REPUBLIC BANCORP
2 0 0 5 A N N U A L R E P O R T
REPUBLIC BANCORP
6 0 1 W e s t M a r k e t S t r e e t
L o u i s v i l l e , K Y 4 0 2 0 2
5 0 2 . 5 8 4 . 3 6 0 0
o r o u t s i d e L o u i s v i l l e
8 8 8 . 5 8 4 . 3 6 0 0
w w w. r e p u b l i c b a n k . c o m
Republic Bancorp, Inc. (“Republic” or the “Company”) is a bank holding company headquartered in
Louisville, Kentucky. The Company derives substantially all of its revenue from the operation of its
wholly-owned subsidiaries, Republic Bank & Trust Company, a Kentucky chartered bank and trust
company, and Republic Bank & Trust Company of Indiana, an Indiana chartered bank, collectively
referred to as the “Bank”. Republic’s Class A Common Stock trades on the NASDAQ Stock Market®
under the symbol “RBCAA”.
Currently, Republic Bank & Trust Company has 32 full-service banking centers, 19 of which are located
in the metropolitan Louisville area, including the Company’s principal office. There are five banking
centers located in Lexington, Kentucky, two in Frankfort, Kentucky, two in Owensboro, Kentucky and
one each in the Kentucky communities of Bowling Green, Elizabethtown, Georgetown and Shelbyville.
The Company plans to open a Loan Production Office (“LPO”) in Tampa, Florida in 2006, representing
the Company’s first entrance into the Florida market. Republic Bank & Trust Company also operates
two additional LPOs within the Louisville metropolitan area, under the name Republic Finance and a
LPO in Ft. Wright, Kentucky. Republic Bank & Trust Company of Indiana has two full service banking
centers located in Jeffersonville and New Albany, Indiana.
3.0
2.8
2.6
2.4
2.2
2.0
1.8
1.6
2.7
2.5
2.1
2003
2004
2005
TOTAL ASSETS ($)
In billions
12.00
11.00
10.00
9.00
8.00
7.00
6.00
10.99
9.89
8.60
2005
2003
2004
BOOK VALUE
PER SHARE ($)
35.1
21.5
28.2
36,000
34,000
32,000
30,000
28,000
26,000
24,000
22,000
20,000
18,000
16,000
14,000
2003
2004
2005
NET INCOME ($)
In thousands
.19
.22
.20
.18
.16
.14
.12
.10
.08
.13
.10
2003
2004
2005
NET LOAN CHARGE OFFS
TO AVERAGE LOANS (%)
1.71
1.58
1.56
2003
2004
2005
DILUTED CLASS A
EARNINGS PER SHARE ($)
0.82
0.34
0.29
1.80
1.60
1.40
1.20
1.00
0.80
0.60
85
70
65
50
35
20
5
2005
2003
2004
NON PERFORMING LOANS
TO TOTAL LOANS (%)
“We were able to achieve
record earnings.”
Valued Shareholders,
I am extremely proud to report that 2005 was yet another successful year for our Company. As a direct
result of the dedication, ability and hard work of the entire Republic team, we were able to achieve
record earnings, strong loan growth and maintain exceptional asset quality for the year.
The year 2005 brought solid gains for Republic with record net income of $35.1 million, an 8% increase
over 2004. Diluted earnings per Class A Common Share increased to $1.71, up from $1.58 in 2004.
Return on average assets (ROA) and return on average equity (ROE) both remained strong and favorable
compared to peer at 1.33% and 16.56%. We also continued to experience strong growth in our loan
portfolio, with traditional bank loans increasing $301 million for the year – the best loan growth year in
the history of the Company.
Republic experienced a 24% increase in net income during 2005 within our traditional “Banking”
business segment. The growth and success of our traditional “Banking” Business enabled us to overcome
much of the reduction in payday loan income and the increase in personnel expenses at Tax Refund
Solutions. With $237 million in asset growth during the year, we surpassed $2.7 billion in assets – as we
continue on our quest to reach $3 billion in assets and become the largest Kentucky-based bank
holding company.
Our net interest income increased to $92.7 million for 2005, a 3%
increase over 2004. As with many financial institutions, Republic
encountered a contracting net interest margin brought about by a
flattening interest rate yield curve. Republic also experienced a
contraction in its net interest margin as a result of the decline in our
payday loan program. Despite these negative factors, we were still able to grow net interest income
year over year thanks to the tremendous effort of our sales staff and a culture which actively encourages
participation in sales from our back office personnel as well. Everyone sells at Republic!
“We have become a premier
choice for banking in our
local communities.”
“We look toward the future
with great confidence.”
Republic Bank Building – Springhurst
Republic Bank Building – Hurstbourne
Non-interest income increased a very solid 12% in 2005 to $30.5 million. This growth was primarily
driven by service charges on deposit accounts, which increased $2.1 million over 2004. We also
experienced a 25% increase in interchange income from our retail debit cards. The increases in both of
these sources of revenue resulted from the success of our retail banking center network, which
continues to be the foundation of our Company. Through our banking center network, we increased
The Company plans to place additional emphasis on deposit gathering in
2006. Over the course of our history, Republic has had a proven track
record of loan growth. Deposit gathering, an important element for
funding our loan growth, remains a challenge as evidenced by a loan-to-
deposit ratio of 129% at December 31, 2005. For 2006, we have made
our total checking accounts by 10% in 2005, to over 65,000 accounts. We believe that our strategically
many changes in the deposit gathering function including a new head of Commercial Cash
placed banking center network, combined with our effective cross-selling of new loan and deposit
Management and a reallocation of sales and back office personnel from the lending side of the
clients, has enabled us to gain market share and become a premier choice for consumers’ banking
Company to the deposit side. We believe our deposit gathering function must grow in order for us to
needs in our local communities.
continue the success we experienced in the past.
The Company’s historically exceptional asset quality continued throughout 2005. In our opinion, no
We are extremely pleased with our financial performance in 2005 and look toward the future with great
other factor determines the long-term success of a financial institution more than its asset quality, and at
confidence, even though we see many challenges ahead for Republic and the entire banking industry.
Republic outstanding asset quality is a way of life. Classified loans – a key component in determining
These challenges include a continued flattening of the interest rate yield curve, an ever-increasing
the Company’s overall allowance for loan losses – improved significantly from the already solid levels of
regulatory burden, and tremendous competition for deposits. We believe our disciplined approach and
2004. Our percentage of non-performing loans to total loans was a very positive 0.29% at year end.
focus on strong traditional banking fundamentals will continue to yield favorable long-term financial
In addition, net charge-offs as a percent of average loans during 2005
were a notable 0.10% for the total Company, while Republic’s traditional
“Banking” segment experienced an even more favorable 0.04% ratio.
The continued positive factors comprising Republic’s overall asset quality,
results for our shareholders. We will stick to our long-term strategic plan of seeking profitable growth
from our traditional “Banking” business while also looking for new lines of business to supplement
our earnings. We remain unwavering in our commitment to being the premier financial institution in
the Kentucky and Southern Indiana markets. Let’s continue to work together to make
combined with a significant reduction in its payday loan portfolio, led to a
2006 yet another outstanding year for Republic.
credit in the Company’s provision for loan losses of $562,000 during 2005, compared to an expense of
$1.7 million during 2004.
Despite our tremendous success in 2005, we know many changes lie ahead for Republic in 2006.
One notable change will be our exit from the payday loan business. While we experienced a great deal
of financial success in the payday loan business by providing a responsible and needed solution to an
underserved segment of the market, increased costs combined with growing regulatory requirements
led us to make this very difficult decision.
Steven E. Trager
President and Chief Executive Officer
“We remain committed to being
the premier financial institution
in the area.”
Republic Corporate Center – Downtown Louisville
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
of Republic Bancorp, Inc.
REPUBLIC BANCORP, INC. Condensed Consolidated Balance Sheets
(In thousands, except share data)
December 31,
2005
2004
ASSETS:
Cash and cash equivalents
Securities available for sale
Securities to be held to maturity
Mortgage loans held for sale
Loans, net of allowance for loan losses of $11,009 and $13,554 (2005 and 2004)
Federal Home Loan Bank stock, at cost
Premises and equipment, net
Other assets and accrued interest receivable
$
77,169
447,865
64,298
6,582
2,049,647
21,595
31,786
36,614
$
77,850
453,360
98,233
16,485
1,775,545
20,321
33,843
23,285
TOTAL ASSETS
LIABILITIES:
Deposits:
Non interest-bearing
Interest-bearing
Total deposits
$
Securities sold under agreements to repurchase and other short-term borrowings
Federal Home Loan Bank borrowings
Subordinated note
Other liabilities and accrued interest payable
$
2,735,556
$
2,498,922
286,484
1,316,081
1,602,565
292,259
561,133
41,240
24,785
$
261,993
1,155,937
1,417,930
364,828
496,387
-
23,708
Total liabilities
2,521,982
2,302,853
We have audited the consolidated balance sheets of Republic Bancorp, Inc. as of December 31, 2005 and
2004, and the related consolidated statements of income and comprehensive income, stockholders’
equity and cash flows for the periods ended December 31, 2005, 2004 and 2003 appearing in the Annual
Report on Form 10K. In our report, dated February 3, 2006, also appearing in the Annual Report in Form
10K, we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the condensed consolidated financials statements presented
STOCKHOLDERS’ EQUITY:
Preferred stock, no par value
Class A Common Stock,
Additional paid in capital
Retained earnings
Unearned shares in Employee Stock Ownership Plan
Accumulated other comprehensive loss
Total stockholders’ equity
4,475
77,295
136,381
(1,468)
(3,109)
213,574
4,381
58,117
135,949
(1,894)
(484)
196,069
are fairly stated in all material respects in relation to the consolidated financial statement from which they
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2,735,556
$
2,498,922
have been derived.
Louisville, Kentucky
REPUBLIC BANCORP, INC. Condensed Consolidated Statements of Income
(In thousands, except per share data)
REPUBLIC BANCORP, INC. Selected Consolidated Financial Data
(In thousands, except per share data)
INTEREST INCOME:
Loans, including fees
Securities:
Taxable
Non taxable
Federal Home Loan Bank stock and other
Total interest income
INTEREST EXPENSE:
Deposits
Securities sold under agreements to repurchase
and other short-term borrowings
Federal Home Loan Bank borrowings
Subordinated note
Total interest expense
NET INTEREST INCOME
Provision for loan losses
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
NON INTEREST INCOME:
Service charges on deposit accounts
Electronic refund check fees
Mortgage banking income
Debit card interchange fee income
Title insurance commissions
Other
Total non interest income
NON INTEREST EXPENSES:
Salaries and employee benefits
Occupancy and equipment, net
Communication and transportation
Marketing and development
Bankshares tax
Data processing
Debit card interchange expense
Supplies
Other
Total non interest expenses
INCOME BEFORE INCOME TAX EXPENSE
INCOME TAX EXPENSE
NET INCOME
BASIC EARNINGS PER SHARE:
Class A Common Stock
Class B Common Stock
DILUTED EARNINGS PER SHARE:
Class A Common Stock
Class B Common Stock
$
$
Note: All per share data has been adjusted for stock dividends
Years ended December 31,
2005
2004
2003
$
134,569
$
118,492
$
107,645
-
18,568
2,482
155,619
-
12,558
1,316
132,366
3
10,377
1,035
119,060
31,703
9,906
20,380
951
62,940
92,679
(562)
93,241
15,547
6,083
2,751
3,122
1,756
1,244
30,503
37,037
13,467
3,035
2,878
2,262
1,909
1,357
1,133
7,503
70,581
53,163
18,098
35,065
1.78
1.75
1.71
1.68
21,202
4,191
16,921
-
42,314
90,052
1,748
88,304
13,460
5,268
3,148
2,492
1,515
1,311
27,194
34,552
13,915
2,809
2,271
1,932
1,602
1,080
1,385
6,470
66,016
49,482
16,981
32,501
1.65
1.62
1.58
1.56
19,944
1,897
14,954
-
36,795
82,265
6,574
75,691
10,019
3,981
11,104
1,825
2,532
1,472
30,933
32,509
12,416
2,729
2,997
1,980
1,722
1,006
1,481
6,019
62,859
43,765
15,562
28,203
1.44
1.40
1.41
1.37
$
$
$
$
As of and for the Years Ended December 31,
Income Statement Data:
Net interest income
Provision for loan losses
Non interest income
Non interest expenses
Net income
Balance Sheet Data:
Total loans
Allowance for loan losses
Total assets
Total deposits
Subordinated note
Stockholders’ equity
Per Share Data:
2005
2004
2003
$ 92,679
$ 90,052
$ 82, 265
(562)
30,503
70,581
35,065
1,748 6,574
27,194
66,016
32,501
30,933
62,859
28,203
$ 2,060,656
$ 1,789,099
$ 1,581,952
11,009
2,735,556
1,602,565
41,240
213,574
13,554
2,498,922
1,417,930
-
196,069
13,959
2,128,076
1,297,112
-
169,379
Basic earnings per Class A Common Stock
$ 1.78
$ 1.65
$
Basic earnings per Class B Common Stock
Diluted earnings per Class A Common Stock
Diluted earnings per Class B Common Stock
Market value per share
Book value per share
Cash dividends declared per Class A Common Stock
Cash dividends declared per Class B Common Stock
Performance Ratios:
Return on average assets (ROA)
Return on average equity (ROE)
Net interest spread
Net interest margin
Efficiency ratio
Asset Quality Ratios:
Non performing loans to total loans
Allowance for loan losses to total loans
Allowance for loan losses to non-performing loans
Net loan charge offs to average loans
Delinquent loans to total loans
Capital Ratios:
1.75
1.71
1.68
20.43
10.99
0.321
0.292
1.33%
16.56
3.19
3.67
57
0.29%
0.53
183
0.10
0.35
Average stockholders’ equity to average total assets
8.00%
Tier I leverage
Tier I risk based capital
Total risk based capital
Other Key Data:
End of period full time equivalent employees
Number of bank offices (including LPOs)
Note: All share and per share data has been adjusted for stock dividends
9.47
14.41
15.03
678
37
1.62
1.58
1.56
23.31
9.89
0.267
0.242
1.40%
17.50
3.73
4.09
56
0.34%
0.76
221
0.13
0.47
8.01%
8.03
12.18
13.03
611
33
1.44
1.40
1.41
1.37
16.88
8.60
0.437
0.397
1.47%
16.88
4.11
4.50
56
0.82%
0.88
108
0.19
0.82
8.69%
8.08
11.99
12.99
645
31
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, 2005
Commission File Number: 0-24649
REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky
(State or other jurisdiction of
incorporation or organization)
61-0862051
(I.R.S. Employer Identification No.)
601 West Market Street, Louisville, Kentucky
(Address of principal executive offices)
40202
(Zip Code)
Registrant's telephone number, including area code: (502) 584-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
None
Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock
(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 XNo
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 XNo
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. XYes 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. X
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer X Non-accelerated filer Y
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes XNo
Y
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, 2005 (the last business day of the registrant’s most
recently completed second fiscal quarter) was approximately $189,243,000 (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 March 1,
2006 was 16,430,806 and 2,141,945. All share and per share data has been restated to reflect the five percent (5%) stock
dividend that was declared in January 2006.
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 25, 2006 are
incorporated by reference into Part III of this Form 10-K.
2
TABLE OF CONTENTS
PART I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Item 13. Certain Relationships and Related Transactions.
Item 14. Principal Accounting Fees and Services.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
Signatures
Index to Exhibits
EX-21 Subsidiaries of Republic Bancorp, Inc.
EX-23 Consent of Crowe Chizek and Company LLC
EX-31.1 Section 302 Certification of Principal Executive Officer
EX-31.2 Section 302 Certification of Principal Financial Officer
EX-32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C Section 1350
EX-32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C Section 1350
3
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 Item 1. “Business,” Item 1A. “Risk Factors” and Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” These statements relate to, among other
things, expectations concerning critical accounting estimates, loan demand, growth and performance, simulated
changes in interest rates and the adequacy of the allowance for loan losses. These statements involve known and
unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be
materially different from any 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 within our markets, equity and fixed income market
fluctuations, personal and corporate customers’ bankruptcies, inflation, acquisitions and integrations of acquired
businesses, technological changes, changes in law and regulations, 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 our filings with the Securities and Exchange Commission (“SEC”).
Forward-looking statements and factors that may cause actual results to differ materially are also discussed under
the sections titled Item 1. “Business” and Item 1A: “Risk Factors.” Broadly speaking, forward-looking statements
include:
•
•
•
•
projections of revenue, income, earnings per share, capital expenditures, dividends, capital structure or
other financial items;
descriptions of plans or objectives of the Company’s management 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:
•
•
•
•
•
•
•
future credit losses and non-performing assets;
the adequacy of the allowance for loan losses;
the future value of mortgage servicing rights;
the impact of new accounting pronouncements;
future short-term and long-term interest rate levels and the respective impact on net interest margin,
net interest spread, net income, liquidity and capital;
legal and regulatory matters; and,
future capital expenditures.
Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss
future events or conditions, they 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 they 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 Item 1. “Business,” Item 1A. “Risk
Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
As used in this report, 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: Republic Bank & Trust Company and Republic Bank & Trust Company of Indiana.
4
Item 1. Business.
PART I
Republic Bancorp, Inc. (“Republic” or the “Company”) is a Financial Holding Company (“FHC”), under the Bank
Holding Company Act of 1956, as amended (“BHCA”), headquartered in Louisville, Kentucky. Republic is the
Parent Company of Republic Bank & Trust Company, Republic Bank & Trust Company of Indiana (together
referred to as the “Bank”), Republic Funding Company, Republic Invest Co. and Republic Bancorp Capital Trust.
Republic Invest Co. includes its subsidiary, Republic Capital LLC. Republic Bancorp Capital Trust is a Delaware
statutory business trust that is a wholly-owned unconsolidated finance subsidiary of Republic Bancorp, Inc. The
consolidated financial statements also include the wholly-owned subsidiaries of Republic Bank & Trust Company:
Republic Financial Services, LLC, TRS RAL Funding, LLC, and Republic Insurance Agency, LLC. Incorporated in
Kentucky on January 2, 1974, Republic became a bank holding company when Republic Bank & Trust Company
became authorized to conduct commercial banking business in Kentucky in 1981.
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 operations of the Bank.
At December 31, 2005, Republic had total assets of $2.7 billion, total deposits of $1.6 billion and total stockholders’
equity of $214 million. Based on total assets as of December 31, 2005, Republic ranked as the second largest bank
holding company headquartered in the state of Kentucky. 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 the 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 on or through the Internet 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
The Company is divided into four distinct business operating segments: Banking, Tax Refund Solutions, Mortgage
Banking and Deferred Deposits (“Payday Loans”). Total assets and net income for the years ended December 31,
2005, 2004 and 2003 are presented below:
As of December 31, 2005 (in thousands)
Banking
Tax Refund
Solutions
Mortgage
Banking
Deferred
Deposits
Consolidated
Totals
Net Income
Total Assets
$
23,730
2,720,620
$
5,531
1,770
$
817
6,617
$
4,987
6,549
$
35,065
2,735,556
As of December 31, 2004 (in thousands)
Banking
Tax Refund
Solutions
Mortgage
Banking
Deferred
Deposits
Consolidated
Totals
Net Income
Total Assets
$
19,187
2,430,797
$
5,406
2,012
$
1,337
16,496
$
6,571
49,617
$
32,501
2,498,922
As of December 31, 2003 (in thousands)
Banking
Tax Refund
Solutions
Mortgage
Banking
Deferred
Deposits
Consolidated
Totals
Net Income
Total Assets
$
15,801
2,063,676
$
3,499
1,829
$
5,066
13,757
$
3,837
48,814
$
28,203
2,128,076
5
(I) Banking
As of December 31, 2005, Republic had a total of 34 full-service banking centers with 32 located in Kentucky and
two in southern Indiana. Republic’s primary market areas are located in metropolitan Louisville, central Kentucky
and southern Indiana. Louisville, the largest city in Kentucky, is the location of Republic’s headquarters, as well as
19 banking centers. Republic’s central Kentucky market includes 13 banking centers in the following Kentucky
cities: Bowling Green (1); Elizabethtown (1); Frankfort (2); Georgetown (1); Lexington, the second largest city in
Kentucky (5); Owensboro (2); and Shelbyville (1). The Company has announced plans to open its first Loan
Production Offices (“LPOs”) in Fort Wright, Kentucky and Tampa, Florida in 2006, representing the Company’s
first entrance into these markets. Republic Bank & Trust Company of Indiana has banking centers located in New
Albany and Jeffersonville, Indiana. Republic also has two LPOs (“Republic Finance”) located in Louisville,
Kentucky that operate as a division of Republic Bank & Trust Company. Republic Finance offers an array of loan
products to individuals who may not qualify under the Bank’s standard underwriting guidelines.
