lease losses		2,489		2,233		9,489		3,322
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES		36,909		29,191		104,920		88,182
NONINTEREST INCOME:
Service charges on deposit accounts		3,416		3,399		9,838		9,685
Net refund transfer fees		132		97		19,119		17,339
Mortgage banking income		3,081		972		5,902		3,549
Interchange fee income		2,415		1,967		6,755		6,205
Republic Processing Group program fees		979		474		1,942		871
Gain on call of security available for sale		—		—		—		88
Net gains (losses) on other real estate owned		(137)		(8)		191		(282)
Increase in cash surrender value of bank owned life insurance		406		348		1,114		1,050
Other		1,009		557		2,163		1,772
Total noninterest income		11,301		7,806		47,024		40,277
NONINTEREST EXPENSES:
Salaries and employee benefits		18,068		15,297		52,965		44,897
Occupancy and equipment, net		5,631		5,217		16,159		15,560
Communication and transportation		1,029		951		2,974		2,768
Marketing and development		1,076		756		2,773		2,318
FDIC insurance expense		345		474		1,483		1,622
Bank franchise tax expense		846		846		3,944		4,094
Data processing		1,659		959		4,535		3,017
Interchange related expense		1,118		909		3,069		2,847
Supplies		280		229		969		809
Other real estate owned expense		159		146		355		485
Legal and professional fees		539		653		1,965		2,796
FHLB advance prepayment penalty		846		—		846		—
Other		1,938		1,801		5,904		5,264
Total noninterest expenses		33,534		28,238		97,941		86,477
INCOME BEFORE INCOME TAX EXPENSE		14,676		8,759		54,003		41,982
INCOME TAX EXPENSE		4,848		3,119		18,100		14,234
NET INCOME	$	9,828	$	5,640	$	35,903	$	27,748
BASIC EARNINGS PER SHARE:
Class A Common Stock	$	0.47	$	0.27	$	1.73	$	1.34
Class B Common Stock		0.43		0.25		1.58		1.22
DILUTED EARNINGS PER SHARE:
Class A Common Stock	$	0.47	$	0.27	$	1.73	$	1.34
Class B Common Stock		0.43		0.25		1.57		1.22
DIVIDENDS DECLARED PER COMMON SHARE:
Class A Common Stock	$	0.209	$	0.198	$	0.616	$	0.583
Class B Common Stock		0.190		0.180		0.560		0.530

See accompanying footnotes to consolidated financial statements.

4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  (UNAUDITED)

(in thousands)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Net income	$	9,828	$	5,640	$	35,903	$	27,748
OTHER COMPREHENSIVE INCOME
Change in fair value of derivatives used for cash flow hedges		127		(503)		(663)		(724)
Reclassification amount for derivative losses realized in income		83		100		256		304
Change in unrealized gain (loss) on securities available for sale		(788)		488		1,920		670
Reclassification adjustment for gain on security available for sale recognized in earnings		—		—		—		(88)
Change in unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings		57		(58)		(91)		(84)
Net unrealized gains (losses)		(521)		27		1,422		78
Tax effect		180		(11)		(497)		(29)
Total other comprehensive income, net of tax		(341)		16		925		49
COMPREHENSIVE INCOME	$	9,487	$	5,656	$	36,828	$	27,797

See accompanying footnotes to consolidated financial statements.

5

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 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	—	—		—		—		35,903		—		35,903
Net change in accumulated other comprehensive income	—	—		—		—		—		925		925
Dividends declared Common Stock:
Class A Shares	—	—		—		—		(11,469)		—		(11,469)
Class B Shares	—	—		—		—		(1,258)		—		(1,258)
Stock options exercised, net of shares redeemed	4	—		—		80		—		—		80
Repurchase of Class A Common Stock	(41)	—		(9)		(274)		(851)		—		(1,134)
Net change in notes receivable on Class A Common Stock	—	—		—		63		—		—		63
Deferred director compensation expense - Class A Common Stock	4	—		—		149		—		—		149
Stock based compensation expense - performance stock units	—	—		—		381		—		—		381
Stock based compensation expense - restricted stock	(2)	—		—		189		—		—		189
Stock based compensation expense - stock options	—	—		—		184		—		—		184
Balance, September 30, 2016	18,617	2,245	$	4,906	$	137,682	$	454,998	$	2,974	$	600,560

See accompanying footnotes to consolidated financial statements.

