0001558370-17-004074.txt : 20170510 0001558370-17-004074.hdr.sgml : 20170510 20170510083224 ACCESSION NUMBER: 0001558370-17-004074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 118 CONFORMED PERIOD OF REPORT: 20170331 FILED AS OF DATE: 20170510 DATE AS OF CHANGE: 20170510 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: 17828587 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-20170331x10q.htm 10-Q rbcaa_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

 

 

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

 

For the quarterly period ended March 31, 2017

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

Large accelerated filer ☐

 

Accelerated filer ☒

 

Non-accelerated filer ☐

 

Smaller reporting company ☐ 

Emerging growth company ☐

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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

 

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of April 30, 2017, was 18,615,302 and 2,242,965.

 

 

 


 

2


 

PART I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 (in thousands)

 

 

 

 

 

 

 

 

 

March 31, 

    

December 31, 

 

 

2017

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

206,187

 

$

289,309

 

Securities available for sale

 

526,270

 

 

481,275

 

Securities held to maturity (fair value of $52,479 in 2017 and $53,249 in 2016)

 

51,860

 

 

52,864

 

Mortgage loans held for sale, at fair value

 

5,193

 

 

11,662

 

Consumer loans held for sale, at fair value

 

3,679

 

 

2,198

 

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

 

1,420

 

 

1,310

 

Loans

 

3,710,376

 

 

3,810,778

 

Allowance for loan and lease losses

 

(42,362)

 

 

(32,920)

 

Loans, net

 

3,668,014

 

 

3,777,858

 

Federal Home Loan Bank stock, at cost

 

28,208

 

 

28,208

 

Premises and equipment, net

 

43,962

 

 

42,869

 

Goodwill

 

16,300

 

 

16,300

 

Other real estate owned

 

1,362

 

 

1,391

 

Bank owned life insurance

 

62,185

 

 

61,794

 

Other assets and accrued interest receivable

 

50,152

 

 

49,271

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

4,664,792

 

$

4,816,309

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

$

1,070,237

 

$

971,952

 

Interest-bearing

 

2,278,547

 

 

2,188,740

 

Total deposits

 

3,348,784

 

 

3,160,692

 

 

 

 

 

 

 

 

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

 

144,375

 

 

173,473

 

Federal Home Loan Bank advances

 

467,500

 

 

802,500

 

Subordinated note

 

41,240

 

 

41,240

 

Other liabilities and accrued interest payable

 

42,229

 

 

33,998

 

 

 

 

 

 

 

 

Total liabilities

 

4,044,128

 

 

4,211,903

 

 

 

 

 

 

 

 

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

 

4,904

 

 

4,906

 

Additional paid in capital

 

138,634

 

 

138,192

 

Retained earnings

 

475,885

 

 

460,621

 

Accumulated other comprehensive income

 

1,241

 

 

687

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

620,664

 

 

604,406

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

4,664,792

 

$

4,816,309

 

 

See accompanying footnotes to consolidated financial statements.

 

3


 

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)  

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31, 

 

 

 

2017

 

2016

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

58,004

 

$

41,429

 

Taxable investment securities

 

 

2,155

 

 

1,855

 

Federal Home Loan Bank stock and other

 

 

724

 

 

731

 

Total interest income

 

 

60,883

 

 

44,015

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,879

 

 

1,392

 

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

 

 

25

 

 

25

 

Federal Home Loan Bank advances

 

 

2,292

 

 

2,953

 

Subordinated note

 

 

249

 

 

211

 

Total interest expense

 

 

4,445

 

 

4,581

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

56,438

 

 

39,434

 

 

 

 

 

 

 

 

 

Provision for loan and lease losses

 

 

12,351

 

 

5,186

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES

 

 

44,087

 

 

34,248

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

3,247

 

 

3,140

 

Net refund transfer fees

 

 

15,382

 

 

17,078

 

Mortgage banking income

 

 

1,160

 

 

1,261

 

Interchange fee income

 

 

2,326

 

 

2,123

 

Program fees

 

 

1,091

 

 

319

 

Increase in cash surrender value of bank owned life insurance

 

 

391

 

 

339

 

Net gains on other real estate owned

 

 

142

 

 

248

 

Other

 

 

1,184

 

 

413

 

Total noninterest income

 

 

24,923

 

 