Republic has developed a community banking network, with most of its banking centers located either in separate
communities or portions of urban areas that represent distinct communities. Each of Republic’s banking centers is
managed by one or more officers with the authority to make loan decisions within Bank mandated policies,
procedures and guidelines.
Banking related operating revenues are derived primarily from interest earned from the Bank’s loan and investment
securities portfolios and fee income from loans, deposits and other banking products. The Company has historically
extended credit and provided general banking services through its banking center network to individuals and
businesses. Over the past several years, the Company has expanded into new lines of business to diversify its asset
mix and further enhance its profitability. The Bank principally markets its banking products and services through the
following delivery channels:
Mortgage Lending – The Company generally retains adjustable rate residential real estate loans with fixed
terms up to ten years. These loans are originated through the Company’s retail banking center network and
LPOs. Fixed rate residential real estate loans that are sold into the secondary market, and their accompanying
servicing rights, which may be either sold or retained, are included as a component of the Company’s
“Mortgage Banking” segment and are discussed throughout this Form 10-K.
Commercial Lending – Commercial loans are primarily real estate secured and are generated through banking
centers in the Company’s market areas. The Company makes commercial loans to a variety of industries and
intends to promote this business through focused calling programs, in order to broaden relationships by
providing business clients with loan, deposit and cash management services.
Consumer Lending – Traditional consumer loans made by the Bank include home improvement and home
equity loans, as well as secured and unsecured personal loans. With the exception of home equity loans, which
are actively marketed in conjunction with single family first lien mortgage loans, traditional consumer loan
products are not actively promoted in Republic’s markets.
Cash Management Services – Republic provides various deposit products designed for businesses located
throughout its market areas. Lockbox processing, business online banking, account reconciliation and
Automated Clearing House (“ACH”) processing are additional services offered to businesses through the Cash
Management department. The “Premier First” product is the Company’s premium money market sweep
account designed for business clients.
Internet Banking – Republic expands its market penetration and service delivery by offering clients Internet
banking services and products through its Internet site, www.republicbank.com.
Other Banking Services – The Bank also provides trust services, title insurance products and other related
financial institution lines of business.
6
(II) Tax Refund Solutions (“TRS”)
Republic Bank & Trust Company is one of a limited number of financial institutions that facilitates the payment of
federal and state tax refunds through tax preparers located throughout the U.S.. The Company facilitates the
payment of these tax refunds through three primary products. For those taxpayers who apply and qualify, the
Company offers a Refund Anticipation Loan (“RAL”). RALs are repaid when the taxpayers’ refunds are
electronically received by the Company from the government. RAL fees are recorded in the financial statements
under the line item titled “Loans, including fees.” For those taxpayers who wish to receive their funds electronically
via an ACH, the Company will provide an Electronic Refund Check (“ERC”) or an Electronic Refund Deposit
(“ERD”) to the taxpayer. An ERC/ERD is issued to the taxpayer after the Company has received the tax refund from
the federal or state government. Revenue from ERC/ERD fees is recorded in the financial statements under non
interest income in the line item titled “Electronic Refund Check fees.” See additional discussion about this product
under the sections titled Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and Footnote 20 “Segment Information” of Item 8. “Financial Statements
and Supplementary Data.”
(III) Mortgage Banking
Mortgage banking activities primarily include 15, 20 and 30-year fixed rate real estate loans that are sold into the
secondary market. Since 2003, Republic has retained servicing on substantially all loans sold into the secondary
market. Administration of loans with the servicing retained by the Company includes collecting principal and
interest payments, escrowing funds for taxes and insurance and remitting payments to the secondary market
investors. A fee is received by Republic for performing these standard servicing functions. See additional
discussion regarding mortgage banking under the sections titled Item 1A. “Risk Factors” and Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Footnote 20
“Segment Information” of Item 8. “Financial Statements and Supplementary Data.”
(IV) Deferred Deposits (“Payday Loans”)
Payday loans are transactions whereby customers receive cash advances in exchange for a check or authorization to
electronically debit the customer’s checking account for the advanced amount plus a fixed fee. Under the
Marketer/Servicer model, customers can reclaim their checks in cash for the amount of the advance plus the fee, on
or before the due date of the advance. If the customer does not reclaim the check in cash by the advance due date,
the check is deposited. Under the Company’s Internet model, the customer’s account will be electronically debited
on the advance due date. If the ACH is not honored due to insufficient funds, the Company may electronically debit
the customer’s account additional times in an effort to collect the amount due. Deferred deposit transactions are
recorded as loans on the Company’s financial statements and the corresponding fees are recorded as a component of
interest income on loans.
The Company originates payday loans under a marketing and servicing contract with ACE Cash Express, Inc.
(“ACE”) in the states of Texas, Arkansas and Pennsylvania, with the substantial majority of these transactions
concentrated in the state of Texas. As of December 31, 2005, Republic had payday loans outstanding of
approximately $5 million through its contract with ACE. In 2005, Republic recognized net income of approximately
$1.7 million under the ACE contract, which represented approximately 5% of the Company’s total net income for
the period.
Previously, the Company also operated its payday loan program through a marketing and servicing relationship with
Advance America in Texas and North Carolina. The contracts with Advance America were terminated in July 2005,
and the Company no longer has any payday loans outstanding under these contracts. As a result, Republic will
receive no payday loan income from the Advance America contracts in the future.
All payday loans originated by Republic are subject to the revised Federal Deposit Insurance Corporation (“FDIC”)
Guidance (the “Guidance”) on payday lending dated March 1, 2005, which became effective July 1, 2005. The
Guidance essentially limits customers from having payday loans outstanding from any bank lender more than 90
days in the previous twelve months. FDIC guidance also requires that banks limit payday loans outstanding to the
lesser of 25% of Tier I capital or the amount that actual capital levels exceed the “well capitalized” classification for
Tier I and total capital. Based on the Company’s capital levels at December 31, 2005, payday loans outstanding
were significantly below the Banks’ regulatory limits.
7
By letter to Republic Bank & Trust Company of Indiana dated February 17, 2006, the FDIC cited inherent risks
associated with payday lending activities and asked Republic Bank & Trust Company of Indiana to consider
terminating this line of business. Republic Bank & Trust Company of Indiana voluntarily elected to terminate its
Internet payday loan program the week of February 20, 2006. The Internet payday loan program began operating in
July 2005 and remained in a developmental stage until its termination date. During the fourth quarter of 2005, the
Company recorded an after-tax net loss of approximately $517,000 from its Internet payday loan program. The
Company anticipates incurring approximately $188,000 in additional pre-tax expense during the first quarter of 2006
related to exiting the Internet payday loan line of business.
By letter to Republic Bank & Trust Company dated February 17, 2006, the FDIC cited inherent risks associated with
payday lending activities and asked Republic Bank & Trust Company to consider terminating this line of business.
Consequently, on February 24, 2006, Republic Bank & Trust Company and ACE amended the agreement regarding
Republic Bank & Trust Company’s payday loan activities in Texas, Pennsylvania and Arkansas. With respect to
Texas, Republic Bank & Trust Company ceased offering payday loans the week of February 27, 2006. With respect
to Arkansas and Pennsylvania, Republic Bank & Trust Company will cease offering payday loans on June 30, 2006.
During the fourth quarter of 2005, the Company recorded after-tax net income of approximately $299,000 through
its marketing/servicing agreement with ACE. The Company does not anticipate incurring any additional costs
related to the termination of the ACE contract.
See additional discussion about the payday lending products under the sections titled: Item 1A. “Risk Factors,”
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Footnote
20 “Segment Information” and Footnote 22 “Subsequent Event” of Item 8. “Financial Statements and
Supplementary Data.”
Employees
As of December 31, 2005, Republic had 678 full-time equivalent employees. Altogether, the Company had 644 full-
time and 67 part-time employees. None of the Company’s employees are subject to a collective bargaining
agreement, and Republic has never experienced a work stoppage.
Competition
The Bank actively competes with several local and regional retail and commercial banks, credit unions and mortgage
companies for deposits, loans and other banking related financial services. There is intense competition in the
Company’s markets from other financial institutions, as well as other non bank companies that engage in similar
activities. Some of the Company’s competitors are not subject to the same degree of regulatory review and
restrictions that apply to the Company and the Bank. In addition, the Bank must compete with much larger financial
institutions that have greater financial resources than the Bank and, while predominantly headquartered in other
states, aggressively compete for market share in Kentucky and southern Indiana. These competitors attempt to gain
market share through their financial product mix, pricing strategies and banking center locations. Legislative
developments related to interstate branching and banking in general, by providing large banking institutions easier
access to a broader marketplace, are creating more pressure on smaller financial institutions to consolidate. The Bank
also competes with insurance companies, consumer finance companies, investment banking firms and mutual fund
managers. Retail establishments compete for certain loans by offering credit cards and retail installment contracts for
the purchase of goods and merchandise. It is anticipated that competition from both bank and non bank entities will
continue to remain strong in the near future.
Supervision and Regulation
Republic and the Bank are subject to the laws, regulations and policies of various regulatory authorities. In
particular, bank holding companies and their subsidiaries are directly impacted by the credit and monetary policies
and operational rules of the Federal Reserve Board (“FRB”). Republic and the Bank are also subject to numerous
federal and state laws and regulations affecting their business and must undergo periodic examinations by federal
and state financial institution examiners. The operations and earnings of Republic and the Bank are affected not only
by the laws and regulations applicable to the banking business, but also by the policies and interpretations of
regulatory authorities.
The supervision and regulation of bank holding companies and their subsidiaries is intended primarily for the
protection of depositors, the deposit insurance funds of the FDIC and the banking system as a whole, and not for the
protection of bank holding company shareholders or creditors. Regulators have broad enforcement powers over bank
8
holding companies and banks, including, but not limited to, the power to mandate or restrict particular actions,
activities, or divestitures, impose substantial fines and other penalties for violations of laws and regulations, to issue
cease and desist or removal orders, to seek injunctions, to publicly disclose such actions and to police unsafe or
unsound practices. In addition, Republic's non banking subsidiaries are also subject to regulation by other agencies.
The following sections summarize some of the laws to which the Company and the Bank are subject. The
descriptions of applicable statutes and regulations are brief summaries of such statutes and regulations, do not
purport to be complete, and are qualified in their entirety by reference to such statutes and regulations.
The Company
The Company is a bank holding company that has elected and presently maintains the status of a FHC, subject to
certain restrictions attributable to its Community Reinvestment Act (“CRA”) rating under the BHCA. As such, it is
subject to supervision, regulation and examination by the FRB. The BHCA and other federal laws subject bank and
financial holding companies to particular restrictions on the types of activities in which they may engage, and to a
range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and
regulations. FHC status also compels the Company to maintain specified capital ratios, examination ratings and
management ratings with respect to its operations.
Bank Acquisitions by Bank and FHCs – Republic is required to obtain the prior approval of the FRB under the
BHCA before it may, among other things, acquire all or substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly,
more than 5% of any class of the voting shares of such bank. In approving bank acquisitions by bank holding
companies, the FRB is required to consider the financial and managerial resources and future prospects of the bank
holding company and the bank involved, the convenience and needs of the communities to be served and various
competitive factors. Consideration of financial resources generally focuses on capital adequacy, which is discussed
below. Consideration of convenience and needs issues includes the parties’ performance under the CRA. Under the
CRA, all financial institutions have a continuing and affirmative obligation consistent with safe and sound operation
to help meet the credit needs of their entire communities, including low to moderate income neighborhoods.
Under the BHCA, so long as it is at least adequately capitalized and adequately managed, Republic may purchase a
bank, subject to regulatory approval, located inside or outside the states of Kentucky or Indiana. Similarly, an
adequately capitalized and adequately managed bank holding company located outside of Kentucky or Indiana may
purchase a bank located inside Kentucky or Indiana, subject to respective regulatory approval. In either case,
however, state law restrictions may be placed on the acquisition of a bank that has been in existence for a limited
amount of time, or would result in specified concentrations of deposits. For example, Kentucky law prohibits a bank
holding company from acquiring control of banks located in Kentucky, if the holding company would then hold
more than 15% of the total deposits of all federally insured depository institutions in Kentucky.
Financial Activities – The activities permissible to bank holding companies and their affiliates were substantially
expanded by the Gramm-Leach-Bliley Act (“GLBA”), effective March 11, 2000. The GLBA permits bank holding
companies to qualify as FHCs that may engage in a broad range of financial activities, including underwriting,
dealing in and making a market in securities, insurance underwriting and agency activities without geographic or
other limitation, as well as merchant banking.
FHC regulators approve certain activities as financial in nature or incidental to financial activities, as well as define
the procedures and requirement that allow a FHC to request the FRB’s approval to conduct a financial activity, or an
activity that is complementary to a financial activity. The Company is required to obtain prior FRB approval in order
to engage in the financial activities identified in the GLBA or FRB regulations. Republic cannot commence or
acquire any new financial activities since one of its depository institution subsidiaries received a less than
satisfactory CRA rating. In addition, if any of its depository institution subsidiaries ceases to be well capitalized or
well managed, and compliance is not achieved within 180 days, the Company may be forced, in effect, to cease
conducting business as a FHC by divesting either its non banking financial activities or its bank activities.
Moreover, Hart-Scott-Rodino antitrust filing requirements may apply to certain non bank acquisitions.
Subject to certain exceptions, insured state banks are permitted to control or hold an interest in a financial subsidiary
that engages in a broader range of activities (such as securities underwriting) than are permissible for national banks
to engage in directly, subject to any restrictions imposed on a bank under the laws of the state under which it is
organized. Conducting financial activities through a bank subsidiary can impact capital adequacy and regulatory
restrictions may apply to affiliate transactions between the bank and its financial subsidiaries.
9
Safe and Sound Banking Practice – Bank holding companies are not permitted to engage in unsafe and unsound
banking practices. The FDIC, the Kentucky Office of Financial Institutions and the Indiana Department of Financial
Institutions have similar restrictions with respect to the Bank.
Source of Strength – Under FRB policy, a bank holding company is expected to act as a source of financial strength
to each of its banking subsidiaries and to commit resources for their support. Such support may restrict the
Company’s ability to pay dividends, and may be required at times when, absent this FRB policy, a holding company
may not be inclined to provide it. As noted below, a bank holding company may also be required to guarantee the
capital restoration plan of an undercapitalized banking subsidiary and cross guarantee provisions, as described
below, generally apply to the Company.
The USA Patriot Act – The USA Patriot Act was signed into law on October 26, 2001. The USA Patriot Act gives
the federal government new powers to address terrorist threats through enhanced domestic security measures,
expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements.
By way of amendments to the Bank Secrecy Act, the USA Patriot Act takes measures intended to encourage
information sharing among bank regulatory agencies and law enforcement bodies. Among other requirements, the
USA Patriot Act requires banks to establish anti-money laundering programs, to adopt procedures and controls to
detect and report money laundering, and to comply with certain enhanced recordkeeping obligations with respect to
correspondent accounts of foreign banks. Compliance with these new requirements has not had a material effect on
our operations.
The Bank
Republic Bank & Trust Company is a Kentucky chartered commercial banking and trust corporation and as such, it
is subject to supervision and regulation by the FDIC and the Kentucky Office of Financial Institutions. Republic
Bank & Trust Company of Indiana is an Indiana chartered commercial banking corporation and as such, it is subject
to supervision and regulation by the FDIC and the Indiana Department of Financial Institutions. All deposits held
by the Bank are insured by the FDIC. Such supervision and regulation subjects the Bank to special restrictions,
requirements, potential enforcement actions and periodic examination by the FDIC and the respective Kentucky and
Indiana banking regulators. As the FRB regulates the bank holding company, they have supervisory authority that
directly affects the Bank.
The Kentucky and Indiana banking statutes prescribe the permissible activities in which a Kentucky or Indiana bank
may engage and where those activities may be conducted. Kentucky’s statutes contain a super parity provision that
permits a well rated Kentucky banking corporation to engage in any banking activity in which a national or state
bank operating in any other state or a federal savings association meeting the qualified thrift lender test and
operating in any state could engage, provided it first obtains a legal opinion from counsel specifying the statutory or
regulatory provisions that permit the activity.
Branching – Kentucky law generally permits a Kentucky chartered bank to establish a branch office in any county in
Kentucky. A Kentucky bank may also, subject to regulatory approval and certain restrictions, establish a branch
office outside of Kentucky. Well capitalized Kentucky banks that have been in operation at least three years and that
satisfy certain criteria relating to, among other things, their composite and management ratings, may establish a
branch in Kentucky without the approval of the Executive Director of the Kentucky Office of Financial Institutions,
upon notice to the Office and any other state bank with its main office located in the county where the new branch
will be located. Branching by all other banks requires the approval of the Executive Director of the Kentucky Office
of Financial Institutions, who must ascertain and determine that the public convenience and advantage will be served
and promoted and that there is reasonable probability of the successful operation of the branch. In any case, the
transaction must also be approved by the FDIC, which considers a number of factors, including financial history,
capital adequacy, earnings prospects, character of management, needs of the community and consistency with
corporate powers. An out of state bank is permitted to establish branch offices in Kentucky only by merging with a
Kentucky bank. De novo branching into Kentucky by an out of state bank is not permitted. This difficulty for out of
state banks to branch into Kentucky may limit the ability of a Kentucky bank to branch into many states, as several
states have reciprocity requirements for interstate branching.
Under Indiana law, an Indiana chartered bank may branch statewide and may establish and maintain a de novo
branch or acquire a branch in a state other than Indiana, with the approval or consent of Indiana and the target state’s
authorities. An out of state bank may establish and maintain a de novo branch in Indiana and may establish and
maintain a branch in Indiana through the acquisition of a branch, subject to reciprocity provisions and the prior
approval of the bank’s primary regulator and upon notice to the Indiana Department of Financial Institutions.
10
Restrictions on Affiliate Transactions – Transactions between the Bank and its non banking affiliates, including the
Company, are subject to Section 23A of the Federal Reserve Act. In general, Section 23A imposes limits on the
amount of such transactions, and also requires certain levels of collateral for loans to affiliated parties. It also limits
the amount of advances to third parties, which are collateralized by the securities, or obligations of the Company or
its subsidiaries.
Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that
certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to
the Bank, as those prevailing at the time for comparable transactions with the Bank and other nonaffiliated persons.
The FRB promulgated Regulation W to implement Sections 23A and 23B. That regulation contains the foregoing
restrictions and also addresses derivative transactions, overdraft facilities and other transactions between a bank and
its non bank affiliates.
Restrictions on Distribution of Subsidiary Bank Dividends and Assets – Dividends paid by Republic Bank & Trust
Company have provided substantially all of the Company’s operating funds in the past. Capital adequacy
requirements and state law serve to limit the amount of dividends that may be paid by the Bank. Under federal law,
the Bank cannot pay a dividend if, after paying the dividend, the Bank will be undercapitalized. The FRB or the
FDIC may declare a dividend payment to be unsafe and unsound even though the Bank would continue to meet its
capital requirements after the dividend. Under Kentucky and Indiana banking law, the dividends the Bank can pay
during any calendar year are generally limited to its profits for that year, plus its retained net profits for the two
preceding years, less any required transfers to surplus or to fund the retirement of preferred stock or debt, absent
approval of the respective states’ banking regulators. Management does not anticipate any restrictions on dividends
to the Company from the Bank in the foreseeable future.
Deposit Insurance Assessments – Currently, the FDIC maintains two funds for the insurance of deposits of financial
institutions; the Bank Insurance Fund (“BIF”) for deposits originated by banks (including the Bank) and the Savings
Association Insurance Fund (“SAIF”) for deposits originated by savings associations, including savings association
deposits acquired by banks. The Bank must pay assessments to the FDIC for federal deposit insurance protection
based on a risk based assessment system. Under this system, FDIC insured depository institutions pay insurance
premiums at rates based on their risk classification. Institutions assigned to higher risk classifications (that is,
institutions that pose a greater risk of loss to their respective deposit insurance funds) pay assessments at higher rates
than institutions that pose a lower risk. An institution’s risk classification is assigned based on its capital levels and
the level of supervisory concern the institution poses to the regulators. In addition, the FDIC can impose special
assessments in certain instances. The current range of the Company’s BIF and SAIF assessments is between 0% and
0.33% of deposits.
The Deposit Insurance Funds Act of 1996 requires both BIF and SAIF insured institutions to share the cost of the
Financing Corporation bonds, which were issued to initially fund the SAIF, through additional assessments on
insured deposits. Financing Corporation assessments imposed on BIF insured deposits are presently estimated at
132 basis points.
Cross Guarantee Provisions – The Federal Deposit Insurance Act contains a cross-guarantee provision which
generally makes commonly controlled insured depository institutions liable to the FDIC for any losses incurred in
connection with the failure of its sister depository institutions.
