Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
RBCAA > SEC Filings for RBCAA > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for REPUBLIC BANCORP INC /KY/

Form 10-Q for REPUBLIC BANCORP INC /KY/


9-Aug-2013

Quarterly Report


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

Management's Discussion and Analysis of Financial Condition and Results of Operations of Republic Bancorp, Inc. ("Republic" or the "Company") analyzes the major elements of Republic's consolidated balance sheets and statements of income. Republic, a bank holding company headquartered in Louisville, Kentucky, is the parent company of Republic Bank & Trust Company, ("RB&T"), Republic Bank ("RB") (collectively referred together as the "Bank"), and Republic Invest Co. The consolidated financial statements also include the wholly-owned subsidiaries of RB&T: Republic Financial Services, LLC; TRS RAL Funding, LLC; and Republic Insurance Agency, LLC. Republic Bancorp Capital Trust is a Delaware statutory business trust that is a 100%-owned unconsolidated finance subsidiary of Republic Bancorp, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations of Republic should be read in conjunction with Part I Item 1 "Financial Statements."

As used in this filing, the terms "Republic," the "Company," "we," "our" and "us" refer to Republic Bancorp, Inc., and, where the context requires, Republic Bancorp, Inc. and its subsidiaries; and the term the "Bank" refers to the Company's subsidiary banks: RB&T and RB.

Republic and its subsidiaries operate in a heavily regulated industry. These regulatory requirements can and do affect the Company's results of operations and financial condition.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to: changes in political and economic conditions; interest rate fluctuations; competitive product and pricing pressures; equity and fixed income market fluctuations; personal and corporate customers' bankruptcies; inflation; recession; acquisitions and integrations of acquired businesses; technological changes; changes in law and regulations or the interpretation and enforcement thereof; changes in fiscal, monetary, regulatory and tax policies; monetary fluctuations; success in gaining regulatory approvals when required; as well as other risks and uncertainties reported from time to time in the Company's filings with the Securities and Exchange Commission ("SEC") included under Part 1 Item 1A "Risk Factors" of the Company 2012 Annual Report on Form 10-K.

Broadly speaking, forward-looking statements include:

projections of revenue, income, expenses, losses, earnings per share, capital expenditures, dividends, capital structure or other financial items;

descriptions of plans or objectives for future operations, products or services;

          forecasts of future economic performance; and

          descriptions of assumptions underlying or relating to any of the
foregoing.

The Company may make forward-looking statements discussing management's expectations about various matters, including:

loan delinquencies; non-performing, classified, or impaired loans; and troubled debt restructurings ("TDR"s);

further developments in the Bank's ongoing review of and efforts to resolve possible problem credit relationships, which could result in, among other things, additional provision for loan losses;

deteriorating credit quality, including changes in the interest rate environment and reducing interest margins;

        future credit losses and the overall adequacy of the allowance for loan
losses;

        potential write-downs of other real estate owned ("OREO");

        potential recast adjustments to acquisition day fair values ("day-one

fair values");

future short-term and long-term interest rates and the respective impact on net interest margin, net interest spread, net income, liquidity and

capital;

        the future impact of Company strategies to mitigate interest rate risk;

        future long-term interest rates and their impact on the demand for
Mortgage Banking products and warehouse lines of credit;

        the future value of mortgage servicing rights;

        the future operating performance of the Tax Refund Solutions ("TRS")
division;

        future Refund Transfers ("RTs") volume for TRS;

        the future net revenues associated with RTs at TRS;