6

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Nine Months Ended
	September 30,
	2016		2015
OPERATING ACTIVITIES:
Net income	$	35,903	$	27,748
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization on investment securities, net		425		506
Accretion on loans, deposits and core deposit intangible, net		(1,813)		(2,422)
Depreciation of premises and equipment		5,414		4,965
Amortization of mortgage servicing rights		1,200		1,057
Provision for loan and lease losses		9,489		3,322
Net gain on sale of mortgage loans held for sale		(5,647)		(3,189)
Origination of mortgage loans held for sale		(154,607)		(128,026)
Proceeds from sale of mortgage loans held for sale		154,766		129,077
Net gain on sale of consumer loans held for sale		(1,768)		(909)
Origination of consumer loans held for sale		(248,430)		(86,218)
Proceeds from sale of consumer loans held for sale		247,928		86,473
Net realized gain on sales, calls and impairment of securities		—		(88)
Net gain realized on sale of other real estate owned		(392)		(734)
Writedowns of other real estate owned		200		1,016
Net gain on sale of banking center		—		(28)
Deferred director compensation expense - Company Stock		149		171
Stock based compensation expense		754		311
Increase in cash surrender value of bank owned life insurance		(1,114)		(1,050)
Net change in other assets and liabilities:
Accrued interest receivable		(83)		(228)
Accrued interest payable		(219)		(95)
Other assets		(3,064)		(1,709)
Other liabilities		(724)		5,336
Net cash provided by operating activities		38,367		35,286
INVESTING ACTIVITIES:
Net change in cash for acquisition of Cornerstone Bancorp, Inc.		(9,088)		—
Purchases of securities available for sale		(400,079)		(994,305)
Proceeds from calls, maturities and paydowns of securities available for sale		428,649		968,812
Proceeds from calls, maturities and paydowns of securities held to maturity		4,504		4,357
Net change in outstanding warehouse lines of credit		(274,457)		(74,117)
Purchase of non-business-acquisition loans, including premiums paid		(48,876)		(87,619)
Net change in other loans		(62,932)		(96,916)
Proceeds from redemption of Federal Home Loan Bank stock		224		—
Proceeds from sale of mortgage loans transferred to held for sale		72,330		—
Proceeds from sales of other real estate owned		2,660		7,880
Proceeds from sale of banking center		—		1,623
Net purchases of premises and equipment		(5,466)		(2,312)
Net cash used in investing activities		(292,531)		(272,597)
FINANCING ACTIVITIES:
Net change in deposits		443,745		309,648
Net change in securities sold under agreements to repurchase and other short-term borrowings		(242,975)		(46,484)
Payments of Federal Home Loan Bank advances		(267,000)		(208,000)
Proceeds from Federal Home Loan Bank advances		430,000		212,000
Payoff of subordinated note, net of common security interest		(4,000)		—
Repurchase of Common Stock		(1,134)		(477)
Net proceeds from Common Stock options exercised		80		244
Cash dividends paid		(12,467)		(11,767)
Net cash provided by financing activities		346,249		255,164
NET CHANGE IN CASH AND CASH EQUIVALENTS		92,085		17,853
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		210,082		72,878
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	302,167	$	90,731
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	13,882	$	14,181
Income taxes		18,956		12,219
SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers from loans to real estate acquired in settlement of loans	$	3,939	$	2,713
Transfers from loans held for investment to held for sale		71,201		—
Loans provided for sales of other real estate owned		256		2,962

See accompanying footnotes to consolidated financial statements.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – SEPTEMBER 30, 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 10 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. As a result of its acquisition of Cornerstone Bancorp, Inc. on May 17, 2016, Republic Bancorp, Inc. became the 100% successor owner of Cornerstone Capital Trust 1 (“CCT1”), an unconsolidated finance subsidiary. As permitted under the terms of CCT1’s governing documents, the Company redeemed these securities at the par amount of approximately $4 million, without penalty, on September 15, 2016.

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 and nine months ended September 30, 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 September 30, 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 September 30, 2016, Republic had 44 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 — 6

· 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 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. 

9

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 refunds 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 EA fee 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 of the EA 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.” During 2016, EAs were generally repaid within three weeks after the taxpayer customer’s tax return was submitted to the applicable tax authority. Provisions for loss on EAs were estimated when advances were made, with all loss provisions made in the first quarter of 2016. Unpaid EAs were charged-off within 81 days after the taxpayer customer’s tax return was submitted to the applicable tax authority, with the majority of charge-offs recorded during the second quarter of 2016.

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. 

The Company reports RCS loans originated for investment under “Loans,” while loans originated for sale are reported under “Consumer loans held for sale.”  The Company reports interest income and loan origination fees earned on RCS loans under “Loans, including fees,” while any gains or losses on sale reported as noninterest income under “Republic Processing Group program fees.”

10

Accounting Standards Updates (“ASUs”)