Consumer Laws and Regulations – In addition to the laws and regulations discussed herein, the Bank is also subject
to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While
the discussion set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the
Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit
Opportunity Act, the Real Estate Settlement Procedures Act, the Fair Housing Act and the Fair and Accurate
Transactions Act, among others. These laws and regulations mandate certain disclosure requirements and regulate
the manner in which financial institutions must deal with clients when accepting deposits or originating loans. These
laws also limit the Bank’s ability to share information with affiliated and unaffiliated entities. The Bank is required
to comply with the applicable provisions of all applicable consumer protection laws and regulations as part of its
ongoing business operations.
Various consumers groups have, from time to time, questioned the fairness of payday lending and RALs, both
products provided by the Company. See additional discussion under the sections titled Item 1A.“Risk Factors” and
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
11
Capital Adequacy Requirements
Capital Guidelines – The FRB and the FDIC have substantially similar risk based and leverage ratio guidelines for
banking organizations, which are intended to ensure that banking organizations have adequate capital related to the
risk levels of assets and off balance sheet instruments. Under the risk based guidelines, specific categories of assets
are assigned different risk weights, based generally on the perceived credit risk of the asset. These risk weights are
multiplied by corresponding asset balances to determine a risk weighted asset base. The guidelines require a
minimum total risk based capital ratio of 8.0%, of which at least 4.0% is required to consist of Tier I capital
elements (generally, common shareholders’ equity, minority interests in the equity accounts of consolidated
subsidiaries, non cumulative perpetual preferred stock, less goodwill and certain other intangible assets). Total
capital is the sum of Tier I and Tier II capital. Tier II capital generally may consist of limited amounts of
subordinated debt, qualifying hybrid capital instruments, other preferred stock, loan loss reserves and unrealized
gains on certain equity securities. As of December 31, 2005, the Company’s ratio of Tier I capital to total risk-
weighted assets was 14.41% and its ratio of total capital to total risk weighted assets was 15.03%. As of December
31, 2005, Republic Bank & Trust Company’s ratio of Tier I capital to total risk weighted assets was 10.82% and its
ratio of total risk based capital to total risk weighted assets was 12.78%. Republic Bank & Trust Company of
Indiana’s Tier I capital to total risk weighted assets was 21.51% and its ratio of total risk based capital to total risk
weighted assets was 22.76% at December 31, 2005.
In addition to the risk based capital guidelines, the FRB utilizes a leverage ratio as an additional tool to evaluate the
capital adequacy of bank holding companies. The leverage ratio is a company’s Tier I capital divided by its average
total consolidated assets (less goodwill and certain other intangible assets). Certain highly rated bank holding
companies may maintain a minimum leverage ratio of 3.0%, but other bank holding companies may be required to
maintain a leverage ratio of up to 200 basis points above the regulatory minimum. As of December 31, 2005, the
Company’s leverage ratio was 9.47%. The FDIC's leverage guidelines require state banks to maintain Tier I capital
of no less than 5% of average total assets, except in the case of certain highly rated banks for which the requirement
is 3% of average total assets. As of December 31, 2005, Republic Bank & Trust Company’s and Republic Bank &
Trust Company of Indiana’s leverage ratios were 7.12% and 13.62%, respectively.
The federal banking agencies’ risk based and leverage ratios are minimum supervisory ratios generally applicable to
banking organizations that meet certain specified criteria, assuming that they have the highest regulatory capital
rating. Banking organizations not meeting these criteria are required to operate with capital positions above the
minimum ratios. FRB guidelines also provide that banking organizations experiencing internal growth or making
acquisitions may be expected to maintain strong capital positions above the minimum supervisory levels, without
significant reliance on intangible assets. The FDIC may establish higher minimum capital adequacy requirements if,
for example, a bank has previously received warranted special regulatory attention or, among other factors, has a
high susceptibility to interest rate risk.
Corrective Measures for Capital Deficiencies – The federal banking regulators are required to take “prompt
corrective action” with respect to capital deficient institutions. Agency regulations define, for each capital category,
the levels at which institutions are well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Under these regulations, a well capitalized bank has a total risk
based capital ratio of 10% or higher; a Tier I risk-based capital ratio of 6% or higher; a leverage ratio of 5% or
higher; and is not subject to any written agreement, order or directive requiring it to maintain a specific capital level
for any capital measure. An adequately capitalized bank has a total risk-based capital ratio of 8% or higher; a Tier I
risk-based capital ratio of 4% or higher; a leverage ratio of 4% or higher (3% or higher if the bank was rated a
CAMEL 1 in its most recent examination report and is not experiencing significant growth); and does not meet the
criteria for a well capitalized bank. A bank is undercapitalized if it fails to meet any one of the ratios required to be
adequately capitalized.
Undercapitalized institutions are required to submit a capital restoration plan, which must be guaranteed by any
holding company of the institution. In addition, agency regulations contain broad restrictions on certain activities of
undercapitalized institutions including asset growth, acquisitions, branch establishment, and expansion into new
lines of business. With certain exceptions, an insured depository institution is prohibited from making capital
distributions, including dividends and is prohibited from paying management fees to control persons if the
institution would be undercapitalized after any such distribution or payment. A bank’s capital classification will also
affect its ability to accept brokered deposits. Under the FDIC regulations, a bank may not lawfully accept, roll over
or renew brokered deposits, unless either it is well capitalized or it is adequately capitalized and receives a waiver
from the FDIC.
12
If a banking institution’s capital decreases below acceptable levels, the FDIC’s enforcement powers become more
enhanced. A significantly undercapitalized institution is subject to mandated capital raising activities, restrictions on
interest rates paid and transactions with affiliates, removal of management and other restrictions. The FDIC has only
very limited discretion in dealing with a critically undercapitalized institution and is normally required to appoint a
receiver or conservator.
Banks with risk based capital and leverage ratios below the required minimums may also be subject to certain
administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no tangible capital.
In addition, a bank holding company that elects to be treated as a FHC may face significant consequences if its
banks fail to maintain the required capital and management ratings, including entering into an agreement with the
FRB which imposes limitations on its operations and may even require divestitures. Such possible ramifications
may limit the ability of a bank subsidiary to significantly expand or acquire less than well capitalized and well
managed institutions. More specifically, the FRB’s regulations require a FHC to notify the FRB within 15 days of
becoming aware that any depository institution controlled by the company has ceased to become well capitalized or
well managed. If the FRB determines that a FHC controls a depository institution that is not well capitalized or well
managed, the FRB will notify the FHC that it is not in compliance with applicable requirements and may require the
FHC to enter into an agreement acceptable to the FRB to correct any deficiencies. Until such deficiencies are
corrected, the FRB may impose any limitations or conditions on the conduct or activities of the FHC and its
affiliates that the FRB determines are appropriate, and the FHC may not commence any additional activity or
acquire control of any company under Section 4(k) of the BHC Act without prior FRB approval. Unless the period
of time for compliance is extended by the FRB, if an FHC fails to correct deficiencies in maintaining its
qualification for FHC status within 180 days of entering into an agreement with the FRB, the FRB may order
divestiture of any depository institution controlled by the company. A company may comply with a divestiture
order by ceasing to engage in any financial or other activity that would not be permissible for a bank holding
company that has not elected to be treated as a FHC.
Under the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), each federal banking agency has
prescribed, by regulation, non-capital safety and soundness standards for institutions under its authority. These
standards cover internal controls, information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and
managerial standards as the agency determines to be appropriate, and standards for asset quality, earnings and stock
valuation. An institution which fails to meet these standards must develop a plan acceptable to the agency,
specifying the steps that the institution will take to meet the standards. Failure to submit or implement such a plan
may subject the institution to regulatory sanctions. Management believes that the Bank currently satisfies all such
standards.
Legislative Initiatives
The U.S. Congress and state legislative bodies continually consider proposals for altering the structure, regulation
and competitive relationships of financial institutions. It cannot be predicted whether, or in what form, any of these
potential proposals or regulatory initiatives will be adopted, the impact they will have on the financial institutions
industry or the extent to which the business or financial condition of the Company and its subsidiaries may be
affected.
Statistical Disclosures
The statistical information required by Item 1. “Business” may be found under Item 7. “Management's Discussion
and Analysis of Financial Condition and Results of Operations.”
13
Item 1A. Risk Factors.
FACTORS THAT MAY AFFECT FUTURE RESULTS
There are factors, many beyond our control, which may significantly change the results or expectations of the
Company. Some of these factors are described below in the sections titled “Company Factors” and “Industry
Factors;” however, many are described in the other sections of this Form 10-K document.
Company Factors
The Company’s accounting policies and estimates are critical components of the Company’s presentation of its
financial statements. Our management must exercise judgment in selecting and adopting various accounting
policies and in applying estimates. Actual outcomes may be materially different than amounts previously estimated.
Management has identified two accounting policies as being critical to the presentation of the Company’s financial
statements. These policies are described in Item 7. “Management's Discussion and Analysis of Financial Condition
and Results of Operations” under the section titled “Critical Accounting Policies and Estimates” and relate to the
allowance for loan losses and the valuation of mortgage servicing rights. Due to the inherent uncertainty of
estimates, we cannot provide any assurance that the Company will not significantly increase its allowance for loan
losses if actual losses are more than the amount reserved or recognize a significant provision for impairment of its
mortgage servicing rights.
The Company’s lines of business and products not typically associated with traditional banking expose the
Company’s earnings to additional risks and uncertainties. In addition to traditional banking and mortgage banking
products, the Company provides RALs, ERCs/ERDs, payday loans and “Overdraft Honor” deposit accounts. The
following details specific risk factors related to these lines of business:
• RALs represent a significant business risk, and if the Company terminated the business it would materially
impact the earnings of the Company. TRS offers bank products to facilitate the payment of tax refunds for
customers that electronically file their tax returns. The Company is one of only a few financial institutions
in the U.S. that provides this service to taxpayers. Under this program, the taxpayer may receive a RAL or
an ERC/ERD. In return, the Company charges a fee for the service. There is credit risk associated with a
RAL because the money is disbursed to the client prior to the Company receiving the client’s refund from
the Internal Revenue Service (“IRS”). There is minimal credit risk with an ERC/ERD because the
Company does not disburse the funds to the client until the Company has received the refund from the state
or IRS.
Various consumer groups have, from time to time, questioned the fairness of the TRS program and have
accused this industry of charging excessive rates of interest, via the fee, and engaging in predatory lending
practices. Consumer groups have also claimed that customers are not adequately advised that a RAL is a
loan product and that alternative, less expensive means of obtaining the tax refund proceeds may be
available. Pressure from these groups, regulatory or legislative changes or material litigation could result in
the Company exiting this business or selected markets of this business at any time.
The Company’s liquidity risk is increased during the first quarter of each year due to the RAL program.
The Company has committed to the electronic filers and tax preparers that it will make RALs available to
their customers under the terms of its contracts with them. This requires the Company to estimate liquidity
needs for the RAL program well in advance of the tax season. If management materially overestimates the
need for liquidity during the tax season, a significant expense could be incurred with no offsetting revenue
stream. If management materially underestimates the need for liquidity during the tax season, the Bank
could experience a significant shortfall of capital needed to fund RALs and could potentially be required to
stop originating new RALs.
Exiting this line of business, either voluntarily or involuntarily, would significantly reduce the Company’s
earnings. See additional discussion about this product under the sections titled Item 1. “Business,” Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Footnote
20 “Segment Information” of Item 8. “Financial Statements and Supplementary Data.”
14
• Our mortgage banking activities would be significantly adversely impacted by rising long-term interest
rates. Changes in interest rates can impact the gain on sale of loans, loan origination fees and loan servicing
fees, which account for a significant portion of mortgage banking income. A decline in interest rates
generally results in higher demand for mortgage products, while an increase in rates generally results in
reduced demand. If demand increases, mortgage banking income will be positively impacted by more
gains on sale; however, the valuation of existing mortgage servicing rights will decrease and may result in a
significant impairment. In addition to the previously mentioned risks, a decline in demand for mortgage
banking products could also adversely impact other programs/products such as home equity lending, title
insurance commissions and service charges on deposit accounts. See additional discussion about this
product under the sections titled Item 1. “Business,” Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and Footnote 20 “Segment Information” of Item 8.
“Financial Statements and Supplementary Data.”
• Payday loans offered through third party Marketer/Servicers represent a material component of the
Company historical earnings. Payday loans originated through a marketer/servicer arrangement are
transactions whereby customers pay a fixed fee to receive a cash advance in exchange for a check. Various
federal and state agencies have questioned whether this business should be permitted by member banks.
Subsequent to December 31, 2005, the FDIC specifically cited inherent risks associated with payday
lending activities and asked Republic to consider terminating this line of business.
In July 2005, the Company’s two Marketing/Servicing contracts with Advance America were terminated.
The termination of the Advance America contracts had a material adverse impact on the earnings of the
Company during the second half of 2005. In addition and as a result of the FDIC letter described above,
Republic reached an agreement with ACE subsequent to December 31, 2005 to terminate their
marketing/servicing agreement with the Company for Texas during the first quarter of 2006 and for
Pennsylvania and Arkansas during the second quarter of 2006. The termination of all of these contracts
will have a material adverse impact on the Company’s 2006 earnings when comparing them to the
Company’s 2005, 2004 and 2003 earnings. See additional discussion about this product under the sections
titled Item 1. “Business,” Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and Footnote 20 “Segment Information” and Footnote 22 “Subsequent Event” of
Item 8 “Financial Statements and Supplementary Data.”
• The Company’s “Overdraft Honor” program represents a significant business risk, and if the Company
terminated the program it would materially impact the earnings of the Company. There can be no
assurance that the Company’s regulators, or others, will not impose additional limitations on this program
or prohibit the Company from offering the program. Republic’s “Overdraft Honor” program permits
selected clients to overdraft their checking accounts up to a predetermined dollar amount up to $750, for
the Company’s customary fee. Clients’ checking accounts that have been current for a certain period of
time are allowed to enter the program. Under regulatory guidelines, this service is not considered an
extension of credit, but rather is considered a fee for paying checks when sufficient funds are not otherwise
available. This fee, if computed as a percentage of the amount overdrawn, results in a high rate of interest
when annualized and thus is considered excessive by some consumer groups. Additional limitations or
elimination, or adverse modifications to this program, either voluntarily or involuntarily, could significantly
reduce Company earnings.
The Company’s stock generally has a low average daily trading volume, which limits a shareholder’s ability to
quickly accumulate or quickly sell large numbers of shares of Republic’s stock without causing negative price
fluctuations. Also, Republic’s stock price can fluctuate widely in response to a variety of factors, such as actual or
anticipated variations in the Company’s operating results, recommendations by securities analysts, operating and
stock price performance of other companies, news reports, results of litigation, regulatory actions or changes in
government regulations, among other factors. In addition, a low average daily trading volume can lead to significant
price swings even when a relatively small number of shares are being traded.
15
Industry Factors
Fluctuations in interest rates may negatively impact our banking business. Republic’s core source of income from
operations consists of net interest income, which is equal to the difference between interest income received on
interest-earning assets (usually loans and investment securities) and the interest expenses incurred in connection
with interest-bearing liabilities (usually deposits and borrowings). These rates are highly sensitive to many factors
beyond our control, including general economic conditions, both domestic and foreign, and the monetary and fiscal
policies of various governmental and regulatory authorities. Republic’s net interest income can be affected
significantly by changes in market interest rates. Changes in interest rates may reduce Republic’s net interest
income as the difference between interest income and interest expense decreases. As a result, Republic has adopted
asset and liability management policies to minimize potential adverse effects of changes in interest rates on net
interest income, primarily by altering the mix and maturity of loans, investments and funding sources. However,
even with these policies in place, a change in interest rates could negatively impact the Company’s results of
operations or financial position.
An increase in interest rates could also have a negative impact on Republic’s results of operations by reducing the
ability of our clients to repay their outstanding loans, which could not only result in increased loan defaults,
foreclosures and charge offs, but may also likely necessitate further increases to Republic’s allowance for loan
losses.
The Company is significantly impacted by the regulatory, fiscal and monetary policies of federal and state
governments which could negatively impact the Company’s liquidity position. These policies can materially affect
the value of the Company’s financial instruments and earnings and can also adversely affect the Company’s
borrowers and their ability to repay their outstanding loans. Also, failure to comply with laws, regulations or
policies, or adverse examination findings, could result in significant penalties, negatively impact operations, or
result in other sanctions to the Company.
The Board of Governors of the Federal Reserve Bank regulates the supply of money and credit in the United States.
Its policies determine, in large part, our cost of funds for lending and investing and the return we earn on these loans
and investments, all of which impact our net interest margin.
The Company and the Bank are heavily regulated at both federal and state levels. This regulatory oversight is
primarily intended to protect depositors, the federal deposit insurance funds and the banking system as a whole, not
the shareholders of the Company. Changes in policies, regulations and statutes could significantly impact the
earnings or products of Republic.
Federal and state laws and regulations govern numerous matters including changes in the ownership or control of
banks and bank holding companies, maintenance of adequate capital and the financial condition of a financial
institution, permissible types, amounts and terms of extensions of credit and investments, permissible non-banking
activities, the level of reserves against deposits and restrictions on dividend payments. Various federal and state
regulatory agencies possess cease and desist powers, and other authority to prevent or remedy unsafe or unsound
practices or violations of law by banks subject to their regulations. The Federal Reserve Bank possesses similar
powers with respect to bank holding companies. These, and other restrictions, can limit in varying degrees, the
manner in which Republic conducts its business.
Republic is subject to regulatory capital adequacy guidelines, and if we fail to meet these guidelines our financial
condition may be adversely affected. Under regulatory capital adequacy guidelines, and other regulatory
requirements, Republic and the Bank must meet guidelines that include quantitative measures of assets, liabilities
and certain off balance sheet items, subject to qualitative judgments by regulators about components, risk weightings
and other factors. If Republic fails to meet these minimum capital guidelines and other regulatory requirements,
Republic’s financial condition will be materially and adversely affected. Republic’s failure to maintain the status of
“well capitalized” under our regulatory framework, or “well managed” under regulatory exam procedures, or
regulatory violations, could compromise our status as a FHC and related eligibility for a streamlined review process
for acquisition proposals and limit financial product diversification.
Our financial condition and earnings could be negatively impacted to the extent the Company relies on information
that is false, misleading or inaccurate. The Company relies on the accuracy and completeness of information
provided by vendors, clients and other counterparties. In deciding whether to extend credit or enter into transactions
with other parties, the Company relies on information furnished by, or on behalf of, clients or entities related to that
client.
16
Defaults in the repayment of loans may negatively impact our business. When borrowers default on obligations of
one or more of their loans, it may result in lost principal and interest income and increased operating expenses, as a
result of the increased allocation of management time and resources to the collection and work out of the loans. In
certain situations where collection efforts are unsuccessful or acceptable “work out” arrangements cannot be
reached, the Company may have to charge off the loan in part or in whole.
Prepayment of loans may negatively impact Republic’s business. Generally, our clients may prepay the principal
amount of their outstanding loans at any time. The speed at which such prepayments occur, as well as the size of
such prepayments, are within our clients’ discretion. If clients prepay the principal amount of their loans, and we
are unable to lend those funds to other clients or invest the funds at the same or higher interest rates, Republic’s
interest income will be reduced. A significant reduction in interest income would have a negative impact on
Republic’s results of operations and financial condition.
Item 1B. Unresolved Staff Comments.
None
Item 2. Properties.
The Company’s executive offices, principal support and operational functions are located at 601 West Market
Street in Louisville, Kentucky. Republic has 32 banking centers located in Kentucky and two banking centers in
southern Indiana. At December 31, 2005, Republic had two LPOs (“Republic Finance”) located in Louisville,
Kentucky. In January 2006, the Company opened an LPO in Fort Wright, Kentucky and has announced plans to
open an LPO in Tampa Florida in 2006.