24,921

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

21,211

 

 

17,083

 

Occupancy and equipment, net

 

 

5,967

 

 

5,419

 

Communication and transportation

 

 

1,272

 

 

1,073

 

Marketing and development

 

 

1,004

 

 

507

 

FDIC insurance expense

 

 

450

 

 

658

 

Bank franchise tax expense

 

 

2,435

 

 

2,451

 

Data processing

 

 

1,652

 

 

1,333

 

Interchange related expense

 

 

1,058

 

 

904

 

Supplies

 

 

527

 

 

449

 

Other real estate owned expense

 

 

97

 

 

80

 

Legal and professional fees

 

 

752

 

 

823

 

Other

 

 

2,514

 

 

1,761

 

Total noninterest expenses

 

 

38,939

 

 

32,541

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAX EXPENSE

 

 

30,071

 

 

26,628

 

INCOME TAX EXPENSE

 

 

10,054

 

 

8,893

 

NET INCOME

 

$

20,017

 

$

17,735

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE:

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.97

 

$

0.86

 

Class B Common Stock

 

 

0.88

 

 

0.78

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER SHARE:

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.96

 

$

0.85

 

Class B Common Stock

 

 

0.88

 

 

0.77

 

 

 

 

 

 

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE:

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.209

 

$

0.198

 

Class B Common Stock

 

 

0.190

 

 

0.180

 

 

See accompanying footnotes to consolidated financial statements.

 

4


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  (UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

 

2017

    

2016

 

 

 

 

 

 

 

 

Net income

$

20,017

 

$

17,735

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of derivatives used for cash flow hedges

 

28

 

 

(571)

 

Reclassification amount for derivative losses realized in income

 

66

 

 

87

 

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

 

706

 

 

2,292

 

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

 

53

 

 

(149)

 

Net unrealized gains

 

853

 

 

1,659

 

Tax effect

 

(299)

 

 

(580)

 

Total other comprehensive income, net of tax

 

554

 

 

1,079

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

$

20,571

 

$

18,814

 

 

See accompanying footnotes to consolidated financial statements.

 

5


 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2017

 

18,615

 

2,245

 

$

4,906

 

$

138,192

 

$

460,621

 

$

687

 

$

604,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 —

 

 

 —

 

 

 —

 

 

20,017

 

 

 —

 

 

20,017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in accumulated other comprehensive income

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

554

 

 

554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared Common Stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A Shares

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(3,891)

 

 

 —

 

 

(3,891)

Class B Shares

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(427)

 

 

 —

 

 

(427)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised, net of shares redeemed

 

 2

 

 —

 

 

 —

 

 

33

 

 

 —

 

 

 —

 

 

33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of Class A Common Stock

 

(13)

 

 —

 

 

(2)

 

 

(107)

 

 

(435)

 

 

 —

 

 

(544)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Class B Common Stock to Class A Common Stock

 

 2

 

(2)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in notes receivable on Class A Common Stock

 

 —

 

 —

 

 

 —

 

 

51

 

 

 —

 

 

 —

 

 

51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred director compensation expense - Class A Common Stock

 

 5

 

 —

 

 

 —

 

 

55

 

 

 —

 

 

 —

 

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense - performance stock units

 

 —

 

 —

 

 

 —

 

 

132

 

 

 —

 

 

 —

 

 

132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense - restricted stock

 

 4

 

 —

 

 

 —

 

 

215

 

 

 —

 

 

 —

 

 

215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense - stock options

 

 —

 

 —

 

 

 —

 

 

63

 

 

 —

 

 

 —

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2017

 

18,615

 

2,243

 

$

4,904

 

$

138,634

 

$

475,885

 

$

1,241

 

$

620,664

 

See accompanying footnotes to consolidated financial statements.

