Republic Bancorp, Inc. (RBCAA) 10-K 2015 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

Commission File Number: 0-24649

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky	61-0862051
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
601 West Market Street, Louisville, Kentucky	40202
(Address of principal executive offices)	(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Class A Common Stock	NASDAQ Global Select Market
(Title of each class)	(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ☐ Yes  ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  ☐ Yes  ☒ No

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 if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

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 Act).  ☐ Yes  ☒ No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of June 30, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $251,521,884 (for purposes of this calculation, the market value of the Class B Common Stock was based on the market value of the Class A Common Stock into which it is convertible).

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of February 12, 2016 was 18,659,147 and 2,245,250.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes:

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held April 21, 2016 are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I
Item 1.	Business.	4
Item 1A.	Risk Factors.	28
Item 1B.	Unresolved Staff Comments.	38
Item 2.	Properties.	39
Item 3.	Legal Proceedings.	41
Item 4.	Mine Safety Disclosures.	41
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	42
Item 6.	Selected Financial Data.	45
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	48
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	100
Item 8.	Financial Statements and Supplementary Data.	100
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	196
Item 9A.	Controls and Procedures.	196
Item 9B.	Other Information.	196
PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	197
Item 11.	Executive Compensation.	198
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	198
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	198
Item 14.	Principal Accounting Fees and Services.	198
PART IV
Item 15.	Exhibits, Financial Statement Schedules.	199
	Signatures	200
	Index to Exhibits	201

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Cautionary Statement Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains statements relating to future results of Republic Bancorp, Inc. that are considered “forward-looking” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are principally, but not exclusively, contained in Part I Item 1 “Business,” Part I Item 1A “Risk Factors” and Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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” or “RB&T” refers to the Company’s subsidiary bank: Republic Bank & Trust Company.

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; client 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; information security breaches or cyber security attacks involving either the Company or one of the Company’s third party service providers; as well as other risks and uncertainties reported from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”),  including Part 1 Item 1A “Risk Factors.”

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 (“TDRs”);

· 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 provisions for loan and lease losses (“Provision”);

· future credit quality, credit losses and the overall adequacy of the Allowance for Loan and Lease Losses (“Allowance”);

· potential impairment charges or write-downs of other real estate owned (“OREO”);

· future short-term and long-term interest rates and the respective impact on net interest income, net interest spread, net income, liquidity, capital and economic value of equity (“EVE”);

· 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, Warehouse lines of credit and Correspondent Lending products;

· the future value of mortgage servicing rights (“MSRs”);

· the potential impairment of investment securities;

· the growth in the Bank’s loan portfolio, in general, and overall mix of such portfolio;

· the growth in single family residential, first lien real estate loans originated through the Bank’s Correspondent Lending delivery channel;

· the growth in the Bank’s Warehouse Lending (“Warehouse”) portfolio;

· usage rates on Warehouse lines of credit;

· the volatility of the Bank’s Warehouse portfolio outstanding balances;

· the Bank’s ability to maintain and/or grow deposits;

· the concentrations and volatility of the Bank’s securities sold under agreements to repurchase;

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· the Company’s intentions regarding its Trust Preferred Securities (“TPS”);

· the Company’s ability to successfully implement strategic plans, including, but not limited to, those related to pending or future business acquisitions;

· future accretion of discounts on loans acquired in the Bank’s 2012 FDIC-assisted transactions and the effect of such accretion on the Bank’s net interest income and net interest margin;

· future amortization of premiums on loans acquired through the Bank’s Correspondent Lending channel and the effect of such amortization on the Bank’s net interest income and net interest margin;

· the future financial performance of Tax Refund Solutions (“TRS”), a division of the Republic Processing Group (“RPG”) segment;

· future Refund Transfer (“RT”) volume for TRS;

· future Easy Advance (“EA”) volume for TRS;

· the future net revenue associated with RTs at TRS;

· the future financial performance of Republic Payment Solutions (“RPS”), a division of RPG;

· the future financial performance of Republic Credit Solutions (“RCS”), a division of RPG;

· the extent to which regulations written and implemented by the Consumer Financial Protection Bureau (“CFPB”), 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 but not limited to, Basel III capital reforms; the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”); and legislation and regulation relating to overdraft fees (and changes to the Bank’s overdraft practices as a result thereof), interchange fees, credit card income, 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;

· future capital expenditures; and

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

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,” “potential,” 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 the sections titled Part I Item 1 “Business,” Part I Item 1A “Risk Factors” and Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

PART I

Item 1. Business.

Republic Bancorp, Inc. (“Republic” or the “Company”) is a financial holding company headquartered in Louisville, Kentucky. Republic is the parent company of 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, which was formed during the third quarter of 2014, is a wholly-owned insurance subsidiary of the Company.  The Captive provides property and casualty insurance coverage to the Company and the Bank as well as eight other third-party insurance captives for which insurance may not be available or economically feasible. Republic Bancorp Capital Trust is a Delaware statutory business trust that is a 100%-owned unconsolidated finance subsidiary of Republic Bancorp, Inc.

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As of December 31, 2015,  in addition to Internet Banking and Correspondent Lending delivery channels, Republic had 40 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 – 2

· 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.

The principal business of Republic is directing, planning and coordinating the business activities of the Bank. The financial condition and results of operations of Republic are primarily dependent upon the results of operations of the Bank. At December 31, 2015, Republic had total assets of $4.2 billion, total deposits of $2.5 billion and total stockholders’ equity of $577 million. Based on total assets as of December 31, 2015, Republic ranked as the largest Kentucky-based financial holding company. The executive offices of Republic are located at 601 West Market Street, Louisville, Kentucky 40202, telephone number (502) 584-3600. The Company’s website address is www.republicbank.com.

Website Access to Reports

The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, available free of charge through its website, www.republicbank.com, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.

General Business Overview

As of December 31, 2015,  the Company was divided into four distinct operating segments: Traditional Banking, Warehouse,  Mortgage Banking and RPG. Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” activities. Correspondent Lending operations are considered part of Traditional Banking operations. The RPG segment includes the following divisions: TRS, RPS and 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. 

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Net income, total assets and net interest margin by business segment for the years ended December 31, 2015, 2014 and 2013 are presented below: 

	Year Ended December 31, 2015
	Core Banking
									Total			Republic
	Traditional			Warehouse			Mortgage		Core			Processing		Total
(dollars in thousands)	Banking			Lending			Banking		Banking			Group		Company
Net income (loss)	$	23,919		$	5,964		$	(26)	$	29,857		$	5,309	$	35,166
Total assets		3,809,526			386,414			9,348		4,205,288			25,001		4,230,289
Net interest margin		3.15	%		3.58	%		NM		3.19	%		NM		3.27	%