17
The location of Republic’s facilities, their respective approximate square footage and their form of occupancy are
as follows:
Square
Footage
Owned (O)/
Leased (L)
Bank Offices
Kentucky Banking Centers
Louisville Metropolitan Area
2801 Bardstown Road, Louisville
601 West Market Street, Louisville
661 South Hurstbourne Parkway, Louisville
4921 Brownsboro Road, Louisville
4655 Outer Loop, Louisville
5250 Dixie Highway, Louisville
3950 Kresge Way, Suite 108, Louisville
9600 Brownsboro Road, Louisville
3726 Lexington Road, Louisville
10100 Brookridge Village Blvd., Louisville
9101 U.S. Highway 42, Prospect
2028 West Broadway, Suite 105, Louisville
11330 Main Street, Middletown
3902 Taylorsville Road, Louisville
224 East Muhammad Ali Blvd., Louisville
3811 Ruckriegel Parkway, Louisville
5125 New Cut Road, Louisville
1420 Poplar Level Road, Louisville
3605 Fern Valley Road, Suite 101, Louisville
Lexington
651 Perimeter Drive
2401 Harrodsburg Road
641 East Euclid Avenue
3098 Helmsdale Place
3608 Walden Drive
Frankfort
100 Highway 676
1001 Versailles Road
Owensboro
3500 Frederica Street
3332 Villa Point Drive, Suite 101
Bowling Green, 1700 Scottsville Road
Elizabethtown, 1690 Ring Road
Shelbyville, 1614 Midland Trail
5,000
51,000
42,000
2,000
3,000
5,000
900
27,000
4,000
5,000
3,000
3,000
6,000
4,000
400
4,000
4,000
3,000
4,000
4,000
6,000
3,000
5,000
4,000
3,000
4,000
5,000
2,000
5,000
21,000
4,000
L (1)
L (1)
L (1)
L
L
O/L (2)
L
L (1)
L
O/L (2)
O/L (2)
L
O/L (2)
O/L (2)
L
O/L (2)
O/L (2)
O
L
L
O
O
O/L (2)
O/L (2)
O/L (2)
O
O
L
O
O
O/L (2)
O/L (2)
Georgetown, 430 Connector Road
4,000
Support and Operations
125 South Sixth Street, Louisville
1,000
L
18
Bank Offices
Indiana Banking Centers
Square
Footage
Owned (O)/
Leased (L)
3001 Charlestown Crossing Way, New Albany
3141 Highway 62, Jeffersonville
2,000
4,000
Loan Production Offices (LPOs)
6844 Bardstown Road, Louisville, KY
9128 Taylorsville Road, Louisville, KY
1945 Highland Pike, Fort Wright, KY
27607 State Road 56, Suite 100, Tampa, FL
1,000
1,000
6,000
2,000
L
O
L
L
L (3)
L (3)
______________________
(1) Locations are leased from Republic’s Chairman, Bernard M. Trager, or from a partnership in which
Republic’s Chairman and Chief Executive Officer, Steven E. Trager and Vice Chairman, A. Scott Trager, are
partners. See additional discussion included under Item 13. “Certain Relationships and Related
Transactions.”
(2) The banking centers at these locations are owned by Republic; however, they are located on land that is
leased through long-term agreements with third parties.
(3) Location is scheduled to open in 2006.
19
Item 3. Legal Proceedings.
In the ordinary course of operations, Republic and the Bank are defendants in various legal proceedings. In the
opinion of management, there is no proceeding pending or, to the knowledge of management, threatened in which
an adverse decision could result in a material adverse change in the business or consolidated financial position of
Republic or the Bank.
In regard to Tax Refunds Solutions, a competing RAL financial institution is defending two lawsuits in the State of
California relating to the enforceability of cross-collection provisions contained in its RAL contracts with customers.
The two cases are the Hood case in the Santa Barbara Superior Court (Case No. 1156354) and the Clark case in the
San Francisco Superior Court (Case No. CGC-04-427959). Various companies, including the Company, previously
entered into agreements to facilitate the cross-collection of unpaid RALs from prior years. The Company was not
named as a Defendant by the Plaintiffs regarding its cross-collection activities with customers. The competing RAL
financial institution, however, named the Company and other financial institutions as parties pursuant to the
indemnity provisions of the cross-collection contracts between the various companies. The Hood case in Santa
Barbara was dismissed by the trial court on federal preemption grounds, but the Plaintiff appealed the trial court
ruling. That appeal remains pending. The Clark case in San Francisco remains pending at the trial court level. The
issue of cross-collection provisions in RAL contracts could result in further litigation exposure for all financial
institutions that offer RALs, including the Company, as some consumer advocate groups have shown a willingness
to challenge the RAL cross-collection contract provisions through litigation.
In regard to the payday loan product, on August 26, 2004, the Attorney General of North Carolina issued an
investigative demand to Advance America Cash Advance Centers of North Carolina, Inc. (“Advance America North
Carolina”), the Company’s Marketer/Servicer in the state of North Carolina. The Attorney General and the Banking
Commissioner of North Carolina made a determination that Advance America North Carolina was not in
compliance with North Carolina law. Management does not believe this ruling will have any affect on the Company,
as the Company’s contract with Advance America North Carolina was terminated and the Company was not named
as a party to the administrative proceedings.
Advance America North Carolina also has litigation pending against it in the State of North Carolina regarding the
delivery of payday loans through the Company in that jurisdiction. The Plaintiffs did not name the Company in the
state court action. On December 30, 2005, the state court ruled in favor of Advance America North Carolina,
concluding that the arbitration provisions in the Company’s deferred deposit contracts with customers were not
unconscionable and were enforceable. As a result, the state court action has been stayed pending the outcome of
arbitration. The Plaintiffs are appealing the state court ruling.
Prior to that ruling and in order to protect its right to arbitrate, the Company initiated action against the named
Plaintiffs in the state court action in the U.S. District Court for the Eastern District of North Carolina. The complaint
was dismissed by the federal court and the Company appealed. The appeal remains pending.
On January 10, 2006, the Attorney General of the State of Arkansas issued a request for information in the format of
a Civil Investigative Demand pursuant to Arkansas Code Ann. Section 4-88-111 and Arkansas Code Ann. Section
23-52-112. The purpose of the Civil Investigative Demand is to gather information from the Company and its
Marketer/Servicer, Ace Cash Express, Inc. to determine whether the Company and its Marketer/Servicer have fully
complied with applicable Arkansas law. The Company and its Marketer/Servicer believe that payday loans offered
to Arkansas residents are in compliance with applicable law. Deferred deposit transactions outstanding in the state of
Arkansas were insignificant at December 31, 2005.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth quarter of 2005.
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market and Dividend Information
Republic’s Class A Common Stock is traded on The NASDAQ Stock Market® (NASDAQ) under the symbol
“RBCAA.” The following table sets forth the high and low sales prices of the Class A Common Stock and the
dividends declared on Class A Common Stock and Class B Common Stock during 2005 and 2004.
Quarter Ended
March 31
June 30
September 30
December 31
Quarter Ended
March 31
June 30
September 30
December 31
2005
2004
Market Value
High
$ 24.71
22.65
22.32
21.57
Low
$ 21.14
19.18
19.66
18.24
Market Value
High
$ 17.84
18.42
21.57
26.55
Low
$ 15.85
15.58
16.53
20.71
Class A
$ 0.070
0.084
0.084
0.084
Class A
$ 0.057
0.070
0.070
0.070
Dividend
Dividend
Class B
$ 0.064
0.076
0.076
0.076
Class B
$ 0.052
0.064
0.064
0.064
There is no established public trading market for the Company’s Class B Common Stock. At February 15, 2006, the
Class A Common Stock was held by 788 shareholders of record and the Class B Common Stock was held by 150
shareholders of record. The Company intends to continue its historical practice of paying quarterly cash dividends,
however, there is no assurance by the Board of Directors that such dividends will continue to be paid in the future.
The payment of dividends in the future is dependent upon future income, financial position, capital requirements, the
discretion and judgment of the Board of Directors and other considerations. The Board of Directors has not
approved any additional special cash dividends, such as the amount declared and paid during the fourth quarter of
2003. The Board of Directors, however, did declare a five percent (5%) stock dividend in the first quarter of 2004
and additional five percent (5%) stock dividends during the first quarters of 2005 and 2006. The payment of
dividends is subject to the regulatory restrictions described in Footnote 13 “Stockholders’ Equity” of Item 8.
“Financial Statements and Supplementary Data.”
Republic has made available to its employees participating in its 401(k) plan the opportunity, at the employee’s sole
discretion, to invest funds held in their accounts under the plan in shares of Class A Common Stock of Republic.
Shares are purchased by the independent trustee, administering the plan, from time to time in the open market in
broker’s transactions. As of December 31, 2005, the trustee held 211,014 shares of Class A Common Stock and
8,213 shares of Class B Common Stock on behalf of the plan.
21
Details of Republic’s Class A Common Stock purchases during the fourth quarter of 2005 are included in the
following table:
Period
Total Number of
Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares
Purchased
as Part of Publicly
Announced Plans or
Programs
Maximum
Number of Shares
that May Yet Be
Purchased
Under the Plan or
Programs
Oct. 1– Oct. 31
Nov. 1– Nov. 30
Dec. 1 – Dec. 31
Total
* - Includes 7,409 shares repurchased by the Company in connection with stock option exercises.
$ -
18.95
20.49
$ 19.72
-
199,500
11,609*
211,109
-
199,500
4,200
203,700
48,697
48,697
48,697
During the fourth quarter of 2005 the Company purchased 203,700 shares for $3.9 million. During 2005, the
Company purchased 486,465 shares for $9.8 million. During the third quarter the Company’s Board of Directors
also approved the repurchase of an additional 262,500 shares from time to time if market conditions are deemed
favorable to the Company. The repurchase program will remain effective until the number of shares authorized is
repurchased, or until Republic’s Board of Directors terminates the program. As of December 31, 2005, the Company
had 48,697 shares which could be repurchased under the current stock repurchase program.
During the fourth quarter of 2005, Republic issued 2,730 shares of Class A Common Stock upon conversion of
shares of Class B Common Stock by shareholders of Republic in accordance with the share-for-share conversion
provision option of the Class B Common Stock. The exemption from registration of the newly issued Class A
Common Stock relied upon was Section (3)(a)(9) of the Securities Act of 1933.
There were no equity securities of the registrant sold without registration during the quarter covered by this report.
Item 6. Selected Financial Data.
The following table sets forth Republic’s selected consolidated historical financial information from 2001 through
2005. This information should be read in conjunction with Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and Item 8. “Financial Statements and Supplementary Data.”
22
SELECTED FINANCIAL DATA:
(dollars in thousands, except per share data)
2005
As of and for the Years Ended December 31,
2002
2003
2004
2001
Income Statement Data:
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Non interest income
Non interest expenses
Income before income tax expense
Income tax expense
Net income
Balance Sheet Data:
$ 155,619
62,940
92,679
(562)
30,503
70,581
53,163
18,098
35,065
$ 132,366
42,314
90,052
1,748
27,194
66,016
49,482
16,981
32,501
$ 119,060 $ 106,101
41,761
64,340
3,338
24,522
53,839
31,685
11,196
20,489
36,795
82,265
6,574
30,933
62,859
43,765
15,562
28,203
$ 117,396
57,917
59,479
3,493
19,741
50,340
25,387
8,579
16,808
Total securities
Total loans
Allowance for loan losses
Total assets
Total deposits
Securities sold under agreements to repurchase and
other short-term borrowings
Federal Home Loan Bank borrowings
Subordinated note
Stockholders’ equity
Per Share Data:
$ 512,163
2,060,656
11,009
2,735,556
1,602,565
$ 551,593
1,789,099
13,554
2,498,922
1,417,930
$ 410,931
1,581,952
13,959
2,128,076
1,297,112
$ 288,459
1,310,063
10,148
1,752,706
1,040,190
$ 293,945
1,184,701
8,607
1,590,831
866,358
292,259
561,133
41,240
213,574
364,828
496,387
-
196,069
220,345
420,178
-
169,379
224,929
319,299
-
150,796
282,023
296,950
-
125,115
Basic earnings per Class A Common Stock
Basic earnings per Class B Common Stock
Diluted earnings per Class A Common Stock
Diluted earnings per Class B Common Stock
Market value per share
Book value per share
Cash dividends declared per Class A Common Stock
Cash dividends declared per Class B Common Stock
$ 1.78
1.75
1.71
1.68
20.43
10.99
0.321
0.292
$ 1.65
1.62
1.58
1.56
23.31
9.89
0.267
0.242
$ 1.44
1.40
1.41
1.37
16.88
8.60
0.437
0.397
$ 1.07
1.05
1.04
1.02
9.73
7.74
0.181
0.164
$ 0.90
0.89
0.87
0.86
11.66
6.71
0.152
0.138
Performance Ratios:
Return on average assets (ROA)
Return on average equity (ROE)
Yield on average earning assets
Yield on average interest-bearing liabilities
Net interest spread
Net interest margin
Efficiency ratio
Asset Quality Ratios:
1.33% 1.40%
17.50
16.56
6.02
6.16
2.29
2.97
3.73
3.19
4.09
3.67
56
57
1.47%
16.88
6.51
2.40
4.11
4.50
56
1.25%
14.44
6.71
3.14
3.57
4.07
61
1.10%
13.85
7.97
4.55
3.42
4.04
64
Non performing loans to total loans
Allowance for loan losses to total loans
Allowance for loan losses to non-performing loans
Net loan charge offs to average loans
Delinquent loans to total loans
0.29%
0.53
183
0.10
0.35
0.34%
0.82%
0.76
221
0.13
0.47
0.88
108
0.19
0.82
0.75%
0.77
103
0.15
1.21
0.47%
0.73
154
0.23
1.71
(continued)
23
SELECTED FINANCIAL DATA: (continued)
(dollars in thousands, except per share data)
2005
As of and for the Years Ended December 31,
2002
2003
2004
2001
Capital Ratios:
Average stockholders’ equity to average total assets
Tier I leverage
Tier I risk based capital
Total risk based capital
Dividend payout ratio
8.00%
9.47
14.41
15.03
18
8.01%
8.03
12.18
13.03
16
8.69%
8.08
11.99
12.99
30
8.65%
7.96%
9.02
12.77
13.64
17
8.36
12.44
13.26
17
Other Key Data:
End of period full time equivalent employees
Number of bank offices (including LPOs)
678
37
611
33
645
31
570
25
532
22
24
Item 7. 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, Republic Bank & Trust Company of Indiana (together referred to as the “Bank”),
Republic Funding Company, Republic Invest Co. and Republic Bancorp Capital Trust. Republic Invest Co. includes
its subsidiary, Republic Capital LLC. Republic Bancorp Capital Trust is a Delaware statutory business trust that is a
100%-owned unconsolidated finance subsidiary of Republic Bancorp, Inc. The consolidated financial statements
also include the wholly-owned subsidiaries of Republic Bank & Trust Company: Republic Financial Services, LLC
TRS RAL Funding, LLC and Republic Insurance Agency, LLC. Management’s Discussion and Analysis of Financial
Condition and Results of Operations of Republic should be read in conjunction with Item 8. “Financial Statements and
Supplementary Data,” as well as other detailed information included in this Form 10-K.
This discussion includes various forward-looking statements with respect to credit quality, including but not limited
to, delinquency trends and the adequacy of the allowance for loan losses, banking products, corporate objectives, the
Company’s interest rate sensitivity model and other financial and business matters. Broadly speaking, forward-
looking statements may include:
•
•
•
•
projections of revenue, income, earnings per share, capital expenditures, dividends, capital structure or
other financial items;
descriptions of plans or objectives of the Company’s management 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:
•
•
•
•
•
•
•
future credit losses and non-performing assets;
the adequacy of the allowance for loans losses;
the future value of mortgage servicing rights;
the impact of new accounting pronouncements;
future short-term and long-term interest rate levels and the respective impact on net interest margin,
net interest spread, net income, liquidity and capital;
legal and regulatory matters; and,
future capital expenditures.
Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss
future events or conditions, they 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 they 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 Item 1. “Business” and Item 1A.
“Risk Factors.”
25
OVERVIEW
Net income for the year ended December 31, 2005 was $35.1 million, representing an increase of $2.6 million, or
8%, compared to the same period in 2004. Diluted earnings per Class A Common Share increased 8% from $1.58 at
2004 to $1.71 for 2005. The increase in net income is attributed to increases in net interest income and service
charges on deposit accounts, which were offset by higher costs primarily associated with staff additions. The
Company also benefited from a reduction in the allowance for loan losses during 2005. Following is a brief
overview of a few Company highlights during 2005:
•
•
•
•
•
•
Republic ended the year with total assets of $2.7 billion, an increase of $237 million, or 9%, over the
prior year. As of December 31, 2005, Republic was the second largest Kentucky-based bank holding
company.
Net loans, primarily consisting of secured real estate loans, increased by $274 million, or 15% to $2
billion at December 31, 2005.
Net interest income grew $2.6 million, or 3%, over the same period in 2004. Net interest income
benefited primarily from growth in the loan portfolio, most notably the real estate loan portfolios. Net
interest income was negatively impacted by a decline in the Company’s net interest spread which
resulted from a decline in payday loan fees and a flattening market yield curve.
Service charges on deposit accounts continued to increase during the year due to growth in both
checking accounts and the number of clients eligible for the Company’s “Overdraft Honor” program.
Republic opened one new banking center during 2005. In addition, Republic Finance, a division of
Republic Bank & Trust Company, opened its second Loan Production Office (“LPO”) in metropolitan
Louisville in 2005.
The Company posted a net credit to the provision for loan losses of $562,000 in 2005 compared to a
provision for loan losses of $1.7 million for 2004, resulting in a net change of $2.3 million. The overall
net credit posted to the provision relates to a decline in the Company’s payday loan portfolio and
continued improvement in classified loans.
Republic reported net income during 2004 of $32.5 million compared to $28.2 million for 2003, an increase of 15%.
Diluted earnings per Class A Common Share increased 12% to $1.58 for the year ended December 31, 2004. The
rise in earnings for 2004 was primarily due to increased net interest income including deferred deposit fees,
increased service charges on deposit accounts, increased earnings at Tax Refund Solutions (“TRS”) and a lower
provision for loan losses. These increases offset an $8 million decline in mortgage banking non interest income
associated with record secondary market loan origination volume in 2003.
The following table summarizes selected financial information regarding Republic’s financial performance:
Table 1 – Summary
Years Ended December 31, (dollars in thousands, except per share data) 2005 2004 2003
Net income
Diluted earnings per Class A Common Share
Return on average assets (ROA)
Return on average equity (ROE)
$ 35,065
1.71
1.33%
16.56
$ 32,501
1.58
1.40%
17.50
$ 28,203
1.41
1.47%
16.88
26
Tax Refund Solutions (“TRS”)
For 2005, TRS generated $8.7 million in refund anticipation loan (“RAL”) revenue, compared to $8.5 million for the
same period in 2004. TRS also received $6.1 million in Electronic Refund Check (“ERC”) and Electronic Refund
Deposit (“ERD”) revenue during 2005, compared to $5.3 million during 2004. The total volume of tax return
refunds processed during the 2005 tax season was $1.5 billion, a moderate change from the volume processed for
the 2004 tax season. See additional discussion about this product under the sections titled Item 1. “Business,” Item
1A. “Risk Factors” and Footnote 20 “Segment Information” of Item 8. “Financial Statements and Supplementary
Data.”
The Company signed an agreement in January 2006 to securitize RALs during the 2006 tax season. This
arrangement will have no overall effect upon the gross fees received from RALs, but will significantly change the
financial statement presentation of both the assets and revenue from this segment in the future.
Deferred Deposits (“Payday Loans”)
Due to a reduction in the Company’s payday loan portfolio, primarily due to the termination of its contracts with
Advance America, as well as FDIC Guidance, the Company experienced a significant decline in deferred deposit
income in 2005.
Previously, the Company operated its payday loan program through a marketing and servicing relationship with
Advance America in Texas and North Carolina. These contracts with Advance America were terminated in July
2005 and the Company no longer has any payday loans outstanding under these contracts.
The Company originates payday loans under a marketing and servicing contract with ACE Cash Express, Inc.
(“ACE”) in the states of Texas, Arkansas and Pennsylvania, with the substantial majority of these transactions
concentrated in the state of Texas. As of December 31, 2005, Republic had payday loans outstanding of
approximately $5 million through its contract with ACE. In 2005, Republic recognized net income of
approximately $1.7 million under the ACE contract, which represented approximately 5% of the Company’s total
net income for the period.
Due to the termination of the Advance America contracts and, to a lesser extent, the implementation of the revised
FDIC Guidance, Republic experienced a $31 million decline in its payday loan portfolio during the third quarter of
2005. As a result of the decline in the payday loan portfolio, the Company posted a $2.3 million reduction in the
amount specifically allocated within the Company’s allowance for loan losses for payday loans.
All payday loans originated by Republic are subject to the revised FDIC Guidance (the “Guidance”) on payday
lending dated March 1, 2005, which became effective July 1, 2005. The Guidance essentially limits customers from
having payday loans outstanding from any bank lender more than 90 days in the previous twelve months. FDIC
guidance also requires that banks limit payday loans outstanding to the lesser of 25% of Tier I capital or the amount
that actual capital levels exceed the “well capitalized” classification for Tier I and total capital. Based on the
Company’s capital levels at December 31, 2005, payday loans outstanding were significantly below the Banks’
regulatory limits.