 

6


 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 

(in thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

 

2017

    

2016

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

$

20,017

 

$

17,735

 

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

 

 

 

 

 

 

Amortization on investment securities, net

 

138

 

 

135

 

Accretion on loans, deposits and core deposit intangible, net

 

(583)

 

 

(873)

 

Depreciation of premises and equipment

 

2,100

 

 

1,716

 

Amortization of mortgage servicing rights

 

353

 

 

305

 

Provision for loan and lease losses

 

12,351

 

 

5,186

 

Net gain on sale of mortgage loans held for sale

 

(977)

 

 

(1,095)

 

Origination of mortgage loans held for sale

 

(33,245)

 

 

(36,992)

 

Proceeds from sale of mortgage loans held for sale

 

40,691

 

 

35,022

 

Net gain on sale of consumer loans held for sale

 

(1,108)

 

 

(433)

 

Origination of consumer loans held for sale

 

(126,924)

 

 

(44,068)

 

Proceeds from sale of consumer loans held for sale

 

126,441

 

 

44,034

 

Net gain realized on sale of other real estate owned

 

(212)

 

 

(248)

 

Writedowns of other real estate owned

 

70

 

 

 —

 

Deferred director compensation expense - Class A Common Stock

 

55

 

 

62

 

Stock based compensation expense

 

410

 

 

261

 

Increase in cash surrender value of bank owned life insurance

 

(391)

 

 

(339)

 

Net change in other assets and liabilities:

 

 

 

 

 

 

Accrued interest receivable

 

209

 

 

(180)

 

Accrued interest payable

 

(90)

 

 

54

 

Other assets

 

(2,096)

 

 

(2,390)

 

Other liabilities

 

8,700

 

 

7,878

 

Net cash provided by operating activities

 

45,909

 

 

25,770

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of securities available for sale

 

(54,390)

 

 

(370,084)

 

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

 

10,017

 

 

370,390

 

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

 

1,002

 

 

882

 

Net change in outstanding warehouse lines of credit

 

90,274

 

 

(7,257)

 

Purchase of non-business-acquisition loans, including premiums paid

 

(1,224)

 

 

(23,188)

 

Net change in other loans

 

8,800

 

 

4,274

 

Proceeds from sales of other real estate owned

 

501

 

 

588

 

Net purchases of premises and equipment

 

(3,193)

 

 

(887)

 

Net cash provided by (used in) investing activities

 

51,787

 

 

(25,282)

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Net change in deposits

 

188,092

 

 

249,169

 

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

 

(29,098)

 

 

(75,540)

 

Payments of Federal Home Loan Bank advances

 

(435,000)

 

 

(182,000)

 

Proceeds from Federal Home Loan Bank advances

 

100,000

 

 

 —

 

Repurchase of Class A Common Stock

 

(544)

 

 

 —

 

Net proceeds from Common Stock options exercised

 

33

 

 

55

 

Cash dividends paid

 

(4,301)

 

 

(4,082)

 

Net cash used in financing activities

 

(180,818)

 

 

(12,398)

 

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(83,122)

 

 

(11,910)

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

289,309

 

 

210,082

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

206,187

 

$

198,172

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

$

4,535

 

$

4,527

 

Income taxes

 

331

 

 

156

 

 

 

 

 

 

 

 

SUPPLEMENTAL NONCASH DISCLOSURES:

 

 

 

 

 

 

Transfers from loans to real estate acquired in settlement of loans

$

330

 

$

656

 

Loans provided for sales of other real estate owned

 

 —

 

 

256

 

 

See accompanying footnotes to consolidated financial statements.

 

7


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – MARCH 31, 2017 and 2016 AND DECEMBER 31, 2016 (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 that provides both traditional and non-traditional banking products through four distinct operating segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the United States. The Captive is a Nevada-based, wholly-owned insurance subsidiary of the Company.  The Captive 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. All companies are collectively referred to as (“Republic” or the “Company”). All significant intercompany balances and transactions are eliminated in consolidation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016.

 

As of March 31, 2017, the Company was divided into four distinct 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. Correspondent Lending operations and the Company’s national branchless banking platform, MemoryBank®, are considered part of the Traditional Banking segment. The RPG segment includes the following divisions: Tax Refund Solutions (“TRS”), Republic Credit Solutions (“RCS”) and Republic Payment Solutions (“RPS”). TRS generates the majority of RPG’s income, with the relatively smaller divisions of RPG, RCS and RPS, considered immaterial for separate and independent segment reporting. All divisions of the RPG segment operate through the Bank.

 

 

8


 

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

 

The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of March 31, 2017, Republic had 45 full-service banking centers and one loan production office (“LPO”) with locations as follows:

 

Kentucky — 33

Metropolitan Louisville — 19

Central Kentucky — 9

Elizabethtown — 1

Frankfort — 1

Georgetown — 1

Lexington — 5

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 — 3*


*Includes one LPO

 

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”) and the Federal National Mortgage Association (“Fannie Mae” or “FNMA”).

