Profile: Republic Bancorp Inc (RBCAA.OQ)
Republic Bancorp, Inc. (Republic), incorporated in 1974, is a holding company. Republic is the parent company of Republic Bank & Trust Company (RB&T) and Republic Bank (collectively referred together with RB&T as the Bank), Republic Funding Company and Republic Invest Co. Republic Invest Co. includes its subsidiary, Republic Capital LLC. As of December 31, 2011, the Company operated in three segments: Traditional Banking, Mortgage Banking and Tax Refund Solutions. Effective January 27, 2012, RB&T assumed all of the deposits and certain other liabilities and acquired certain assets of Tennessee Commerce Bank (TCB).
As of December 31, 2011, Republic had 42 full-service banking centers with 34 located in Kentucky, four located in metropolitan Tampa, Florida, three located in southern Indiana and one located in metropolitan Cincinnati, Ohio. RB&T’s market areas are located in metropolitan Louisville, Kentucky, central Kentucky, northern Kentucky and southern Indiana. RB&T’s northern Kentucky market includes banking centers in Covington, Florence and Independence. RB&T also has banking centers located in Floyds Knobs, Jeffersonville and New Albany, Indiana. Republic Bank has locations in Hudson, Palm Harbor, Port Richey and Temple Terrace, Florida, as well as Blue Ash (Cincinnati), Ohio.
The Bank markets its lending products and services through the nine delivery channels: mortgage lending, commercial lending, construction lending, consumer lending, loan origination and processing, private banking, treasury management services, Internet banking, and other banking services. The Bank’s lending activities consists of the origination of single family first lien residential real estate loans collateralized by owner occupied property, located in the Bank’s market areas. In addition, the Bank offers home equity loans and home equity lines of credit. These loans are originated through the Bank’s retail banking center network.
The Bank offers adjustable rate mortgages (ARMs) with rate adjustments tied to various indices with specified minimum and maximum interest rate adjustments. The interest rates on a majority of these loans are adjusted after their fixed rate terms on an annual basis. These loans features amortization periods of up to 30 years and have fixed rate features for one, three, five, seven or ten years. The Bank’s commercial real estate and multi-family (commercial real estate) loans are secured by improved property, such as office buildings, medical facilities, retail centers, warehouses, apartment buildings, condominiums, hotels and other types of commercial real estate. In the Bank’s primary market area of Kentucky and southern Indiana, commercial real estate loans are made in amounts up to 85% of the lesser of the appraised value or purchase price of the property. Commercial real estate loans have fixed or variable interest rates indexed to prime interest rates and have terms of three, five, seven or ten years with amortizing terms up to 20 years. The Bank charges a penalty for prepayment of commercial real estate loans if the loans are refinanced prior to the completion of their fixed rate period.
A range of short-to-medium-term collateralized commercial loans are made available to businesses for working capital, business expansion (including acquisitions of real estate and improvements), and the purchase of equipment or machinery. The Bank also offers a range of commercial loans, including term loans, lines of credit and equipment and receivables financing. Equipment loans are originated on a fixed-term basis ranging from one to five years. In June 2011, the Bank commenced business in its warehouse lending division. Through this division, the Bank provides short-term, revolving credit facilities to mortgage bankers. These credit facilities are secured by single family first lien residential real estate loans. The credit facility enables the mortgage banking customers 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. These individual loans are expected to remain on the warehouse line for an average of 15 to 30 days.
The Bank originates residential construction real estate loans to finance the construction of single family dwellings. The Bank’s construction loans to individuals typically range in size from $100,000 to $300,000. Construction loans also are made to contractors to build single family dwellings under contract. Construction loans on residential properties in the Bank’s markets are generally made in amounts up to 80% of anticipated cost of construction. Construction loans to developers and builders have terms of nine to 12 months. The Bank also makes residential land development loans to real estate developers for the acquisition, development and construction of residential subdivisions. Traditional consumer loans made by the Bank include home improvement and home equity loans, as well as other secured and unsecured personal loans in addition to credit cards.
Loan originations are derived from direct solicitation by the Bank’s loan officers, present bank customers, builders, realtors and walk-in customers. The Bank provides financial products and services to high net worth individuals through its Private Banking Department. The Bank’s Private Banking officers have banking experience and is trained to meet the financial needs of high-net-worth-individuals. The Bank provides deposit products designed for commercial business customers located throughout its market areas. Lockbox processing, remote deposit capture, business online banking, account reconciliation and automated clearing house (ACH) processing are additional services offered to commercial businesses through the Bank’s Treasury Management Department. The Bank also provides trust, title insurance and other financial institution related products and services.
Mortgage Banking activities primarily include 15, 20 and 30-year fixed-term single family first lien residential rate real estate loans that are sold into the secondary market, primarily to Federal Home Loan Mortgage Corporation (FHLMC). The Bank 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. As part of the sale of loans with servicing retained, the Bank records a mortgage servicing right (MSR). MSRs represent an estimate of the present value of future cash servicing income, net of estimated costs, which the Bank expects to receive on loans sold with servicing retained by the Bank. MSRs are capitalized as separate assets. The amortization is recorded as a reduction to Mortgage Banking income. The carrying value of the MSRs asset is reviewed monthly for impairment based on the fair value of the MSRs, using groupings of the underlying loans by interest rates. Any impairment of a grouping is reported as a valuation allowance.
Republic, through its TRS segment, is a financial institutions, which facilitates the payment of federal and state tax refund products through third-party tax preparers located throughout the United States, as well as tax-preparation software providers. TRS’s three primary tax-related products include electronic refund checks (ERCs), electronic refund deposits (ERDs) and refund anticipation loans (RALs). During the years ended December 31, 2011, net income from the TRS segment accounted for approximately 72% of the Company’s total net income. During 2011, net income associated with RALs represented approximately 35% of the TRS segment’s net income for same respective periods. ERCs/ERDs are products whereby a tax refund is issued to the taxpayer after RB&T has received the refund from the federal or state government. Fees earned on ERCs/ERDs are reported as non-interest income under the line item Electronic Refund Check fees.
RALs are short-term consumer loans offered to taxpayers that are secured by the customer’s anticipated tax refund, which represents the source of repayment. If a consumer’s RAL application is approved, RB&T advances $1,500 of the taxpayer’s refund. As part of the RAL application process, each taxpayer signs an agreement directing the applicable taxing authority to send the taxpayer’s refund directly to RB&T. The refund received from the IRS or state taxing authority, if applicable, is used by RB&T to pay off the RAL. Any amount due the taxpayer above the amount of the RAL is remitted to the taxpayer once the refund is received by RB&T. The fees earned on RALs are reported as interest income under the line item Loans, including fees.
RB&T has agreements with Jackson Hewitt Inc. (JHI), a subsidiary of Jackson Hewitt Tax Service Inc. (JH), and Liberty Tax Service (Liberty) to offer RAL and ERC/ERD products. JH and Liberty provide preparation services of federal, state and local individual income tax returns in the United States through a nationwide network of franchised and company-owned tax-preparers offices. During 2011, approximately 40% of RB&T’s TRS gross revenue was derived from JH tax offices with another 20% from Liberty tax offices for the same respective periods.
Republic Bancorp Inc
REPUBLIC CORPORATE CENTER
601 WEST MARKET ST
LOUISVILLE KY 40202