On July 11, 2005, Republic commenced offering, on a test basis, payday loans through its Indiana bank subsidiary
without a Marketer/Servicer. On September 15, 2005, Republic transitioned into an Internet-based payday loan
program offered directly to customers on a nationwide basis at www.republicbankpayday.com. Unlike payday loans
originated through the Company’s third party Marketer/Servicer, which feature a guarantee from the
Marketer/Servicer, payday loans originated directly by the Company are 100% unsecured and have no third party
guarantee.
By letter to Republic Bank & Trust Company of Indiana dated February 17, 2006, the FDIC cited inherent risks
associated with payday lending activities and asked Republic Bank & Trust Company of Indiana to consider
terminating this line of business. Republic Bank & Trust Company of Indiana voluntarily elected to terminate its
Internet payday loan program the week of February 20, 2006. The Internet payday loan program began operating in
July 2005 and remained in a developmental stage until its termination date. During the fourth quarter of 2005, the
Company recorded an after-tax net loss of approximately $517,000 from its Internet payday loan program. The
Company anticipates incurring approximately $188,000 in additional pre-tax expense during the first quarter of 2006
related to exiting the Internet payday loan line of business.
27
By letter to Republic Bank & Trust Company dated February 17, 2006, the FDIC cited inherent risks associated with
payday lending activities and asked Republic Bank & Trust Company to consider terminating this line of business.
Consequently, on February 24, 2006, Republic Bank & Trust Company and ACE amended the agreement regarding
Republic Bank & Trust Company’s payday loan activities in Texas, Pennsylvania and Arkansas. With respect to
Texas, Republic Bank & Trust Company ceased offering payday loans the week of February 27, 2006. With respect
to Arkansas and Pennsylvania, Republic Bank & Trust Company will cease offering payday loans on June 30, 2006.
During the fourth quarter of 2005, the Company recorded after-tax net income of approximately $299,000 through
its marketing/servicing agreement with ACE. The Company does not anticipate incurring any additional costs
related to the termination of the ACE contract.
See additional discussion about the payday lending products under the sections titled Item 1. “Business,” Item 1A.
“Risk Factors” and Footnote 20 “Segment Information” and Footnote 22 “Subsequent Event” of Item 8.
“Financial Statements and Supplementary Data.”
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Republic’s consolidated financial statements and accompanying footnotes have been prepared in accordance with
U.S. generally accepted accounting principles. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reported periods.
Management continually evaluates the Company’s accounting policies and estimates that it uses to prepare the
consolidated financial statements. In general, management’s estimates are based on historical experience, on
information from regulators and third party professionals and on various assumptions that are believed to be
reasonable. Actual results may differ from those estimates made by management.
Critical accounting policies are those that management believes are the most important to the portrayal of the
Company’s financial condition and operating results and require management to make estimates that are difficult,
subjective or complex. Most accounting policies are not considered by management to be critical accounting
policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the
financial statements. These factors include, among other things, whether the estimates have a significant impact on
the financial statements, the nature of the estimates, the ability to readily validate the estimates with other
information including third parties or available pricing, sensitivity of the estimates to changes in economic
conditions and whether alternative methods of accounting may be utilized under U.S. generally accepted accounting
principles. Management has discussed each critical accounting policy and the methodology for the identification
and determination of critical accounting policies with the Company’s Audit Committee.
Republic believes its critical accounting policies and estimates include the valuation of the allowance for loan losses
and mortgage servicing rights.
Allowance for Loan Losses – Republic maintains an allowance for probable incurred credit losses inherent in the
Company’s loan portfolio. Management evaluates the adequacy of the allowance for loan losses on a monthly basis
and presents and discusses the analysis with the Audit Committee and the Board of Directors on a quarterly basis.
Management estimates the allowance required using past loan loss experience, the nature and volume of the
portfolio, information about specific borrower capacity, estimated collateral values, economic conditions, regulatory
requirements and guidance and various other factors. While management estimates the allowance for loan losses, in
part, based on historical losses within each loan category, estimates for losses within the commercial and
commercial real estate portfolio are more dependent upon credit analysis and recent payment performance.
Allocations of the allowance may be made for specific loans or loan categories, but the entire allowance is available
for any loan that may be charged off. Loan losses are charged against the allowance at the point in time
management deems a loan uncollectible.
28
Management makes allocations within the allowance for loan losses for specifically classified loans regardless of
loan amount, collateral or loan type. Loans that are past due 90 days or more and that are not specifically classified
are uniformly assigned a risk weighted percentage ranging from 15% to 100% of the loan balance based upon loan
type. Management evaluates the remaining loan portfolio by utilizing the historical loss rate for each respective loan
type. Both an average five-year loss rate and a loss rate based on heavier weighting of the previous two years’ loss
experience are utilized in the analysis. Specialized loan categories are evaluated by utilizing subjective factors in
addition to a historical loss calculation to determine a loss allocation for each of those types. As this analysis, or
any similar analysis, is an imprecise measure of loss, the allowance is subject to ongoing adjustments. Therefore,
management will often take into account other significant factors as may be necessary or prudent in order to reflect
probable incurred losses in the total loan portfolio.
Based on management’s calculation, an allowance of $11 million, or 0.53% of total loans was an adequate estimate of
losses within the loan portfolio as of December 31, 2005. This estimate resulted in a net credit to the provision for loan
losses on the income statement of $562,000 during 2005. If the mix and amount of future charge off percentages differ
significantly from those assumptions used by management in making its determination, adjustment to the allowance for
loan losses and the resulting effect on the income statement could be material.
Mortgage Servicing Rights – Mortgage servicing rights (“MSRs”) represent an estimate of the present value of future
cash servicing income, net of estimated costs that Republic expects to receive on loans sold with servicing retained by
the Company. MSRs are capitalized as separate assets when loans are sold and servicing is retained. This transaction is
posted to net gain on sale of loans, a component of mortgage banking income. Management considers all relevant
factors, in addition to pricing considerations from other servicers, to estimate the fair value of the MSRs to be recorded
when the loans are initially sold with servicing retained by the Company. The carrying value of MSRs is amortized in
proportion to and over the period of net servicing income. The amortization is recorded as a reduction to mortgage
banking income. The total MSR asset, net of amortization, recorded at December 31, 2005 is $6.4 million.
The carrying value of the MSRs asset is periodically reviewed for impairment based on the fair value of the MSRs,
using groupings of the underlying loans by interest rates, by geography and by prepayment characteristics. Any
impairment of a grouping would be reported as a valuation allowance. A primary factor influencing the fair value is
the estimated life of the underlying loans serviced. The estimated life of the loans serviced is significantly influenced
by market interest rates. During a period of declining interest rates, the fair value of the MSRs should decline due to
expected prepayments within the portfolio. Alternatively, during a period of rising interest rates, the fair value of
MSRs should increase as prepayments on the underlying loans would be expected to decline. Management utilizes an
independent third party on a monthly basis to assist with the fair value estimate of the MSRs. Based on the estimated
fair value at December 31, 2005 and 2004, management determined no impairment of these assets existed.
29
RESULTS OF OPERATIONS
Net Interest Income
The principal source of Republic’s revenue is net interest income. Net interest income is the difference between interest
income on interest-earning assets, such as loans and securities, and the interest expense on liabilities used to fund those
assets, such as interest-bearing deposits and borrowings. 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.
Discussion of 2005 vs. 2004
For 2005, net interest income was $92.7 million, an increase of $2.6 million, or 3%, over 2004. Republic was able
to increase its net interest income primarily through growth in the Company’s traditional loan portfolio combined
with an increase in yield on its investment portfolio. Net interest income was negatively impacted by a decrease of
$3.5 million in net interest income from the payday loan business segment resulting primarily from the termination
of the Advance America contracts. Republic’s net interest income was also negatively impacted by a flattening
market yield curve which caused the Company’s interest bearing liabilities to reprice sooner than its interest earning
assets. For additional discussion regarding the historical effect of rising short-term interest rates on Republic’s net
interest income, see section titled “Volume/Rate Variance Analysis” in this section of the document.
In addition to the contraction described above, the Company’s net interest spread and margin declined as a direct
result of the termination of the Company’s contracts with Advance America, as well as the impact of the FDIC
Guidance’s transaction processing volume restrictions with ACE. Subsequent to year end 2005, the Company
terminated its remaining payday loan operations, which will further contribute to net interest spread and margin
contraction in the future.
Republic’s net interest spread and margin were 3.19% and 3.67%, respectively for 2005. Republic’s net interest
spread and margin, excluding the fee income recognized through its payday loan operations, would have been 2.87%
and 3.33% for 2005. For additional discussion regarding ACE, see Footnote 22 “Subsequent Event” in Item 8.
“Financial Statements and Supplementary Data.”
While achieving an increase in net interest income for the year, the Company also continued to experience
contraction in its net interest spread and margin resulting from an increase in the Company’s cost of funds without a
corresponding increase in its yield on earning assets. More specifically, this contraction primarily occurred because
much of the Company’s funding is derived from large commercial cash management accounts that are tied to
immediate repricing indices, while the majority of the Company’s interest earning assets are real estate secured
loans that reprice over a longer period. Based on the Company’s current balance sheet structure, management
believes that the net interest spread and margin in 2006 will continue to contract unless short-term rates decline
significantly from current levels. Management is unable to precisely determine the negative impact of continued
contraction on the Company’s net interest spread and margin in the future. For additional discussion regarding the
future effect of rising short-term interest rates on Republic’s net interest income, see the section titled “Interest Rate
Sensitivity” in this section of the document.
Discussion of 2004 vs. 2003
For 2004, net interest income was $90.1 million, an increase of $7.8 million, or 9%, over 2003. The Company was
able to increase its net interest income primarily through increased loan volume and a reduction in the Company’s
cost of funds. Gross fees from payday loans, which increased $4.9 million, or 65%, over 2003 and gross fees from
RALs, which increased $1.8 million, or 26%, over 2003, were major components of the overall increase for 2004.
The Company also experienced an increase in net interest income as a result of growth in the loan portfolio. Despite
an increase in net interest income for the year, the Company experienced continued contraction in its net interest
spread and margin. Generally, the contraction in Republic’s net interest spread and margin occurred due to a
reduction in the yield of the Company’s earning assets, including both the loan and investment portfolios.
Table 2 provides detailed information as to average balances, interest income/expense and average rates by major
balance sheet category for 2003, 2004 and 2005. Table 3 provides an analysis of the changes in net interest income
attributable to changes in rates and changes in volume of interest-earning assets and interest-bearing liabilities.
30
Table 2 – Average Balance Sheets and Interest Rates for Years Ended December 31,
Average
Balance
2005
Interest
Average
Rate
Average
Balance
2004
Interest
Average
Rate
Average
Balance
2003
Interest
Average
Rate
(dollars in thousands)
ASSETS
Earning assets:
Investment securities(1)
Federal funds sold and other
Loans and fees (2)
$ 537,500
49,700
1,939,235
$ 19,578
1,472
134,569
3.64% $ 445,351
40,725
2.96
1,714,128
6.94
$ 13,380
494
118,492
3.00%
1.21
6.91
$ 316,642
26,792
1,485,024
$ 11,136
279
107,645
3.52%
1.04
7.25
Total earning assets
2,526,435
155,619
6.16
2,200,204
132,366
6.02
1,828,458
119,060
6.51
Less: Allowance for loan losses
13,238
13,975
12,305
Non-earning assets:
Cash and cash equivalents
Premises and equipment, net
Other assets(1)
Total assets
LIABILITIES AND STOCKHOLDERS’
EQUITY
Interest-bearing liabilities:
Transaction accounts
Money market accounts
Time deposits
Brokered deposits
Repurchase agreements and other short-term
borrowings
Federal Home Loan Bank borrowings
Subordinated note
68,839
32,533
31,639
$ 2,646,208
75,234
35,428
21,043
$ 2,317,934
54,422
29,290
22,928
$ 1,922,793
$ 320,506
316,938
483,403
124,470
$ 3,166
7,669
16,612
4,256
0.99% $ 325,063
306,253
2.42
422,397
3.44
49,996
3.42
$ 2,565
3,288
13,858
1,491
0.79%
1.07
3.28
2.98
$ 266,316
253,942
404,014
52,094
$ 2,263
2,193
14,276
1,212
0.85%
0.86
3.53
2.33
359,327
498,231
15,592
9,906
20,380
951
2.76
4.09
6.10
313,158
427,908
-
4,191
16,921
-
1.34
3.95
-
189,984
363,656
-
1,897
14,954
-
1.00
4.11
-
Total interest-bearing liabilities
2,118,467
62,940
2.97
1,844,775
42,314
2.29
1,530,006
36,795
2.40
Non interest-bearing liabilities and
stockholders’ equity:
Non interest-bearing deposits
Other liabilities
Stockholders’ equity
290,968
25,061
211,712
Total liabilities and stockholders’ equity
$ 2,646,208
Net interest income
Net interest spread
Net interest margin
262,763
24,671
185,725
$ 2,317,934
196,442
29,248
167,097
$ 1,922,793
$ 92,679
$ 90,052
$ 82,265
3.19%
3.67%
3.73%
4.09%
4.11%
4.50%
________________________
(1) For the purpose of this calculation, the fair market value adjustment on investment securities resulting from SFAS 115 is included as a component of other assets.
(2) The amount of fee income included in interest on loans was $19.4 million, $23.3 million and $17.3 million for the years ended December 31, 2005, 2004 and 2003.
31
Table 3 illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities affected Republic’s interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in
volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior
volume) and (iii) net change. The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to rate.
Table 3 – Volume/Rate Variance Analysis
Year Ended December 31, 2005
compared to
Year Ended December 31, 2004
Increase/(Decrease)
Due to
Year Ended December 31, 2004
compared to
Year Ended December 31, 2003
Increase/(Decrease)
Due to
Total Net Change Volume
Rate
Total Net Change
Volume
Rate
$ 6,198
978
16,077
23,253
$ 3,059 $ 3,139
848
458
4,445
130
15,619
18,808
$ 2,244
215
10,847
13,306
$ 4,041
163
16,015
20,219
$ (1,797)
52
(5,168)
(6,913)
(in thousands)
Interest income:
Investment securities
Federal funds sold and other
Loans and fees
Net change in interest income
Interest expense:
Transaction accounts
Money market accounts
Time deposits
Brokered deposits
Repurchase agreements and other short-term
borrowings
Federal Home Loan Bank borrowings
Subordinated note
Net change in interest expense
Net change in net interest income
601
4,381
2,754
2,765
5,715
3,459
951
20,626
$ 2,627
(36)
119
2,073
2,517
637
4,262
681
248
302
1,095
(418)
279
472
502
636
(51)
698
2,860
951
9,182
5,017
599
-
11,444
$ 9,626 $ (6,999)
2,294
1,967
-
5,519
$ 7,787
1,504
2,559
-
5,622
$ 14,597
(170)
593
(1,054)
330
790
(592)
-
(103)
$ (6,810)
32
Non Interest Income
Table 4 – Analysis of Non Interest Income
Year Ended December 31, (dollars in thousands)
2005
2004
Percent Increase/(Decrease)
2005/2004
2004/2003
2003
Service charges on deposit accounts
Electronic refund check fees
Mortgage banking income
Debit card interchange fee income
Title insurance commissions
Other
Total non interest income
$ 15,547
6,083
2,751
3,122
1,756
1,244
$ 30,503
$ 13,460
5,268
3,148
2,492
1,515
1,311
$ 27,194
$ 10,019
3,981
11,104
1,825
2,532
1,472
$ 30,933
16%
15
(13)
25
16
(5)
12%
34%
32
(72)
37
(40)
(11)
(12)%
Discussion of 2005 vs. 2004
Service charges on deposit accounts increased 16% during 2005 compared to 2004. The increase was due primarily
to growth in the Company’s checking account base supported by the Bank’s “Overdraft Honor” program, which
permits selected clients to overdraft their accounts up to a predetermined dollar amount up to a maximum of $750
for the Bank’s customary overdraft fee. The Company also increased its overdraft fee by 7% in August 2005. The
total number of accounts eligible for the “Overdraft Honor” program increased to 55,000 at December 31, 2005
from 49,000 at December 31, 2004. Additionally, the Company’s total number of checking accounts, exclusive of
commercial accounts, increased 8% from 60,000 at December 31, 2004 to over 65,000 at December 31, 2005.
Mortgage banking income decreased nearly $397,000 during 2005 due primarily to a $596,000 decline in net gain
on sale of loans offset by a $199,000 increase in servicing income, net of amortization. The reduction in net gain on
sale of loans resulted from the decline in mortgage origination volume of 15 and 30-year fixed rate residential real
estate loans from 2004 due primarily to an increase in longer term interest rates. As a percentage of loans sold, net
gains decreased to 0.92% in 2005 compared to 1.14% in 2004.
Discussion of 2004 vs. 2003
During 2004, the Company experienced a 34% increase in service charges on deposit accounts for substantially the
same reasons as previously discussed for 2005, including an increase in the per item overdraft fee of 7% in July of
2003.
Mortgage banking income decreased nearly $8 million during 2004 due primarily to a $9.9 million decrease in net
gain on sale of loans. The decrease in net gain on sale of loans during 2004 was partially offset by a $1.2 million
decline in amortization expense of MSRs. This decline in amortization expense resulted from a decline in
prepayments during 2004 within the Company’s servicing portfolio. The reduction in net gain on sale of loans
resulted from a substantial decline in mortgage origination volume of 15 and 30-year fixed rate residential real estate
loans from the record levels attained by the Company in 2003. The higher volume of originations during 2003
resulted from aggressive marketing of the Company’s low closing cost mortgage loan products and sustained
consumer demand for fixed rate, first mortgage residential real estate loan products due to historically low market
interest rates through the first six months of the year. This demand began to decline substantially during the third
quarter of 2003 reaching more traditional lower levels during the fourth quarter of 2003, and remaining near those
levels throughout 2004. As a percentage of loans sold, net gains decreased to 1.14% in 2004 compared to 1.50% in
2003.
33
Non Interest Expenses
Table 5 – Analysis of Non Interest Expenses
Year Ended December 31, (dollars in thousands)
2005
2004
Percent Increase/(Decrease)
2005/2004
2004/2003
2003
Salaries and employee benefits
Occupancy and equipment, net
Communication and transportation
Marketing and development
Bankshares tax
Data processing
Debit card interchange expense
Supplies
Other
Total non interest expenses
$ 37,037
13,467
3,035
2,878
2,262
1,909
1,357
1,133
7,503
$ 70,581
$ 34,552
13,915
2,809
2,271
1,932
1,602
1,080
1,385
6,470
$ 66,016
$ 32,509
12,416
2,729
2,997
1,980
1,722
1,006
1,481
6,019
$ 62,859
7%
(3)
8
27
17
19
26
(18)
16
7%
6%
12
3
(24)
(2)
(7)
7
(6)
7
5%
Discussion of 2005 vs. 2004
Salaries and employee benefits increased $2.5 million or 7% from 2004 to 2005. The increase was primarily
attributed to annual merit increases and associated incentive compensation, as well as additional staffing costs at TRS.
The Company had full time equivalent employees (“FTEs”) totaling 678 at December 31, 2005 as compared to 611 at
December 31, 2004. The substantial portion of the increase in FTE’s in 2005 occurred in the technology area of
TRS, as the organization revamped its delivery systems in an effort to provide better products and services for the
upcoming tax season.
Other expenses increased $1 million during 2005 due to an increase in professional fees. The increase in professional
fees was primarily associated with Sarbanes Oxley compliance, as well as consulting fees related to the modification to
the delivery system of TRS.
Discussion of 2004 vs. 2003
Salaries and employee benefits increased $2 million or 6% from 2003 to 2004. The increase was primarily
attributed to annual merit increases and associated incentive compensation, additional seasonal staff at TRS and
additional banking center expansion. Republic opened three new banking centers during 2004 and six new banking
centers during 2003. Also, included within the salaries and employee benefits category is the Company’s deferral for
direct expenses on origination of loans. Republic’s deferral decreased $1.2 million during 2004 compared to 2003
due to a reduction in the volume of new mortgage loans originated. The Company’s number of FTE’s decreased to
611 at December 31, 2004 from 645 at December 31, 2003.
Occupancy and equipment expense increased during 2004 primarily due to banking center expansion discussed
above.
34
FINANCIAL CONDITION
Loan Portfolio
Net loans, primarily consisting of secured real estate loans, increased by $274 million or 15% to $2 billion at
December 31, 2005. Commercial real estate loans comprised 27% of the total gross loan portfolio at December 31,
2005 and are concentrated primarily within the Bank’s existing markets. These loans are principally secured by
multi-family investment properties, single family developments, medical facilities, small business owner occupied
offices, retail properties and hotels. These loans typically have interest rates that are initially fixed for one to ten
years with the remainder of the loan term subject to repricing based on various market indices. In order to reduce
the negative effect of refinance activity within the portfolio during a declining interest rate environment, the
Company requires an early termination penalty on substantially all commercial real estate loans for a portion of the
fixed term period. The Bank’s underwriting standards typically include personal guarantees on most commercial real
estate loans. Overall, commercial real estate loans increased $70 million from December 31, 2004.