Table of Contents

        the future financial performance of Republic Payment Solutions ("RPS");

        the future financial performance of Republic Credit Solutions ("RCS");

        the potential impairment of investment securities;

        the extent to which regulations written and implemented by the Federal

Bureau of Consumer Financial Protection, and other federal, state and local governmental regulation of consumer lending and related financial products and services may limit or prohibit the operation of the Company's business;

financial services reform and other current, pending or future legislation or regulation that could have a negative effect on the Company's revenue and businesses: including Basel III capital reforms; the Dodd-Frank Act; and legislation and regulation relating to overdraft fees (and changes to the Bank's overdraft practices as a result thereof), debit card interchange fees, credit cards, and other bank services;

the impact of new accounting pronouncements;

legal and regulatory matters including results and consequences of regulatory guidance, litigation, administrative proceedings, rule-making, interpretations, actions and examinations;

the future impact of Company reorganizations, including but not limited to a prospective internal merger of RB&T and RB;

        future capital expenditures;

        the strength of the U.S. economy in general and the strength of the
local economies in which the Company conducts operations;

        the Bank's ability to maintain current deposit and loan levels at
current interest rates;

        the Company's ability to successfully implement strategic plans,

including but not limited to those related to the acquisition of two failed banks in 2012 and the acquisition of certain assets and assumption of all deposits of H&R Block Bank (the "P&A Transaction");

the ability of all parties to the July 11, 2013 Purchase & Assumption Agreement (the "Agreement") to obtain regulatory approval in order to complete the related P&A Transaction within projected timeframes, if at all; and

the ability of RB&T and affiliates of H&R Block, Inc. to negotiate a Joint Marketing Master Services Agreement ("MSA") and a related Receivables Purchase Agreement ("RPA").

Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss future events or conditions, the statements often include words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would," or similar expressions. Do not rely on forward-looking statements. Forward-looking statements detail management's expectations regarding the future and are not guarantees. Forward-looking statements are assumptions based on information known to management only as of the date the statements are made and management may not update them to reflect changes that occur subsequent to the date the statements are made.

See additional discussion under Part I Item 1 "Business" and Part I Item 1A "Risk Factors" of the Company's 2012 Annual Report on Form 10-K.


Table of Contents

RECENT DEVELOPMENTS

H&R Block Bank Purchase and Assumption Agreement

RB&T entered into a Purchase and Assumption Agreement (the "Agreement") dated July 11, 2013, with H&R Block Bank ("HRBB") and its sole shareholder Block Financial LLC. Pursuant to the Agreement, RB&T will acquire certain assets and assume certain liabilities, including all of the deposits of HRBB (the "P&A Transaction").

All of the assets acquired and all of the liabilities assumed by RB&T as part of the P&A Transaction will be transferred at a price equal to HRBB's book value. As part of the P&A Transaction, RB&T will acquire HRBB non-cash assets projected to be approximately $3 million at closing. In addition, RB&T will assume approximately $470 million in projected customer deposits. The net amount of projected deposits less projected non-cash assets, estimated at approximately $467 million, will be paid in cash by HRBB to RB&T at closing. RB&T will not acquire HRBB's sole banking center location in Kansas City, Missouri. In connection with the P&A Transaction, RB&T will also not acquire any of HRBB's existing intercompany contracts with H&R Block that allow HRBB to offer various H&R Block-branded financial services products to H&R Block's clients.

The completion of the P&A Transaction is subject to multiple regulatory approvals for all parties, as well as the completion of a new Joint Marketing Master Services Agreement ("MSA") and a related Receivables Purchase Agreement ("RPA") among RB&T and affiliates of H&R Block, Inc. The Agreement requires that all regulatory approvals must be received by September 30, 2013 in order for the P&A Transaction to occur in 2013. If any regulatory approvals are obtained after September 30, 2013, the Agreement requires that the P&A Transaction will occur between April 30, 2014 and June 18, 2014.

The parties to the Agreement submitted their respective applications for the P&A Transaction to their respective regulators on July 15, 2013, which gives the parties 77 days to receive regulatory approval under the terms of the Agreement in order for the P&A transaction to be completed in 2013. The Office of the Comptroller of the Currency ("OCC") is considering RB&T's application for the P&A Transaction along with RB&T's earlier May 2013 application regarding an internal merger of RB&T and RB which includes a conversion to a national bank charter. There can be no assurance that all regulatory approvals will be obtained by all parties to the P&A Transaction within the 77 day time frame, if at all.