 

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.

 

9


 

The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the United States through mortgage warehouse lines of credit.  These credit facilities are primarily secured by single family, first lien residential real estate loans.  The credit facility enables the mortgage banking clients to close single family, first lien residential real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank or purchased by the Bank through its Correspondent Lending channel. Individual loans are expected to remain on the warehouse line for an average of 15 to 30 days. Reverse mortgage loans typically remain on the line longer than conventional mortgage loans.  Interest income and loan fees are accrued for each individual loan during the time the loan remains on the warehouse line and collected when the loan is sold. The Core Bank receives the sale proceeds of each loan directly from the investor and applies the funds to pay off the warehouse advance and related accrued interest and fees. The remaining proceeds are credited to the mortgage-banking client.

 

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.  Loans acquired through the Correspondent Lending channel generally reflect borrowers outside of the Bank’s historical market footprint, with 74% of loans acquired through this origination channel as of March 31, 2017, secured by collateral in the state of California.

 

 

Republic Processing Group

Tax Refund Solutions division — Through its TRS division, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the United States, as well as tax-preparation software providers (collectively, the “Tax 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 fee-based 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 first offered its Easy Advance (“EA”) tax credit product during the first two months of 2016 and for a second successive year during the first two months of 2017.  For the first quarter 2017 tax season the Company modified the EA product offering to have more than one advance amount and a different price structure to the Tax Providers based on the amount borrowed by the taxpayer.  All other features of the product remained substantially the same as those from the first quarter 2016 tax season, including the following: 

·

No EA fee charged to the taxpayer customer;

·

All fees for the product were paid by 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 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.  EAs during 2017 and 2016 were generally repaid within three weeks after the taxpayer customer’s tax return was submitted to the applicable taxing authority.  EAs do not have a contractual due date but are eligible for delinquency consideration three weeks after the taxpayer customer’s tax return is submitted to the applicable taxing authority. Provisions for loan losses on EAs are estimated when advances are made, with all expected loss provisions made in the first quarter of each year. Unpaid EAs are generally charged-off within 81 days after the taxpayer customer’s tax return is submitted to the applicable taxing authority, with the majority of charge-offs typically recorded during the second quarter of the year.

10


 

 

Related to the overall credit losses on EAs, the Bank’s ability to control those losses is highly dependent upon its ability to predict the taxpayer’s likelihood to receive the tax refund as claimed on the taxpayer’s tax return.  Each year, the Bank’s EA approval model is based primarily on the prior-year’s tax refund funding patterns. Because much of the loan volume occurs each year before that year’s tax refund funding patterns can be analyzed and subsequent underwriting changes made, credit losses during a current year could be higher than management’s predictions if tax refund funding patterns change materially between years.   

 

Republic Credit Solutions division — Through its RCS division, the Bank offers 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 “Program fees.”

 

Republic Payment Solutions division — Through its RPS division, the Bank is an issuing bank offering general-purpose reloadable prepaid cards through third-party program managers.

 

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

 

11


 

Accounting Standards Updates (“ASUs”)

 

The following ASUs were issued prior to March 31, 2017 and are considered relevant to the Company’s financial statements. Generally, if an issued-but-not-yet-effective ASU with an expected immaterial impact to the Company has been disclosed in prior Company financial statements, it will not be included below. 

 

 

 

 

 

 

 

 

 

 

 

 

ASU. No.

 

Topic

 

Nature of Update

 

Date Adoption Required

 

Method of Adoption

 

Expected Impact to Company's Financial Statements

2014-09

    

Revenue from Contracts with Customers (Topic 606)

    

Requires that revenue from contracts with clients be recognized upon transfer of control of a good or service in the amount of consideration expected to be received.  Changes the accounting for certain contract costs, including whether they may be offset against revenue in the statements of income, and requires additional disclosures about revenue and contract costs.

    

January 1, 2018

    

Full retrospective approach or a modified-retrospective approach.

    

While the Company believes this ASU will have an immaterial impact, it continues to evaluate this ASU for changing facts and circumstances in the Company's operations as the effective date approaches.