Similar to commercial real estate loans, residential real estate loans that are not sold into the secondary market
typically have fixed interest rate periods of one to ten years with the remainder of the loan term subject to repricing
based on various market indices. These loans also typically carry early termination penalties during a portion of
their fixed rate periods in order to lessen the overall negative effect to the Company of refinancing in a declining
interest rate environment. To increase its competitiveness within its markets, Republic offered closing costs as low
as $299 on its residential real estate products during 2005. With closing costs generally lower than peer and lower
monthly payments compared to longer-term, fixed rate secondary market products, the Company was successful in
closing a record dollar amount of residential real estate portfolio loans during 2005, growing $204 million from
December 31, 2004.
The Company had approximately $6 million in payday loans outstanding at December 31, 2005 compared to $36
million at December 31, 2004. The decline in payday loans during 2005 was primarily due to the termination of the
marketing/servicing contracts with Advance America, and to a lesser extent, the implementation of the revised FDIC
Guidance.
Table 6 – Loan Portfolio Composition
As of December 31, (in thousands)
2005
2004
2003
2002
2001
Residential real estate
Commercial real estate
Real estate construction
Commercial
Consumer
Deferred deposits (“Payday loans”)
Home equity
Total loans
$1,056,175
565,970
84,850
46,562
35,529
5,779
265,895
$2,060,760
$ 851,736
495,827
70,220
36,807
32,366
35,631
267,231
$ 762,000
442,083
70,897
34,553
30,450
27,584
215,088
$1,789,818 $1,582,655
$ 597,797 $ 571,959
360,056
413,115
70,870
68,020
30,627
33,341
26,443
36,519
462
2,828
159,261
125,360
$1,310,881 $1,185,777
35
The table below illustrates Republic’s maturities and repricing frequency for the loan portfolio:
Table 7 – Selected Loan Distribution
As of December 31, 2005 (in thousands)
Total
One Year
Or Less
Over One
Through
Five
Years
Over
Five
Years
Fixed rate maturities:
Real estate:
Residential
Commercial
Construction
Commercial
Consumer
Home equity
Total fixed
Variable rate repricing:
Real estate:
Residential
Commercial
Construction
Commercial
Consumer
Home equity
Total variable
$ 338,432 $ 36,132 $ 125,366 $ 176,934
38,754
16
391
6,262
2,169
$ 61,958 $ 166,694 $ 224,526
68,361
3,212
16,436
22,062
4,675
$ 453,178
24,907
1,081
9,088
4,802
1,450
4,700
2,115
6,957
10,998
1,056
$ 717,743 $ 140,502 $ 560,595 $ 16,646
497,609
81,638
30,126
19,246
261,220
10,691
-
-
361
162
$ 1,607,582 $ 684,721 $ 895,001 $ 27,860
326,823
3,452
-
4,131
-
160,095
78,186
30,126
14,754
261,058
Allowance for Loan Losses and Provision for Loan Losses
The allowance for loan losses as a percent of total loans declined to 0.53% as of December 31, 2005. Management
believes, based on information presently available, that it has adequately provided for loan losses at December 31,
2005. For discussion of Republic’s methodology for determining the adequacy of the allowance for loan losses, see
section titled “Critical Accounting Policies and Estimates” in this section of the document.
Discussion of loan loss provision in 2005 vs. 2004
The Company posted a net credit to the provision for loan losses of $562,000 in 2005 compared to a provision for
loan losses of $1.7 million for 2004, resulting in a net change of $2.3 million. The Company posted a credit to the
provision for loan losses of $2.6 million in the third quarter of 2005. The provision credit was the result of a $31
million decline in Republic’s payday loan portfolio resulting in a significant reduction in the amount specifically
allocated within the Company’s allowance for loan losses for payday loans. The reduction in the Company’s
payday loan portfolio was primarily due to the termination of its contracts with Advance America as described
previously in this Form 10-K, as well as a reduction in the balance of loans outstanding at ACE due to the FDIC
Guidance. Also included in the provision for loan losses were $956,000 and $1.4 million for losses associated with
RALs during 2005 and 2004, respectively.
The decrease in the provision, exclusive of RALs and the deferred deposit adjustment, during 2005 was primarily
due to lower levels of charge off activity, lower delinquency trends in the portfolio and further improvements in
overall asset quality.
Discussion of loan loss provision in 2004 vs. 2003
The Company’s provision for loan losses decreased from $6.6 million for 2003 to $1.7 million for 2004. Included in
the provision for loan losses were $1.4 million and $1.9 million for RALs during 2004 and 2003. The decrease in the
provision, exclusive of RALs, during 2004 was primarily due to lower levels of charge off activity, lower
delinquency trends in the portfolio and further improvements in overall asset quality.
36
Table 8 – Summary of Loan Loss Experience
Year Ended December 31, (dollars in thousands)
2005
2004
2003
2002
2001
Allowance for loan losses at beginning of year
Charge offs:
Real estate:
Residential
Commercial
Construction
Commercial
Consumer
Home equity
Tax Refund Solutions
Total
Recoveries:
Real estate:
Residential
Commercial
Construction
Commercial
Consumer
Home equity
Tax Refund Solutions
Total
Net loan charge offs
Provision for loan losses
Allowance for loan losses at end of year
$ 13,554
$ 13,959
$ 10,148
$ 8,607
$ 7,862
(448)
(162)
(84)
-
(909)
(91)
(2,213)
(3,907)
176
87
34
32
303
35
1,257
1,924
(1,983)
(562)
$ 11,009
(444)
(177)
-
(22)
(868)
(177)
(3,404)
(5,092)
151
284
35
43
348
56
2,022
2,939
(2,153)
1,748
$ 13,554
(670)
(1,223)
(135)
(50)
(155)
(994)
(2,300)
(5,527)
448
1,074
300
100
26
366
450
2,764
(2,763)
6,574
$ 13,959
(706)
(420)
(255)
(444)
(705)
(164)
(1,482)
(4,176)
88
159
12
271
412
2
1,435
2,379
(1,797)
3,338
$ 10,148
(798)
(703)
(8)
(114)
(818)
(182)
(1,550)
(4,173)
40
313
-
24
502
65
481
1,425
(2,748)
3,493
$ 8,607
Ratios:
Allowance for loan losses to total loans
Provision for loan losses to average loans
Net loan charge offs to average loans outstanding
Allowance for loan losses to non performing loans
0.53%
(0.03)
0.10
183
0.76%
0.10
0.13
221
0.88%
0.44
0.19
108
0.77%
0.27
0.15
103
0.73%
0.29
0.23
154
The table below depicts management’s allocation of the allowance for loan losses by loan type. The allowance
allocation is based on management’s assessment of economic conditions, past loss experience, loan volume, past
due history and other factors. Since these factors and management’s assumptions are subject to change, the
allocation is not necessarily indicative of future loan portfolio performance.
Table 9 – Management’s Allocation of the Allowance for Loan Losses
2005
2004
2003
As of December 31, (dollars in thousands)
Allowance
Residential real estate
Commercial real estate
Real estate construction
Commercial
Consumer
Home equity
Unallocated
Total
$ 793
7,086
101
163
761
186
1,919
$ 11,009
Percent
of Loans
to Total
Loans
48%
28
4
2
4
14
-
100%
Percent
of Loans
to Total
Loans
48%
28
4
2
4
14
-
100%
Allowance
$ 1,009
7,804
551
237
2,104
131
2,123
$ 13,959
Allowance
$ 761
8,100
58
107
2,422
187
1,919
$ 13,554
Percent
of Loans
to Total
Loans
51%
27
4
2
2
14
-
100%
37
Asset Quality
Loans, including impaired loans under SFAS 114, but excluding consumer loans, are placed on non-accrual status
when they become past due 90 days or more as to principal or interest, unless they are adequately secured and in the
process of collection. When loans are placed on non-accrual status, all unpaid accrued interest is reversed. These
loans remain on non-accrual status until the borrower demonstrates the ability to remain current or the loan is
deemed uncollectible and is charged off.
Consumer loans, exclusive of payday loans and RALs, are not placed on non-accrual status, but are reviewed
periodically and charged off when they reach 120 days past due or at any point the loan is deemed uncollectible.
Payday loans under contract with the Company’s Marketer/Servicer are generally charged off 60 days from the day
that they become uncollectible. All uncollectible payday loans are subject to a Marketer/Servicer guarantee. Internet
payday loans are charged off when they become 31 days past due. RALs traditionally undergo a review in March of
each year and those deemed uncollectible by management are charged off against the allowance for loan losses.
Total non performing loans to total loans decreased marginally to 0.29% at December 31, 2005, from 0.34% at
December 31, 2004, while the total balance of non performing loans decreased by $114,000 for the same period.
Table 10 – Non performing Assets
As of December 31, (dollars in thousands)
2005
2004
2003
2002
2001
Loans on non-accrual status(1)
Loans past due 90 days or more and still on accrual
Total non performing loans
Other real estate owned
Total non performing assets
$ 5,725
295
`
6,020
452
$ 6,472
371
`
6,134
657
$ 5,763 $ 12,466
473
`
12,939
-
$ 6,791 $ 12,939
$ 7,967
1,915
`
9,882
320
$ 10,202
$ 5,056
521
`
5,577
149
$ 5,726
Non performing loans to total loans
Non performing assets to total loans
_____________________
0.29% 0.34%
0.38
0.31
0.82%
0.82
0.75%
0.78
0.47%
0.48
(1) Loans on non-accrual status include impaired loans. See Footnote 4”Loans” of Item 8. “Financial Statements and Supplementary Data” for
additional discussion regarding impaired loans.
Republic defines impaired loans to be those commercial real estate loans that management has classified as doubtful
(collection of total amount due is improbable) or loss (all or a portion of the loan has been written off or a specific
allowance for loss has been provided) or otherwise meet the definition of impaired. Republic’s policy is to charge off
all or that portion of its investment in an impaired loan upon a determination that it is probable the full amount will not
be collected. Impaired loans, which are a component of loans on non-accrual status, decreased from $2.7 million at
December 31, 2004 to $1.9 million at December 31, 2005. At December 31, 2005, the impaired balance was primarily
attributable to two commercial real estate lending relationships.
Investment Securities
Table 11 – Investment Securities Portfolio
December 31, (in thousands)
2005
2004
2003
2002
2001
Securities Available for Sale:
U.S. Treasury and Government agency securities
Mortgage backed securities, including CMOs
Total securities available for sale
Securities to be Held to Maturity:
U.S. Treasury and Government agency securities
States and political subdivisions
Mortgage backed securities, including CMOs
Total securities to be held to maturity
Total investment securities
$ 330,294
117,571
447,865
$ 291,697
161,663
453,360
$ 154,818
140,702
295,520
$ 51,123
151,924
203,047
$ 32,023
179,576
211,599
12,110
-
52,188
64,298
$ 512,163
20,112
-
78,121
98,233
$ 551,593
9,707
-
105,704
115,411
$ 410,931
8,175
100
77,137
85,412
$ 288,459
50,995
200
31,151
82,346
$ 293,945
38
Securities available for sale primarily consists of U.S. Treasury and U.S. Government Agency obligations, including
agency MBSs and agency collateralized mortgage obligations (“CMOs”). The MBSs primarily consist of hybrid
mortgage securities, as well as other adjustable rate mortgage securities, underwritten and guaranteed by Ginnie Mae
(“GNMA”), Freddie Mac (“FHLMC”) and Fannie Mae (“FNMA”"). CMOs held in the investment portfolio are
substantially all floating rate securities that adjust monthly. The Company primarily uses the securities portfolio as
collateral for securities sold under agreements to repurchase (“repurchase agreements”) along with FHLB
borrowings, to mitigate its risk position from changing interest rates. Strategies for the securities portfolio may also
be influenced by economic and market conditions, loan demand, deposit mix and liquidity needs.
During 2005, Republic purchased $4.5 billion in securities and had maturities of $4.5 billion. Approximately $4.4
billion of the securities purchased were agency discount notes, which the Company utilized primarily for collateral
purposes. The average yield on these discount notes was 3.04% with an average term of 9 days.
Amortized
Cost
Fair Value
Weighted
Average
Yield
Average
Maturity in
Years
Table 12 – Securities Available for Sale
As of December 31, 2005 (dollars in thousands)
U.S. Treasury and U.S. Government agency
securities:
Within one year
Over one through five years
Total U.S. Treasury and U.S Government agency
securities
Total mortgage backed securities, including
CMOs*
Total securities available for sale
119,300
$ 452,648
117,571
$ 447,865
4.37
3.83
$ 172,807
160,541
$ 172,129
158,165
3.44%
3.86
333,348
330,294
3.64
0.18
2.27
1.19
4.21
1.98
Table 13 – Securities to be Held to Maturity
As of December 31, 2005 (dollars in thousands)
Amortized
Cost
Fair Value
Weighted
Average
Yield
Average
Maturity in
Years
U.S. Treasury and U.S. Government agency
securities:
Within one year
Over one through five years
Total U.S. Treasury and U.S Government agency
securities
Total mortgage backed securities, including CMOs*
Total securities to be held to maturity
_____________________
$ 5,000
7,110
12,110
52,188
$ 64,298
$ 4,967
7,012
2.50%
3.50
11,979
52,423
$ 64,402
3.09
5.20
4.80
0.08
1.83
1.11
7.47
6.27
* The average maturity of mortgage backed securities, including CMOs, is calculated based on contractual maturity.
Deposits
Total deposits were $1.6 billion at December 31, 2005 compared to $1.4 billion at December 31, 2004. Interest-
bearing deposits increased $160 million while non interest-bearing deposits increased $24 million from December
31, 2004 to December 31, 2005.
The increase in non interest-bearing accounts relates primarily to growth in escrow, as well as retail and commercial
transaction accounts across the Company’s retail banking center network. Interest-bearing accounts increased
primarily in brokered deposits and money market accounts. These increases were partially offset by a decline in
interest bearing consumer demand deposit accounts.
Money market accounts increased $78 million during 2005. The majority of this increase was in the Premier First
money market account category. The Premier First money market account is “Cash Management’s” primary
product offering for medium to large business clients.
39
The Company acquired brokered deposits during 2005 to fund RALs during the 2005 tax season and traditional loan
growth beyond the 2005 tax season. The brokered deposits had original terms ranging from six months to four years
with an average life of 2.10 years and an average cost of 3.55%. The Company acquired $52 million in brokered
deposits during the second half of 2005 with an average life of 273 days and an average cost of 4.30% to fund loan
growth. Management chose to utilize brokered deposits because of their relatively low acquisition costs as well as
speed of acquisition compared to traditional certificates of deposit.
Interest bearing demand accounts decreased $42 million in 2005 primarily from the loss of funds in the Company’s
“High Interest Checking” product. With interest rates increasing throughout 2005, management increased the rate
paid on this product minimally to offset the rising cost of funds associated with the Company’s other deposit
products. As a result, the balances in this product declined throughout the year. Management anticipates a strategy
that includes continued moderation of the rate paid on this product during 2006, unless additional funds are needed
to meet loan demand or for liquidity purposes.
Table 14 – Deposits
December 31, (in thousands)
2005
2004
2003
2002
2001
Demand (NOW and SuperNOW)
Money market accounts
Internet money market accounts
Savings
Money market certificates of deposit
Individual retirement accounts
Certificates of deposit, $100,000 and over
Other certificates of deposit
Brokered deposits
Total interest-bearing deposits
Total non interest-bearing deposits
Total
$ 262,714
262,611
33,864
43,548
59,810
48,954
168,777
282,609
153,194
1,316,081
286,484
$ 304,264
184,334
45,076
41,080
71,841
47,324
149,217
266,547
46,254
1,155,937
261,993
$1,602,565 $1,417,930
124,145
96,034
35,735
70,208
42,073
196,026
203,893
64,655
1,103,791
193,321
$ 271,022 $ 222,316
90,637
47,824
23,993
80,190
37,530
111,204
249,798
1,238
864,730
175,460
$1,297,112 $1,040,190
$ 46,532
94,077
44,838
16,293
155,601
34,299
87,154
258,012
-
736,806
129,552
$ 866,358
Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings
Securities sold under agreements to repurchase and other short-term borrowings decreased $73 million during 2005.
The majority of this decrease was attributable to one large cash management account which decreased $59 million
from December 31, 2004. Based on the transactional nature of the Company’s cash management accounts,
repurchase agreement balances are subject to large fluctuations on a daily basis.
FHLB Borrowings
FHLB Borrowings increased $65 million during the year to $561 million at December 31, 2005. The increase in
advances was primarily utilized to fund the growth in the loan portfolio.
Approximately $117 million of the Company’s advances have overnight maturities with a weighted average coupon
rate of 4.12%. Approximately $354 million of the Company’s advances are fixed, with maturities ranging from less
than one to five years. The current weighted average maturity of the fixed FHLB advances at December 31, 2005 is
5 years with a weighted average coupon rate of 3.91%.
The remaining $90 million in the Company’s FHLB borrowings consists of convertible advances with original fixed
rate periods ranging from one to five years and original maturities ranging from three to ten years. At the end of
their respective fixed rate periods, the FHLB has the right to convert the borrowings to floating rate advances tied to
LIBOR. If the FHLB elects to convert the debt to a floating rate instrument, Republic has the right to pay off the
advances without penalty. These advances had a weighted average coupon of 4.85% at December 31, 2005. At
December 31, 2005, all $90 million of these advances are eligible to be converted by the FHLB, however, based on
market conditions at this time, management does not believe these advances are likely to be converted in the short-
term.
40
Liquidity
Republic maintains sufficient liquidity to fund loan demand and routine deposit withdrawal activity. Liquidity is
managed by maintaining sufficient liquid assets in the form of investment securities. Funding and cash flows can also be
realized by the sale of securities available for sale, principal paydowns on loans and MBSs and proceeds realized from
loans held for sale. The Company’s liquidity is impacted by its ability to sell securities, which is limited, due to the level
of securities that are needed to secure public deposits, securities sold under agreements to repurchase and for other
purposes, as required by law. At December 31, 2005, these securities had a fair market value of $397 million.
Republic’s banking centers and its Internet site, www.republicbank.com, provide access to retail deposit markets. These
retail deposits, if offered at attractive rates, have historically been a source of additional funding when needed. In
addition, brokered deposits have provided a source of liquidity to the Company when needed to fund loan growth.
Traditionally, the Company has also utilized secured and unsecured borrowing lines to supplement its funding
requirements. On December 31, 2005, the Company had capacity with the Federal Home Loan Bank to borrow an
additional $152 million. The Company also had $175 million in approved unsecured line of credit facilities available at
December 31, 2005 through various third party sources.
The Company’s principal source of funds for dividend payments is dividends received from the Bank. Kentucky and
Indiana banking regulations limit the amount of dividends that may be paid to the Parent Company by the Bank
without prior approval of the respective states’ banking regulators. Under these regulations, the amount of
dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the
retained net profits of the preceding two years. At December 31, 2005, Republic Bank & Trust Company and
Republic Bank & Trust Company of Indiana could, without prior approval, declare dividends of approximately $47
million and $1 million, respectively. The Company does not plan to pay dividends from Republic Bank & Trust
Company of Indiana in the foreseeable future.
Capital
Total stockholders’ equity increased from $196 million at December 31, 2004 to $214 million at December 31,
2005. The increase in stockholders’ equity was primarily attributable to net income earned during 2005 reduced by
dividends declared, the repurchase of Company stock and the decline in accumulated other comprehensive
income/(loss) as a result of a decrease in the value of the available for sale securities portfolio.
During 2005, the Company purchased 486,465 shares for $9.8 million. During the third quarter, the Company's
Board of Directors also approved the repurchase of an additional 262,500 shares from time-to-time if market
conditions are deemed favorable to the Company. The repurchase program will remain effective until the number of
shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of December 31,
2005, the Company had 48,697 shares which could be repurchased under the current stock repurchase program.
Regulatory Capital Requirements – The Parent Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on Republic’s financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Parent Company and the Bank must meet specific capital guidelines
that involve quantitative measures of the Company’s assets, liabilities and certain off balance sheet items as
calculated under regulatory accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and other factors.
