0001558370-16-009783.txt : 20161109 0001558370-16-009783.hdr.sgml : 20161109 20161109134128 ACCESSION NUMBER: 0001558370-16-009783 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 116 CONFORMED PERIOD OF REPORT: 20160930 FILED AS OF DATE: 20161109 DATE AS OF CHANGE: 20161109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC BANCORP INC /KY/ CENTRAL INDEX KEY: 0000921557 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 610862051 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24649 FILM NUMBER: 161983546 BUSINESS ADDRESS: STREET 1: REPUBLIC CORPORATE CENTER STREET 2: 601 WEST MARKET ST CITY: LOUISVILLE STATE: KY ZIP: 40202 BUSINESS PHONE: 5025843600 10-Q 1 rbca-20160930x10q.htm 10-Q rbcaa_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

 

 

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

 

For the quarterly period ended 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

 

Picture 1

 

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Kentucky

 

61-0862051

(State of other jurisdiction of incorporation or organization)

 

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

 

 

601 West Market Street, Louisville, Kentucky

 

40202

(Address of principal executive offices)

 

(Zip Code)

 

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

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ Yes   ☐ No

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large accelerated filer ☐

 

Accelerated filer ☒

 

Non-accelerated filer ☐

 

Smaller reporting company ☐

 

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

 

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of October 31, 2016, was 18,616,873 and 2,245,174.

 

 

 


 

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”)