RB&T and affiliates of H&R Block, Inc. are currently in separate contract negotiations to enter into a new MSA and a related RPA. Pursuant to the anticipated MSA, RB&T would replace HRBB as the bank that offers H&R Block-branded financial services products to H&R Block's clients. Consistent with the framework of its existing Electronic Return Originator Oversight Plan, RB&T's responsibilities under the anticipated MSA will include, among other things, audit, compliance and third party oversight. Similar to its existing arrangement with HRBB, under the anticipated MSA affiliates of H&R Block, Inc. will provide the sales, marketing, servicing and primary information systems' infrastructure for the H&R Block-branded financial services products to be offered to H&R Block's clients. As compared to the H&R Block-branded financial services products offered today by HRBB, RB&T does not anticipate material changes to the products offered, or the terms and conditions of the products it will offer, under the new MSA.

Pursuant to the anticipated RPA, a portion of the loans originated by RB&T under the MSA are expected to be participated to an H&R Block affiliate. There can be no assurance that the parties will successfully negotiate and execute the MSA and the RPA, nor can there be any assurance with respect to the final terms and conditions of these agreements.

On a go-forward basis, the Company estimates the combined financial impact of the Agreement, the MSA and RPA, if all are completed, to be accretive to the Company's diluted earnings per Class A and Class B share by approximately $0.57 to $0.75 per year. The largest benefit is expected to occur in the first quarter of each calendar year, coinciding with the tax season. The actual results will vary depending upon a number of factors, including the volumes of RB&T's H&R Block-branded financial services products sold.


Table of Contents

In addition to the positive impact to RB&T's and the Company's overall earnings, the P&A Transaction and the anticipated MSA and RPA, if completed, are expected to impact the liquidity position of RB&T and the capital positions of RB&T and the Company, as a whole. More specifically, the cash received from the P&A Transaction, if completed, is expected to have a positive impact to the overall liquidity position of RB&T, although it would negatively impact RB&T's and the Company's Tier I leverage ratio. Similarly, the resulting growth in RB&T's and the Company's assets from the cash received in connection with the MSA during the first quarter of each year is expected to negatively impact RB&T's and the Company's first quarter Tier 1 Leverage Ratio. Neither RB&T's nor the Company's Tier 1 Leverage Ratios, however, are expected to fall below "well-capitalized" under regulatory guidelines. If RB&T became at risk to drop below the regulatory minimum to be well-capitalized for its Tier 1 Leverage Ratio, RB&T's holding company has available approximately $120 million of funds on deposit at RB&T that it could contribute to RB&T in the form of Tier 1 common equity. Management believes the impact of the P&A Transaction and the anticipated MSA and RPA to the risk-based capital ratios of RB&T and the Company will be minimal as the substantial majority of asset growth resulting from the transactions will be from cash.

The Company is not likely to complete additional acquisitions while it seeks to obtain regulatory approval for the P&A Transaction.

For additional information on the Agreement and the ongoing contract negotiations for the MSA, see Republic's Form 8-K filed with the Securities and Exchange Commission on July 11, 2013.

Internal Conversion and Merger

In May, 2013, the Company requested regulatory approval to merge RB&T and RB and convert to one national bank charter. With the approved internal merger, the Bank would operate with the name Republic Bank, National Association ("RBNA") with the OCC as its primary regulator. The OCC is currently the primary regulator of RB, with RB&T currently regulated by the Federal Deposit Insurance Corporation ("FDIC") and the Kentucky Department of Financial Institutions ("KDFI").


