Republic Bancorp(US:RBCAA)2023-03-03 22:20Financial Overview - As of December 31, 2022, Republic Bancorp had total assets of $5.8 billion, total deposits of $4.5 billion, and total stockholders' equity of $857 million[23]. - Republic ranked as the second largest Kentucky-based financial holding company based on total assets as of December 31, 2022[23]. - As of December 31, 2022, Republic operated 42 full-service banking centers across various locations in Kentucky and other states[21][22]. - As of December 31, 2022, Republic had 998 FTE employees, with 984 full-time and 28 part-time employees[78]. Lending Activities - The Bank's principal lending activities include retail mortgage lending, commercial lending, and construction and land development lending[27][33][42]. - The targeted credit size for commercial and industrial (C&I) lending relationships is typically between $1 million and $10 million, with higher targets for larger borrowers[34]. - The Bank's commercial real estate (CRE) division focuses on projects typically ranging from $5 million to $25 million, launched in 2022[37]. - The Bank is an SBA Preferred Lending Partner, allowing it to expedite the underwriting and approval of SBA loans generally up to $3 million[41]. - Republic plans to relaunch its Correspondent Lending channel in the first quarter of 2023, targeting loans secured by owner-occupied collateral[27]. - The Bank plans to begin acquiring single-family, first lien mortgage loans for investment through its Correspondent Lending channel in Q1 2023, with all loans expected to be purchased at a premium[51]. Tax Refund Solutions - The Tax Refund Solutions segment originated $98 million of Early Refund Advances (ERAs) in December 2022 for the upcoming tax filing season[59]. - The Bank's RA credit product allows taxpayers to borrow up to $6,250 as an advance on their tax refund, with repayment deducted from the tax refund proceeds[63]. - The ERA credit product allows taxpayers to borrow up to $1,000 prior to receiving their taxable income documentation, with similar repayment terms as the RA[64]. Consumer Loans - The Bank's RCS segment offers unsecured, small dollar consumer loans, primarily targeting subprime or near-prime borrowers, with higher yields and associated credit risks[71]. - The Bank offers RCS installment loans with terms ranging from 12 to 60 months, all loan balances are carried as "held for sale" on the Bank's balance sheet[76]. - RCS's LOC I represented the substantial majority of RCS activity during 2021 and 2022, with the Bank retaining a 10% participation interest in each advance[75]. - RCS began originating balances through its LOC II in January 2021, with the Bank retaining a 5% participation interest in each advance[75]. Regulatory Compliance - The Company is required to act as a source of strength to its banking subsidiaries, which may restrict its ability to pay dividends during times of distress[105]. - The Company must obtain prior approval from the Federal Reserve Board (FRB) for acquisitions that would result in owning more than 5% of any class of voting shares of a bank[106]. - The Company is classified as a Financial Holding Company (FHC), allowing it to engage in a broader range of financial activities, provided it meets capital and management requirements[108]. - The Company is subject to federal laws aimed at preventing money laundering and terrorist financing, which require robust compliance programs[122]. - The FRB, FDIC, and other agencies have established guidelines for safeguarding customer information, with significant penalties for non-compliance[128]. - The Company may face restrictions on activities if it fails to maintain its FHC status or meet capital and management requirements[109]. Capital and Financial Ratios - The Company reported total capital to risk-weighted assets of $941,865 thousand, representing a ratio of 17.92% as of December 31, 2022, compared to $879,310 thousand and 17.48% in 2021[141]. - Common equity tier 1 capital to risk-weighted assets was $877,735 thousand, with a ratio of 16.70% in 2022, up from $824,326 thousand and 16.39% in 2021[141]. - The Company and the Bank are classified as well-capitalized under Basel III regulations, meeting the required ratios of 10.0% Total Risk-Based Capital, 6.5% Common Equity Tier 1, 8.0% Tier 1, and 5.0% Tier 1 Leverage[139]. - The Company elected to defer the impact of CECL on regulatory capital for five years, which could have resulted in a decrease of approximately 10 to 12 basis points in capital ratios for 2022 and 2021 if not for this election[142]. - The Bank's capital ratios indicate strong compliance with regulatory requirements, with Tier 1 leverage capital to average assets at 14.81% in 2022, up from 13.36% in 2021[141]. Competition and Market Risks - The Bank faces intense competition in originating loans and attracting deposits from various financial institutions, including fintech companies[83]. - The Bank competes for mortgage loans against mortgage bankers and brokers, with many competitors having branch offices in the same areas[88]. - The prepaid card industry is subject to intense competition, with the Bank competing against various companies and large retailers[90]. - The small-dollar consumer loan industry is highly competitive, with competitors including payday lenders and fintech companies[91]. Operational Risks - The Bank's financial condition could be adversely affected by reliance on inaccurate borrower information, leading to additional charge-offs[179]. - The Bank's credit risk is heightened by the significant amount of Refund Anticipation Loans (RAs) and Expected Refund Anticipation Loans (ERAs), which could lead to material losses if not repaid[165][170]. - The Bank's Warehouse Lending business is subject to credit risks related to mortgage bankers, which could lead to material adverse impacts on financial statements[174]. - The Allowance for Credit Losses (ACLL) may be insufficient to cover actual loan losses, potentially resulting in significant adverse effects on financial condition[175]. - The Bank is exposed to environmental liabilities related to properties it may own or foreclose, which could incur substantial costs[181]. - The Bank holds a significant amount of Bank-Owned Life Insurance (BOLI), creating credit and liquidity risks that could adversely impact earnings if liquidated[182]. Economic and Interest Rate Risks - The Bank's primary income source is the difference between interest earned on loans and investments versus interest paid on deposits and borrowings, with potential "gaps" in interest rate sensitivities affecting profitability[206]. - A flattening or inversion of the interest rate yield curve could decrease the Bank's net interest margin, as the cost of funds may rise faster than the yield on interest-earning assets[207]. - The Bank may need to offer market-leading interest rates to maintain funding and liquidity, which could adversely impact net interest income and overall results[208]. - Clients may seek alternatives to bank deposits, leading to a decrease in checking and savings account balances, which could increase funding costs[209]. - Loss of large deposit relationships could result in higher funding costs, as the Bank may need to rely on more expensive funding sources[210]. - Government responses to economic conditions may adversely affect the Company's operations and financial performance, potentially restricting lending activities[211]. Stock and Market Risks - The Company's common stock has a low average daily trading volume, which can lead to significant price fluctuations even with small trades[212]. - The market price of the Company's common stock may be volatile due to various factors, including interest rates and economic conditions[213]. - Insiders hold significant voting rights, limiting the influence of non-insider stockholders on corporate matters[214].