The FDIC has categorized the Bank as well capitalized. To be categorized as well capitalized, the Bank must
maintain minimum Total Risk Based, Tier I Risk Based and Tier I Leverage ratios as set forth in Footnote 13
“Stockholders’ Equity” of Item 8. “Financial Statements and Supplementary Data.” Regulatory agencies measure
capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk
profiles of financial institutions. Republic continues to exceed the regulatory requirements for Tier I leverage, Tier I
risk based and total risk based capital. Republic and the Bank intend to maintain a capital position that meets or
exceeds the “well capitalized” requirements as defined by the Federal Reserve and FDIC. Republic’s average
capital to average assets ratio was 8.00% at December 31, 2005 compared to 8.01% at December 31, 2004. Formal
measurements of the capital ratios for the Company and Republic Bank & Trust Company are performed at each
quarter end.
41
In August 2005, Republic Bancorp Capital Trust (“RBCT”), an unconsolidated trust subsidiary of Republic
Bancorp, Inc., issued $40 million in Trust Preferred Securities (“TPS”). The TPS pay a fixed interest rate for 10
years and adjust with LIBOR thereafter. Treated as Tier I capital for regulatory purposes, the TPS mature on
September 30, 2035 and are redeemable at the Company’s option after ten years. The sole asset of RBCT represents
the proceeds of the offering loaned to Republic Bancorp, Inc. in exchange for subordinated debentures which have
terms that are similar to the TPS. The subordinated debentures and the related interest expense, which are payable
quarterly at the annual rate of 6.015%, are included in the consolidated financial statements. The proceeds obtained
from the TPS offering will be used to fund loan growth, support an existing stock repurchase program and for other
general business purposes.
In March 2004, the Company executed an intragroup trust preferred transaction, which will provide Republic Bank
& Trust Company access to additional capital markets, if needed, in the future. On a consolidated basis, this
transaction had no impact to the capital levels and ratios of the Company. The subordinated debentures held by
Republic Bank & Trust Company as a result of this transaction, however, are treated as Tier 2 capital based on
requirements administered by the Bank’s federal banking agency. If Republic Bank & Trust Company’s Tier I
capital ratios should not meet the minimum requirement to be well capitalized, the Company could immediately
modify the transaction in order to maintain well capitalized status.
Off Balance Sheet Items
Table 15 – Off Balance Sheet Items
December 31, 2005 (in thousands)
Maturity by Period
Greater
than one
year to
three years
Less than
one year
Greater than
three years to
five years
Greater
than five
years
Total
Standby letters of credit
FHLB letters of credit
Commitments to extend credit
$ 7,881
73,137
416,395
$ 492
14,724
38,537
$ 710
-
1,693
$ 820
-
18,306
$ 9,903
87,861
474,931
Standby letters of credit represent commitments by the Company to repay a third party beneficiary when a customer
fails to repay a loan or debt instrument. The terms and risk of loss involved in issuing standby letters of credit are
similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company
also has liquidity risk associated with standby letters of credit because funding for these obligations could be
required immediately. The Company does not deem this risk to be material.
The Company has obtained letters of credit from the FHLB to be used as collateral on public funds deposits and as
credit enhancements for client bond offerings. Approximately $28 million of these letters of credit at December 31,
2005 were used as credit enhancements for client bond offerings. The remaining $60 million was used to
collateralize a public funds deposit, which the Company classifies as a short-term borrowing.
Commitments to extend credit generally consist of unfunded lines of credit. These commitments generally have
variable rates of interest.
42
Aggregate Contractual Obligations
Table 16 – Aggregate Contractual Obligations
December 31, 2005 (in thousands)
Deposits
Federal Home Loan Bank borrowings
Subordinated note
Securities sold under agreements to
repurchase
Lease commitments
Total
Maturity by Period
Less than
one year
Greater
than one
year to
three years
$ 1,291,081 $ 228,097
148,500
217,136
-
-
Greater than
three years to
five years
$ 73,742
124,370
-
Greater
than five
years
Total
$ 9,645 $ 1,602,565
561,133
41,240
71,127
41,240
-
290,717
3,450
5,166
$ 1,802,384 $ 381,763
1,542
3,171
$ 202,825
-
10,622
292,259
22,409
$ 132,634 $ 2,519,606
Deposits represent non interest-bearing accounts, transaction accounts, money market accounts, time deposits and
brokered deposits held by the Company. Amounts that have an indeterminate maturity period are included in the less than
one-year category above.
FHLB borrowings represent the amounts that are due to the FHLB. A portion of the advances from the FHLB, although
fixed, are subject to conversion provisions at the option of the FHLB and can be prepaid without a penalty. Management
does not believe these advances will likely be converted in the short-term, and therefore has included them in their original
maturity buckets for purposes of this table.
See Footnote 10 “Subordinated Note” of Item 8. “Financial Statements and Supplementary Data” for further
information regarding the subordinated note.
Securities sold under agreements to repurchase generally have indeterminate maturity periods and are predominantly
included in the less than one-year category above.
Lease commitments represent the total minimum lease payments under non cancelable operating leases.
Asset/Liability Management and Market Risk
Asset/liability management control is designed to ensure safety and soundness, maintain liquidity and regulatory capital
standards and achieve acceptable net interest income. Interest rate risk is the exposure to adverse changes in net interest
income as a result of market fluctuations in interest rates. Management, on an ongoing basis, monitors interest rate and
liquidity risk in order to implement appropriate funding and balance sheet strategies. Management considers interest rate
risk to be Republic’s most significant market risk in a fluctuating rate environment.
The interest sensitivity profile of Republic at any point in time will be affected by a number of factors. These factors include
the mix of interest sensitive assets and liabilities, as well as their relative pricing schedules. It is also influenced by market
interest rates, deposit growth, loan growth and other factors.
Republic utilizes an earnings simulation model to analyze net interest income sensitivity. Potential changes in market
interest rates and their subsequent effects on net interest income are evaluated with the model. The model projects the
effect of instantaneous movements in interest rates of both 100 and 200 basis point increments equally across all points on
the yield curve. These projections are computed based on various assumptions, which are used to determine the 100 and
200 basis point increments, as well as the base case (which is a twelve month projected amount) scenario. Assumptions
based on growth expectations and on the historical behavior of Republic’s deposit and loan rates and their related balances
in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain
and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of
fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results
due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and the
application and timing of various management strategies. Additionally, actual results could differ materially from the
model if interest rates do not move equally across all points on the yield curve. The December 31, 2005 simulation
analysis indicates that an increase in interest rates would have a negative effect on net interest income, and a decrease in
interest rates would have a positive effect on net interest income.
43
The following tables illustrate Republic’s projected net interest income sensitivity profile based on the asset/liability
model as of December 31, 2005 and 2004:
Table 17 – Interest Rate Sensitivity for 2005
(dollars in thousands)
Projected interest income:
Short-term investments
Investments
Loans, excluding fees
Total interest income,
excluding loan fees
Projected interest expense:
Deposits
Securities sold under
agreements to repurchase
Federal Home Loan
Bank borrowings
Total interest expense
Net interest income,
excluding loan fees
Change from base
% Change from base
Decrease in Rates
200
Basis Points
100
Basis Points
Base
Increase in Rates
100
Basis Points
200
Basis Points
$ 200
18,795
125,135
$ 271
21,966
131,333
$ 319
23,918
136,880
$ 370
26,827
143,039
$ 439
29,482
148,690
144,130
153,570
161,117
170,236
178,611
32,582
39,232
45,893
54,206
7,102
10,339
13,576
16,009
19,539
59,223
21,248
70,819
22,556
82,025
25,805
96,020
62,186
17,367
28,317
107,870
$ 84,907
$ 5,815
$ 82,751
$ 3,659
7.35%
4.63%
$ 79,092
$ 74,216
$ (4,876)
(6.16)%
$ 70,741
$ (8,351)
(10.56)%
Table 18 - Interest Rate Sensitivity for 2004
(dollars in thousands)
Projected interest income:
Short-term investments
Investments
Loans, excluding fees
Total interest income,
excluding loan fees
Projected interest expense:
Deposits
Securities sold under
agreements to repurchase
Federal Home Loan Bank
borrowings
Total interest expense
Net interest income,
excluding loan fees
Change from base
% Change from base
Decrease in Rates
200
Basis Points
100
Basis Points
Base
Increase in Rates
100
Basis Points
200
Basis Points
$ 282
16,315
98,136
$ 278
18,125
102,799
$ 517
19,798
108,057
$ 707
22,359
113,612
$ 965
24,642
118,919
114,733
121,202
128,372
136,678
144,526
20,671
22,902
27,459
34,031
4,977
5,256
8,110
11,902
19,294
44,942
19,668
47,826
19,896
55,465
20,161
66,094
40,715
15,505
20,965
77,185
$ 69,791
$ (3,116)
(4.27)%
$ 73,376
$ 469
0.64%
$ 72,907
$ 70,584
$ (2,323)
(3.19)%
$ 67,341
$ (5,566)
(7.63)%
44
Regulatory Matters
On July 22, 2005 Republic Bank & Trust Company received its most recent Community Reinvestment Act (“CRA”)
performance evaluation prepared as of October 4, 2004. The FDIC concluded that Republic Bank & Trust Company
violated Regulation B related to its RAL line of business and assigned a “Needs to Improve” rating. Republic Bank
& Trust Company voluntarily changed certain procedures and processes to address the Regulation B issues raised by
the FDIC during the CRA Evaluation. As required by statute, the FDIC referred their conclusions regarding the
Regulation B violations to the Department of Justice (“DOJ”). Also by statute, a financial holding company, such as
the Company, that controls a Bank with a “less than satisfactory” CRA rating, has limitations on certain future
business activities until the CRA rating improves. Management does not believe these limitations will have any
material effect on the Company’s current business plans. At this time, there has been no corrective action imposed
by the FDIC or the DOJ.
New Accounting Pronouncements
See discussion in Footnote 1 “Summary of Significant Accounting Policies” of Item 8. “Financial Statements and
Supplementary Data” for discussion of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The information included under the caption “ASSET/LIABILITY MANAGEMENT AND MARKET RISK” is included
under Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations.”
Item 8. Financial Statements and Supplementary Data.
The following are included in this section:
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Financial Statements
Consolidated balance sheets – December 31, 2005 and 2004
Consolidated statements of income and comprehensive income – years ended December 31, 2005, 2004 and 2003
Consolidated statements of stockholders’ equity – years ended December 31, 2005, 2004 and 2003
Consolidated statements of cash flows – years ended December 31, 2005, 2004 and 2003
Footnotes to consolidated financial statements
45
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Management of Republic Bancorp, Inc. (the “Company”) is responsible for the preparation, integrity, and fair
presentation of the Company’s annual consolidated financial statements. All information has been prepared in
accordance with U.S. generally accepted accounting principles and, as such, includes certain amounts that are based
on Management’s best estimates and judgments.
Management is responsible for establishing and maintaining adequate internal control over financial reporting
presented in conformity with U.S. generally accepted accounting principles. Internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial statements.
Two of the objectives of internal control are to provide reasonable assurance to Management and the Board of
Directors that transactions are properly authorized and recorded in our financial records, and that the preparation of
the Company’s financial statements and other financial reporting is done in accordance with U.S. generally accepted
accounting principles.
Management has made its own assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2005, in relation to the criteria described in the report, Internal Control — Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
There are inherent limitations in the effectiveness of internal control, including the possibility of human error and
the circumvention or overriding of controls. Accordingly, even effective internal control can provide only
reasonable assurance with respect to reliability of financial statements. Furthermore, the effectiveness of internal
control can vary with changes in circumstances. Based on its assessment, Management believes that as of December
31, 2005, the Company’s internal control was effective in achieving the objectives stated above. Crowe Chizek and
Company LLC has provided its report of this assessment in a separate report dated February 3, 2006.
Bernard M. Trager
Chairman of the Board
Republic Bancorp, Inc.
February 3, 2006
Steven E. Trager
President and
Chief Executive Officer
Republic Bancorp, Inc.
Kevin Sipes
Executive Vice President and
Chief Financial Officer
Republic Bancorp, Inc.
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
We have audited management’s assessment, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting, that Republic Bancorp, Inc. maintained effective internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Republic Bancorp,
Inc. management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(U.S.). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing
and evaluating the design and operating effectiveness of internal control, and performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, management’s assessment that Republic Bancorp, Inc. maintained effective internal control over
financial reporting as of December 31, 2005 is fairly stated, in all material respects, based on criteria established in
Internal Control — Integrated Framework issued by the COSO. Also, in our opinion, Republic Bancorp, Inc.
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005
based on criteria established in Internal Control – Integrated Framework issued by the COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (U.S.),
the balance sheets of Republic Bancorp, Inc. as of December 31, 2005 and 2004 and the related statements of
income and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2005 and our report dated February 3, 2006 expressed an unqualified opinion.
Louisville, Kentucky
February 3, 2006
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS
Board of Directors and Stockholders
of Republic Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Republic Bancorp, Inc. and subsidiaries as of
December 31, 2005 and 2004 and the related consolidated statements of income and comprehensive income,
stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. These
financial statements are the responsibility of Republic’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(U.S.). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Republic Bancorp, Inc. and subsidiaries as of December 31, 2005 and 2004 and the results of
their operations and their cash flows for each of the three years in the period ending December 31, 2005, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (U.S.),
the effectiveness of Republic Bancorp, Inc.'s internal control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) and our report dated February 3, 2006 expressed an
unqualified opinion.
Louisville, Kentucky
February 3, 2006 except for Footnote 22 which was February 27, 2006
48
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (in thousands, except share data)
ASSETS:
2005
2004
Cash and cash equivalents
Securities available for sale
Securities to be held to maturity (fair value $64,402 in 2005 and $98,129 in 2004)
Mortgage loans held for sale
Loans, net of allowance for loan losses of $11,009 and $13,554 (2005 and 2004)
Federal Home Loan Bank stock, at cost
Premises and equipment, net
Other assets and accrued interest receivable
$
77,169
447,865
64,298
6,582
2,049,647
21,595
31,786
36,614
$
77,850
453,360
98,233
16,485
1,775,545
20,321
33,843
23,285
TOTAL ASSETS
LIABILITIES:
Deposits:
Non interest-bearing
Interest-bearing
Total deposits
$ 2,735,556
$ 2,498,922
$ 286,484
1,316,081
1,602,565
$ 261,993
1,155,937
1,417,930
Securities sold under agreements to repurchase and other short-term borrowings
Federal Home Loan Bank borrowings
Subordinated note
Other liabilities and accrued interest payable
292,259
561,133
41,240
24,785
364,828
496,387
-
23,708
Total liabilities
STOCKHOLDERS’ EQUITY:
Preferred stock, no par value, 100,000 shares authorized
Series A 8.5% non cumulative convertible, none issued
Class A Common Stock, no par value, 30,000,000 shares
authorized, 17,319,150 shares (2005) and 17,744,900 shares (2004)
issued, 17,187,508 shares (2005) and 17,575,110 shares (2004)
outstanding; Class B Common Stock, no par value, 5,000,000
shares authorized, 2,249,389 shares (2005) and 2,256,933
shares (2004) issued and outstanding
Additional paid in capital
Retained earnings
Unearned shares in Employee Stock Ownership Plan
Accumulated other comprehensive loss
Total stockholders’ equity
2,521,982
2,302,853
-
-
4,475
77,295
136,381
(1,468)
(3,109)
4,381
58,117
135,949
(1,894)
(484)
213,574
196,069
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 2,735,556
$ 2,498,922
See accompanying footnotes to consolidated financial statements.
49
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, (in thousands, except per share data)
INTEREST INCOME:
Loans, including fees
Securities:
Taxable
Non taxable
Federal Home Loan Bank stock and other
Total interest income
INTEREST EXPENSE:
Deposits
Securities sold under agreements to repurchase
and other short-term borrowings
Federal Home Loan Bank borrowings
Subordinated note
Total interest expense
NET INTEREST INCOME
Provision for loan losses
2005
2004
2003
$ 134,569
$ 118,492
$ 107,645
18,568
-
2,482
155,619
12,558
-
1,316
132,366
10,377
3
1,035
119,060
31,703
9,906
20,380
951
62,940
92,679
(562)
21,202
4,191
16,921
-
42,314
90,052
1,748
19,944
1,897
14,954
-
36,795
82,265
6,574
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
93,241
88,304
75,691
NON INTEREST INCOME:
Service charges on deposit accounts
Electronic refund check fees
Mortgage banking income
Debit card interchange fee income
Title insurance commissions
Other
Total non interest income
NON INTEREST EXPENSES:
Salaries and employee benefits
Occupancy and equipment, net
Communication and transportation
Marketing and development
Bankshares tax
Data processing
Debit card interchange expense
Supplies
Other
Total non interest expenses
INCOME BEFORE INCOME TAX EXPENSE
INCOME TAX EXPENSE
NET INCOME
(continued)
50
15,547
6,083
2,751
3,122
1,756
1,244
30,503
37,037
13,467
3,035
2,878
2,262
1,909
1,357
1,133
7,503
70,581
53,163
18,098
13,460
5,268
3,148
2,492
1,515
1,311
27,194
34,552
13,915
2,809
2,271
1,932
1,602
1,080
1,385
6,470
66,016
49,482
16,981
10,019
3,981
11,104
1,825
2,532
1,472
30,933
32,509
12,416
2,729
2,997
1,980
1,722
1,006
1,481
6,019
62,859
43,765
15,562
$
35,065
$
32,501
$
28,203
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (continued)
YEARS ENDED DECEMBER 31, (in thousands, except for per share date)
2005
2004
2003
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Change in unrealized loss on securities available for sale
Less: Reclassification of realized amount
Net unrealized gain loss recognized in comprehensive
income
$
(2,625)
-
$
(1,484)
-
$
(1,598)
-
(2,625)
(1,484)
(1,598)
COMPREHENSIVE INCOME
$
32,440
$
31,017
$
26,605
BASIC EARNINGS PER SHARE:
Class A Common Stock
Class B Common Stock
DILUTED EARNINGS PER SHARE:
Class A Common Stock
Class B Common Stock
$
1.78
1.75
$
1.65
1.62
$
1.44
1.40
1.71
1.68
1.58
1.56
1.41
1.37
See accompanying footnotes to consolidated financial statements.
51
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
Common Stock
Class B
Shares
Class A
Shares
Unearned
Shares in Accumulated
Additional
Empl. Stock
Other
Total
Paid In Retained Ownership Comprehensive Stockholders'
(in thousands, except per share data) Outstanding Outstanding Amount Capital
Earnings
Plan
Income (Loss)
Equity
BALANCE, January 1, 2003
17,193
2,290
$
4,120
$
39,174
$
107,567
$
(2,663)
$
2,598
$
150,796
Net Income
Net change in accumulated other
comprehensive income (loss)
Dividend declared Common Stock:
Class A ($0.437 per share)
Class B ($0.397 per share)
Stock options exercised, net of
shares redeemed
Repurchase of Class A Common Stock
Conversion of Class B Common Stock
to Class A Common Stock
Shares committed to be released under
the Employee Stock Ownership Plan
Note receivable on common stock, net
of cash payments
-
-
-
-
207
(23)
19
33
-
-
-
-
-
-
(5)
(19)
-
-
-
-
-
-
-
-
-
-
28,203
-
(7,622)
(903)
43
(6)
1,620
(678)
(57)
(316)
-
-
-
-
73
(550)
-
-
-
-
-
-
-
-
-
-
374
-
-
28,203
(1,598)
(1,598)
-
-
-
-
-
-
-
(7,622)
(903)
985
(379)
-
447
(550)
BALANCE, December 31, 2003
17,429
2,266
$
4,157
$
40,260
$
126,251
$
(2,289)
$
1,000
$
169,379
(continued)
52
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
Common Stock
Class B
Shares
Class A
Shares
Unearned
Shares in Accumulated
Additional
Empl. Stock
Other
Total
Paid In Retained Ownership Comprehensive Stockholders'
(in thousands, except per share data) Outstanding Outstanding Amount Capital
Earnings
Plan
Income (Loss)
Equity
Balance, January 1, 2004
17,429
2,266
$
4,157
$
40,260
$
126,251
$
(2,289)
$
1,000
$
169,379
Net Income
Net change in accumulated other
comprehensive income (loss)
Dividend declared Common Stock:
Class A ($0.267 per share)
Class B ($0.242 per share)
Stock options exercised, net of
shares redeemed
Repurchase of Class A Common Stock
Conversion of Class B Common Stock
to Class A Common Stock
Shares committed to be released under
the Employee Stock Ownership Plan
Stock dividend
Note receivable on common stock, net
of cash payments
-
-
-
-
123
(21)
9
35
-
-
-
-
-
-
-
-
(9)
-
-
-
-
-
-
-
25
(4)
-
-
-
-
-
-
32,501
-
(4,653)
(548)
1,494
(725)
(62)
(317)
-
285
-
-
203
16,357
(16,560)
-
(217)
-
-
-
-
-
-
-
-
395
-
-
-
32,501
(1,484)
(1,484)
-
-
-
-
-
-
-
-
(4,653)
(548)
794
(383)
-
680
-
(217)
BALANCE, December 31, 2004
17,575
2,257
$
4,381
$
58,117
$
135,949
$
(1,894)
$
(484)
$
196,069
(continued)
53
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
Additional
Paid In
(in thousands, except per share data) Outstanding Outstanding Amount Capital
Class A
Shares
Common Stock
Class B
Shares
Unearned
Shares in Accumulated
Empl. Stock
Other
Total
Retained Ownership Comprehensive Stockholders'
Earnings
Income (Loss)
Equity
Plan
Balance, January 1, 2005
17,575
2,257
$
4,381
$
58,117
$
135,949
$
(1,894)
$
(484)
$
196,069
Net Income
Net change in accumulated other
comprehensive loss
Dividend declared Common Stock:
Class A ($0.321 per share)
Class B ($0.292 per share)
Stock options exercised, net of
shares redeemed
-
-
-
-
54
Repurchase of Class A Common Stock
(487)
Conversion of Class B Common Stock
to Class A Common Stock
Shares committed to be released under
the Employee Stock Ownership Plan
Stock dividend
Note receivable on common stock, net
of cash payments
Deferred compensation expense
8
38
-
-
-
-
-
-
-
-
-
(8)
-
-
-
-
-
-
-
-
-
-
-
-
35,065
-
(5,645)
(659)
12
534
(344)
(112)
(1,948)
(7,760)
-
-
-
383
-
-
194
20,031
(20,225)
-
-
58
120
-
-
-
-
-
-
-
-
-
426
-
-
-
-
35,065
(2,625)
(2,625)
-
-
-
-
-
-
-
-
-
(5,645)
(659)
202
(9,820)
-
809
-
58
120
BALANCE, December 31, 2005
17,188
2,249
$
4,475
$
77,295
$
136,381
$
(1,468)
$
(3,109)
$
213,574
See accompanying footnotes to consolidated financial statements.