Table of Contents

BUSINESS SEGMENT COMPOSITION

As of June 30, 2013, the Company was divided into three distinct business operating segments: Traditional Banking, Mortgage Banking and Republic Processing Group ("RPG"). During 2012, the Company realigned the previously reported TRS segment as a division of the newly formed RPG segment. Along with the TRS division, Republic Payment Solutions ("RPS") and Republic Credit Solutions ("RCS") also operate as divisions of the newly formed RPG segment. The RPS and RCS divisions are considered immaterial for segment reporting. Net income, total assets and net interest margin by segment for the three and six months ended June 30, 2013 and 2012 are presented below:

                                     Three Months Ended June 30, 2013
                                                       Republic
                       Traditional      Mortgage      Processing
(in thousands)           Banking         Banking         Group        Total Company

Net income            $        6,010   $       971   $        (862 ) $          6,119
Segment assets             3,277,181        29,891           9,993          3,317,065
Net interest margin             3.57 %          NM              NM               3.56 %

                                     Three Months Ended June 30, 2012
                                                       Republic
                       Traditional      Mortgage      Processing
(in thousands)           Banking         Banking         Group        Total Company

Net income            $        6,480   $       718   $       2,380   $          9,578
Segment assets             3,248,453         9,847          20,500          3,278,800
Net interest margin             3.57 %          NM              NM               3.53 %

                                      Six Months Ended June 30, 2013
                                                       Republic
                       Traditional      Mortgage      Processing
(in thousands)           Banking         Banking         Group        Total Company

Net income            $       12,572   $     2,617   $       4,286   $         19,475
Segment assets             3,277,181        29,891           9,993          3,317,065
Net interest margin             3.58 %          NM              NM               3.56 %

                                      Six Months Ended June 30, 2012
                                                       Republic
                       Traditional      Mortgage      Processing
(in thousands)           Banking         Banking         Group        Total Company

Net income            $       26,838   $       929   $      64,283   $         92,050
Segment assets             3,248,453         9,847          20,500          3,278,800
Net interest margin             3.58 %          NM              NM               5.73 %

NM - Not Meaningful

For expanded segment financial data see Footnote 11 "Segment Information" of

Part I Item 1 "Financial Statements."


Table of Contents

(I) Traditional Banking segment

As of June 30, 2013, in addition to an Internet delivery channel, Republic had 44 full-service banking centers with locations as follows:

          Kentucky - 34

          Metropolitan Louisville - 20

          Central Kentucky - 11

          Elizabethtown - 1

          Frankfort - 1

          Georgetown - 1

          Lexington - 5

          Owensboro - 2

          Shelbyville - 1

          Northern Kentucky - 3

          Covington - 1

          Florence - 1

          Independence - 1

          Southern Indiana - 3

          Floyds Knobs - 1

          Jeffersonville - 1

          New Albany - 1

          Metropolitan Tampa, Florida - 4

          Metropolitan Cincinnati, Ohio - 1

          Metropolitan Nashville, Tennessee - 1

          Metropolitan Minneapolis, Minnesota - 1

Republic's corporate headquarters are located in Louisville, which is the largest city in Kentucky by population size.

(II) Mortgage Banking segment

Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term single family, first lien residential real estate loans that are sold into the secondary market, primarily to the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"). The Bank typically retains servicing on loans sold into the secondary market. Administration of loans with servicing retained by the Bank includes collecting principal and interest payments, escrowing funds for property taxes and insurance and remitting payments to secondary market investors. A fee is received by the Bank for performing these standard servicing functions.

(III) Republic Processing Group segment

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


Table of Contents

OVERVIEW (Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012)

Net income for the three months ended June 30, 2013 was $6.1 million, representing a decrease of $3.5 million, or 36%, compared to the same period in 2012. Diluted earnings per Class A Common Share decreased to $0.30 for the quarter ended June 30, 2013 compared to $0.46 for the same period in 2012.

General highlights by segment for the quarter ended June 30, 2013 consisted of the following:

Traditional Banking segment

Net income decreased $470,000, or 7%, for the second quarter of 2013 compared to the same period in 2012.

Net interest income increased $516,000, or 2%, for the second quarter of 2013 to $28.6 million. The Traditional Banking segment net interest margin was 3.57% for the second quarter of 2013.

Provision for loan losses was $1.0 million for the quarter ended June 30, 2013 compared to $831,000 for the same period in 2012.

Total non-interest income increased $720,000, or 12%, for the second quarter of 2013 compared to the same period in 2012.