 

 

 

 

 

 

 

 

 

 

 

2016-02

    

Leases (Topic 842)

    

Most leases are considered operating leases, which are not accounted for on the lessees’ balance sheets. The significant change under this ASU is that those operating leases will be recorded on the balance sheet. 

    

January 1, 2019

    

Modified-retrospective approach, which includes a number of optional practical expedients.

    

Currently under analysis. During 2017, the Company continued to review all of its operating leases and analyze the impact of adopting this ASU.

 

 

 

 

 

 

 

 

 

 

 

2016-13

 

Financial Instruments – Credit Losses (Topic 326)

 

Amends guidance on reporting credit losses for assets held at amortized-cost basis and available-for-sale debt securities.

 

January 1, 2020

 

Modified-retrospective approach.

 

The Company expects a substantial, yet fully undetermined, increase in its allowance for credit losses. During 2016 and into 2017, the Company formed a committee to implement the transition and also began analyzing its loan-level data.

 

 

 

 

 

 

 

 

 

 

 

2016-18

 

Statement of Cash Flows (Topic 230)

 

Requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents.

 

January 1, 2018

 

Retrospective transition.

 

Immaterial

 

 

 

 

 

 

 

 

 

 

 

2017-01

 

Business Combinations (Topic 805)

 

Clarifies the definition of a business.  The amendments in this ASU are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.

 

January 1, 2018

 

Prospectively.

 

Immaterial

 

 

 

 

 

 

 

 

 

 

 

2017-03

 

Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323)

 

These amendments add text of “SEC Staff Announcement: Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of a Registrant When Such Standards Are Adopted in a Future Period (in accordance with Staff Accounting Bulletin ["SAB"] Topic 11.M).”

This announcement applies to ASU No. 2014-09, ASU No. 2016-02, and ASU No. 206-13 above.

 

N/A

 

N/A

 

Immaterial

 

 

 

 

 

 

 

 

 

 

 

2017-04

 

Intangibles - Goodwill and Other (Topic 350)

 

This ASU simplifies goodwill impairment testing by eliminating Step 2 from the goodwill impairment test. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

 

January 1, 2020

 

Prospectively, with early adoption permitted.

 

Immaterial

 

 

 

 

 

 

 

 

 

 

 

2017-08

 

Receivables - Nonrefundable Fees and Other Costs (Topic 310-20)

 

This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the ASU requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

 

January 1, 2019

 

Modified retrospective, with early adoption permitted.

 

Currently under analysis.

 

12


 

 

 

2. 2016 ACQUISITION OF CORNERSTONE BANCORP, INC.

 

OVERVIEW

 

On May 17, 2016, the Company completed its acquisition of Cornerstone Bancorp, Inc. (“Cornerstone”), and its wholly-owned bank subsidiary Cornerstone Community Bank, for approximately $32 million in cash. The primary reason for the acquisition of Cornerstone was to expand the Company’s footprint in the Tampa, Florida metropolitan statistical area.

 

ACQUISITION SUMMARY

 

The following table provides a summary of the assets acquired and liabilities assumed as recorded by Cornerstone, the previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, final recast adjustments to those previously reported preliminary fair values, and the final fair values of those assets and liabilities as recorded by the Company. Effective October 1, 2016, management believed it had finalized the fair values of the acquired assets and assumed liabilities within the 12 months following the date of acquisition, as allowed by GAAP.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary of Assets Acquired and Liabilities Assumed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 17, 2016

 

 

As Previously Reported

 

As Recasted

 

 

 

As Recorded

 

 

Fair Value

 

 

 

 

Recast

 

 

 

As Recorded

(in thousands)

 

 

by Cornerstone

 

 

Adjustments

 

 

 

 

Adjustments

 

 

 

by Republic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,707

 

$

 —

 

 

 

$

 —

 

 

$

22,707

Investment securities

 

 

329

 

 

 —

 

 

 

 

 —

 

 

 

329

Loans

 

 

195,136

 

 

(5,525)

 

a

 

 

13

 

a

 

189,624

Allowance for loan and lease losses

 

 

(1,955)

 

 

1,955

 

a

 

 

 —

 

 

 

 —

Loans, net

 

 

193,181

 

 

(3,570)

 

 

 

 

13

 

 

 

189,624

Federal Home Loan Bank stock, at cost

 

 

224

 

 

 —

 

 

 

 

 —