Total non-interest expenses increased $1.9 million, or 8%, during the second quarter of 2013 compared to the second quarter of 2012.

Total non-performing loans to total loans for the Traditional Banking segment was 0.92% at June 30, 2013, compared to 0.82% at December 31, 2012 and 0.90% at June 30, 2012.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income increased $217,000, or 11%, during the second quarter of 2013 compared to the same period in 2012.

Mortgage banking income was positively impacted by an increase in secondary market loan volume during the second quarter of 2013 compared to the same period in 2012, as the Bank initiated a $0 closing cost promotion at the beginning of 2013.

While long-term interest rates at June 30, 2013 were relatively low as compared to historical levels, significant increases in these rates during the latter part of the second quarter of 2013 negatively impacted new loan application volume. The rise in interest rates is expected to continue to negatively impact future loan application volume during the remainder of 2013 and beyond.

Republic Processing Group segment

Net income decreased $3.2 million for the second quarter of 2013 compared to the same period in 2012.

RB&T permanently discontinued the offering of its RAL product effective April 30, 2012.

As previously disclosed, net income at RPG was significantly negatively impacted during the second quarter and first six months of 2013 from the unilateral terminations by Liberty Tax Service ("Liberty") and Jackson Hewitt Tax Service ("JHI") of their contracts with RB&T.

Due to recoveries of prior year RAL losses, RPG recorded a credit to the provision for loan losses of $140,000 for the second quarter of 2013, compared to a net credit of $365,000 for the same period in 2012.

Non-interest income was $1.9 million for the second quarter of 2013 compared to $6.2 million for the same period in 2012.

Non-interest expenses were $3.4 million for the second quarter of 2013 compared to $2.9 million for the same period in 2012.


Table of Contents

RESULTS OF OPERATIONS (Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012)

Net Interest Income

Banking operations are significantly dependent upon net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities and the interest expense on liabilities used to fund those assets, such as interest-bearing deposits, securities sold under agreements to repurchase and Federal Home Loan Bank ("FHLB") advances. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities, as well as market interest rates.

Total Company net interest income increased $455,000, or 2%, for the second quarter of 2013 compared to the same period in 2012. The total Company net interest margin increased three basis points from 3.53% for the second quarter of 2012 to 3.56% for the second quarter of 2013. The most significant components affecting the total Company's net interest income by business segment were as follows:

Traditional Banking segment

Net interest income within the Traditional Banking segment increased $516,000, or 2%, for the quarter ended June 30, 2013 compared to the same period in 2012. The Traditional Banking net interest margin was 3.57% for both periods. The increase in net interest income and maintenance of the Bank's net interest margin during 2013 was primarily attributable to the following factors:

As discussed in more detail within the "Loan Portfolio" section of this filing, the Bank began offering its Mortgage Warehouse Lending product during June of 2011. During the quarter ended June 30, 2013, the Mortgage Warehouse Lending portfolio had average loans outstanding of $147 million achieving an average yield of 4.55% as compared to average loans outstanding of $55 million with an average yield of 4.60% during the second quarter of 2012. As a result, interest income on warehouse lines of credit increased $1.0 million during the second quarter of 2013 compared to the second quarter of 2012. These loans are revolving lines of credit with a term of 364 days, contain interest rate floors and adjust monthly with one month LIBOR.

As part of its 2012 acquisition of TCB, RB&T acquired loans, net of loans put back to the FDIC, with a fair value of approximately $57 million and an initial projected effective yield of 7.94%. The Bank accreted $556,000 to earnings during the second quarter of 2013 from discounts on its acquired TCB portfolio compared to $146,000 for the same period in 2012. See additional discussion regarding the 2012 acquisitions of failed banks under Footnote 2 "2012 Acquisitions of Failed Banks" of Part I Item I "Financial Statements."

As part of its 2012 acquisition of FCB, RB&T acquired loans with a fair value of approximately $128 million and an initial projected effective . . .

  Add RBCAA to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for RBCAA - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.