54
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, (in thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization, net
Federal Home Loan Bank stock dividends
Provision for loan losses
Net gain on sale of mortgage loans held for sale
Origination of mortgage loans held for sale
Proceeds from sale of mortgage loans held for sale
Employee Stock Ownership Plan expense
Changes in other assets and liabilities:
Other assets and accrued interest receivable
Other liabilities and accrued interest payable
Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchases of securities available for sale
Purchases of securities to be held to maturity
Purchases of Federal Home Loan Bank stock
Proceeds from calls, maturities and paydowns of securities
available for sale
Proceeds from calls, maturities and paydowns of securities to be
held to maturity
Net increase in loans
Investment in new market tax credits
Investment in unconsolidated subsidiary
Purchases of premises and equipment, net
Net cash used in investing activities
FINANCING ACTIVITIES:
Net change in deposits
Net change in securities sold under agreements to repurchase
and other short-term borrowings
Payments on Federal Home Loan Bank borrowings
Proceeds from Federal Home Loan Bank borrowings
Net proceeds from subordinated note
Common Stock repurchases
Net proceeds from Common Stock options exercised
Cash dividends paid
Net cash provided by financing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
2005
2004
2003
$
35,065
$
32,501
$
28,203
4,133
(1,010)
(562)
(2,265)
(232,903)
245,071
809
(2,319)
599
46,618
7,313
(822)
1,748
(2,861)
(254,421)
254,529
680
(612)
2,210
40,265
6,050
(756)
6,574
(12,718)
(798,657)
863,338
447
(1,881)
3,350
93,950
(4,518,393)
(1,991)
(264)
(4,097,326)
(61,180)
(351)
(508,371)
(145,305)
(68)
4,523,146
3,937,964
412,935
35,880
(274,219)
(8,992)
(1,240)
(3,640)
(249,713)
78,292
(211,169)
(960)
-
(5,819)
(360,549)
115,214
(275,952)
-
-
(16,593)
(418,140)
184,635
120,818
221,093
(72,569)
(93,091)
157,837
41,240
(9,820)
202
(6,020)
202,414
(681)
144,483
(24,716)
100,925
-
(383)
794
(4,968)
336,953
16,669
61,181
31,245
(75,818)
176,697
-
(379)
985
(8,305)
345,518
21,328
39,853
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
77,850
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
77,169
$
77,850
$
61,181
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest
Income taxes
$
61,492
16,698
$
41,981
14,366
$
36,170
16,412
SUPPLEMENTAL NONCASH DISCLOSURES:
Client transfers from securities sold under agreements to repurchase
into deposits $ - $
$ 35,829
Transfers from loans to real estate acquired in settlement of loans 737 1,652 750
-
See accompanying footnotes to consolidated financial statements.
55
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Operations – The consolidated financial statements include the accounts of
Republic Bancorp, Inc. (the “Parent Company”) and its wholly-owned subsidiaries: Republic Bank & Trust Company and
Republic Bank & Trust Company of Indiana (together referred to as the “Bank”), Republic Funding Company, Republic
Invest Co. and Republic Bancorp Capital Trust. Republic Invest Co. includes its subsidiary, Republic Capital LLC.
Republic Bancorp Capital Trust is a Delaware statutory business trust that is a wholly-owned unconsolidated finance
subsidiary of Republic Bancorp, Inc. The consolidated financial statements also include the wholly-owned subsidiaries of
Republic Bank & Trust Company: Republic Financial Services, LLC and Republic Insurance Agency, LLC. All
companies are collectively referred to as “Republic” or the “Company.” All significant intercompany balances and
transactions have been eliminated in consolidation.
Republic operates 34 banking centers, primarily in the retail banking industry, and conducts its operations predominately
in metropolitan Louisville, Kentucky, central Kentucky, southern Indiana and through an Internet banking software
application. Republic also operates two Loan Production Offices (“LPOs”) in the Louisville, Kentucky market.
Republic’s consolidated results of operations are 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 assets are securities and real estate mortgage, commercial and consumer loans. Interest-bearing
liabilities primarily consist of interest-bearing deposit accounts and short-term and long-term borrowings.
The Bank originates deferred deposits, commonly referred to as a “payday loan” or “payday lending,” which are classified
as consumer loans, whereby customers receive cash advances in exchange for a check or authorization to electronically
debit the customer’s checking account for the advanced amount plus a fixed fee. Republic Bank & Trust Company
promotes this product through a third party relationship with a Marketer/Servicer. Through the Marketer/Servicer,
Republic Bank & Trust Company originates payday loans in Texas, Pennsylvania and Arkansas. Republic Bank & Trust
Company of Indiana offers payday loans without a Marketer/Servicer, utilizing an Internet-based payday loan program
offered direct to customers on a nationwide basis. See Footnote 22 “Subsequent Event” in this section of the document for
additional discussion regarding payday loans.
Republic Bank & Trust Company is one of a limited number of financial institutions which facilitate the payment of
federal and state tax refunds through tax preparers located throughout the U.S.. The Company facilitates the payment of
these tax refunds through three primary products: Refund Anticipation Loans (“RALs”), Electronic Refund Checks
(“ERCs”) and Electronic Refund Deposits (“ERDs”). RALs are classified as consumer loans. ERCs and ERDs are
products whereby Republic Bank & Trust Company transmits, via a check or electronic deposit, a taxpayer’s refund once
it is received from the respective state or federal government.
Other sources of income include service charges on deposit accounts, fees charged to customers for trust services and
revenue generated from mortgage banking activities, which represents the origination and sale of loans in the secondary
market and servicing loans for others.
Republic’s operating expenses consist primarily of salaries and employee benefits, occupancy and equipment expenses,
communication and transportation costs, marketing and development expenses and other general and administrative costs.
Republic’s results of operations are significantly affected by general economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory agencies.
Use of Estimates – Financial statements prepared in conformity with accounting principles generally accepted in the U.S.
(“U.S. generally accepted accounting principles”) require management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Material estimates that are
particularly susceptible to significant change in the short-term, relate to the determination of the allowance for loan losses
and mortgage servicing rights (“MSRs”). These estimates are particularly subject to change and actual results could differ
from these estimates.
Significant Group Concentrations of Credit Risk – The Company does not have any significant concentrations of credit
risk to any one industry or relationship.
56
Earnings Concentration – For 2005, 2004 and 2003, approximately 30%, 37% and 26% of net income contribution was
derived from the Tax Refund Solutions (“TRS”) and Deferred Deposit segments, which consist of relationships, which if
terminated, could have a materially adverse impact on net income. See Footnote 20 “Segment Information” and
Footnote 22 “Subsequent Event” in this section for additional detail and discussion.
Cash Flows – For purpose of the consolidated statement of cash flows, cash and cash equivalents include cash, deposits
with other financial institutions with original maturities under 90 days and federal funds sold. Net cash flows are reported
for customer loan and deposit transactions, interest bearing deposits in other financial institutions, repurchase agreements
and income taxes.
Securities – Securities to be held to maturity are those which Republic has the positive intent and ability to hold to
maturity and are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the
interest method over the period to maturity.
Securities available for sale, carried at fair value, consist of securities not classified as trading securities nor as held to
maturity securities. Unrealized holding gains and losses, net of tax, on securities available for sale are reported as a
separate component of stockholders’ equity until realized. Gains and losses on the sale of available for sale securities are
determined using the specific identification method. Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Declines in the fair value of securities below their cost that are deemed to be other than temporary are reflected in earnings
as realized losses. In estimating other than temporary impairment losses, management considers (1) the length of time and
the extent to which the fair value has been less than cost, (2) the financial condition and short-term prospects of the issuer
and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.
Mortgage Banking Activities – Mortgage loans originated and intended for sale in the secondary market are carried at
the lower of aggregate cost or market value, as determined by current investor yield requirements. The Company enters
into loan commitments for fixed rate mortgage loans, generally lasting 45 to 90 days and are at market rates when
initiated. These commitments to originate mortgage loans that the company intends to sell are considered derivative
instruments. To deliver closed loans to the secondary market and to moderate its interest rate risk prior to sale, Republic
typically enters into non-exchange traded mandatory forward sales contracts, which are also considered derivative
instruments. These contracts are entered into for amounts and terms offsetting the interest rate risk of loan commitment
derivatives and loans held for sale, and both are carried at their fair value with changes included in earnings. Substantially
all of the gain on sale generated from mortgage banking activities is recorded when closed loans are delivered into the
sales contracts.
MSRs represent an estimate of the present value of future cash servicing income, net of estimated costs, that the Company
expects to receive on loans sold with servicing retained. MSRs are capitalized as separate assets when loans are sold and
servicing is retained. Management considers all relevant factors, in addition to pricing considerations from other servicers,
to estimate the fair value of the MSRs to be recorded when the loans are initially sold with servicing retained. Prior to
2003, loans sold in the secondary market had been primarily sold with servicing released, which did not result in an MSR.
Beginning in 2003, Republic sold substantially all of its loans into the secondary market with servicing retained. The
service release premium on loans sold servicing released and gain from recognizing an MSR on loans sold servicing
retained are included as components of mortgage banking income on the face of the income statement. The carrying value
of MSRs is amortized in proportion to and over the period of net servicing income. The amortization is recorded as a
reduction to mortgage banking income. The total MSR asset, net of amortization, recorded at December 31, 2005 and
2004 is $6.4 million and $5.3 million. The MSR asset is recorded as a component of other assets on the face of the
balance sheet.
The carrying value of the MSR asset is periodically reviewed for impairment based on the fair value of the MSR, using
groupings of the underlying loans by interest rates and by geography and prepayment characteristics. Any impairment of
a grouping would be reported as a valuation allowance. A primary factor influencing the fair value is the estimated life of
the underlying loans serviced. The estimated life of the loans serviced is significantly influenced by market interest rates.
During a period of declining interest rates, the fair value of the MSRs generally will decline due to expected prepayments
within the portfolio. Alternatively, during a period of rising interest rates the fair value of MSRs generally will increase as
prepayments on the underlying loans would be expected to decline. Management utilizes an independent third party on a
monthly basis to assist with the fair value estimate of the MSRs. Based on the estimated fair value at December 31, 2005
and 2004, management determined no impairment of the MSR asset existed. Further, no impairment was recognized
during 2005, 2004 or 2003.
57
Loan servicing income is recorded as principal payments are collected and includes servicing fees from investors and
certain charges collected from borrowers, such as late payment fees.
Loans – Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or
pay-off are reported at their outstanding principal balance adjusted for any changes to the allowance for loan losses,
unearned interest and any deferred loan fees or costs.
Interest on loans is computed on the principal balance outstanding. Loan origination fees and certain direct loan
origination costs relating to successful loan origination efforts are deferred and recognized over the estimated lives of the
related loans on the level yield method not anticipating prepayments.
Generally, the accrual of interest on loans, including impaired loans, is discontinued when it is determined that the
collection of interest or principal is doubtful, or when a default of interest or principal has existed for 90 days or more,
unless such loans are well secured and in the process of collection.
Interest received on non-accrual loans generally is either applied against principal or reported as interest income,
according to management’s judgment as to the ultimate full collectibility of principal. When loans are placed on non-
accrual status, all unpaid accrued interest is reversed. Such loans remain on non-accrual status until the borrower
demonstrates the ability to remain current, or the loan is deemed uncollectible and is charged off. Consumer loans,
exclusive of payday loans and RALs, are not placed on non-accrual status, but are reviewed periodically and charged off
when they reach 120 days past due or at any point the loan is deemed uncollectible. Payday loans under contract with the
Company’s Marketer/Servicer, are generally charged off 60 days from the day that they become uncollectible. These
uncollectible payday loans are subject to a Marketer/Servicer guarantee. Internet payday loans are charged off when they
become 31 days past due. RALs traditionally undergo a review in March of each year and those deemed uncollectible by
management are charged off against the allowance for loan losses.
Allowance for Loan Losses – The allowance for loan losses is a valuation allowance for probable incurred credit losses.
Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a monthly basis by management and is based upon management’s periodic
review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and
prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to
significant revision as additional information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are classified as
either loss, doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is
established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower
than the carrying value of that loan. The general component covers non classified loans and is based on historical loss
experience adjusted for qualitative factors. There are underlying uncertainties that could affect management’s estimate of
probable losses and there is a margin of imprecision inherent in the underlying assumptions used in the methodologies for
estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the significance of
payment delays and payment shortfalls on a case by case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior
payment history and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a
loan by loan basis for commercial and construction loans by either the present value of expected future cash flows
discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral, if
payment from the loans is expected solely from the collateral.
58
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company
does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are
the subject of a restructuring agreement.
Real Estate Owned – Assets acquired through or instead of loan foreclosure are initially recorded at fair value when
acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded
through expense. Costs incurred after acquisition are expensed. Real estate owned totaled $452,000 and $657,000 at
December 31, 2004 and 2005.
Premises and Equipment, Net – Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed over the estimated useful lives of the related assets on the straight-line method.
Estimated lives are 25 to 39 years for buildings and improvements, three to five years for furniture, fixtures and equipment
and three to nine years for leasehold improvements.
Federal Home Loan Bank Stock – The Company is a member of the Federal Home Loan Bank (“FHLB”) system.
Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest
in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for
impairment. Because this stock is viewed as long-term investment, impairment is based on ultimate recovery of par value.
Both cash and stock dividends are recorded as interest income.
Long Lived Assets – Long lived assets, including premises and equipment, are reviewed for impairment when events
indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are
recorded at fair value.
Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings – Substantially all securities
sold under agreements to repurchase (“Repurchase Agreements”) liabilities represent amounts advanced by customers.
Securities are pledged to cover the majority of these liabilities, as the liabilities are not covered by Federal Deposit
Insurance Corporation (“FDIC”) insurance. Certain repurchase agreements are secured by private insurance purchased by
Republic, or FHLB letters of credit, rather than by security pledges. Other short-term borrowings primarily consist of
federal funds purchased.
59
Stock Option Plans – Employee compensation expense under stock option plans is reported using the intrinsic value
method. No stock based compensation cost is reflected in net income, as all options granted had an exercise price equal to
or greater than the market price of the underlying common stock at date of grant.
(dollars in thousands, except per share data)
2005
2004
2003
Net income, as reported
Less: Stock based compensation expense
determined under the fair value based
method,
Pro forma net income
Earnings per share, as reported:
Class A Common Stock
Class B Common Stock
Pro forma basic earnings per share:
Class A Common Stock
Class B Common Stock
Diluted earnings per share, as reported:
Class A Common Stock
Class B Common Stock
Pro forma diluted earnings per share:
Class A Common Stock
Class B Common Stock
$ 35,065
$ 32,501
$ 28,203
915
$ 34,150
574
$ 31,927
722
$ 27,481
$
1.78
1.75
$
1.65
1.62
$
1.44
1.40
1.73
1.70
1.71
1.68
1.67
1.64
1.62
1.59
1.58
1.56
1.55
1.53
1.41
1.37
1.41
1.37
1.38
1.34
There were 43,050, 571,078 and 107,071 options granted during 2005, 2004 and 2003.
The weighted average assumptions for options granted during the year and the resulting estimated weighted average fair
values per share used in the Black-Scholes option pricing model are as follows:
Risk-free interest rate
Expected dividend yield
Expected life of options (in years)
Expected volatility
Estimated fair value per share
2005
2004
3.75%
1.48
5.55
28%
$ 6.48
3.70%
1.69
5.82
21%
$ 3.77
2003
3.17%
2.05
6.00
24%
$ 2.51
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standard (“SFAS”) No. 123 (Revised 2004) (“SFAS No. 123R”), “Share-Based Payment.” The Statement focuses
primarily on accounting for transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the grant date fair value of the award (with limited exceptions). That cost is
measured at fair value and expensed over the period during which an employee is required to provide service in exchange
for the award. The Company will prospectively adopt this standard on January 1, 2006. Transitionally, compensation cost
will be recorded for prior option grants that vest after the date of adoption. Existing options that will vest after the
adoption date are estimated to result in additional compensation expense of $853,000 during the balance of 2006,
$687,000 in 2007, $509,000 in 2008, $392,000 in 2009 and $163,000 in 2010 and $19,000 thereafter. The effect on
results of operations of future option grants will depend on the level of those grants and the calculation of the fair value of
the options granted at such future date, as well as the vesting periods provided, and so the future impact to the results of
operations cannot currently be predicted. Upon adoption, there will be no significant effect on the Company’s financial
position, as total equity will not change.
60
Income Taxes – Income tax expense represents the total of the current year income tax due or refundable and the change
in the deferred tax assets and liabilities. Deferred tax assets and liabilities are reflected at currently enacted income tax
rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income
taxes. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
Retirement Plans – 401(k) plan expense is recorded as a component of salaries and employee benefits and represents the
amount of Company matching contributions.
Employee Stock Ownership Plan (“ESOP”) – The cost of shares held by the ESOP, but not yet committed or allocated
to participants, is shown as a reduction to stockholders’ equity. Compensation expense is based on the market price of
shares as they are committed to be released to participant accounts. The difference between market price and the cost of
shares committed to be released is recorded as an adjustment to additional paid in capital. Dividends on allocated ESOP
shares reduce retained earnings and dividends on unearned ESOP shares reduce debt and accrued interest.
Financial Instruments – Financial instruments include off balance sheet credit instruments, such as commitments to fund
loans and standby letters of credit. The face amount for these items represents the exposure to loss, before considering
customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Instruments such
as standby letters of credit are considered financial guarantees in accordance with FASB Interpretation No. 45 and are
recorded at fair value.
Derivatives – Republic only utilizes derivative instruments as described in Footnote 5 “Mortgage Banking Activities” in
this section of the document.
Loss Contingencies – Loss contingencies, including claims and legal actions arising in the ordinary course of business,
are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there are any such matters that will have a material effect on the financial
statements. See additional discussion under Item 3. “Legal Proceedings.”
Earnings Per Share – Earnings per share is based on net income (in the case of Class B Common Stock, less the dividend
preference on Class A Common Stock), divided by the weighted average number of shares outstanding during the period.
For purposes of all earnings per share calculations, unallocated ESOP shares are not considered issued and outstanding
until earned. All share and per share data has been restated to reflect the five percent (5%) stock dividend that was
declared in January 2006.
Comprehensive Income – Comprehensive income consists of net income and other comprehensive income. Other
comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as a
separate component of equity, net of tax.
Equity – Stock dividends in excess of 20% are reported by transferring the par value of the stock issued from retained
earnings to common stock. Stock dividends for 20% or less are reported by transferring the fair value, as of the
ex-dividend date, of the stock issued from retained earnings to common stock and additional paid-in capital. Fractional
share amounts are paid in cash with a reduction in retained earnings.
Dividend Restrictions – Banking regulations require maintaining certain capital levels and may limit the dividends paid
by the bank to the holding company or by the holding company to shareholders. These restrictions pose no practical limit
on the ability of the bank or holding company to pay dividends at historical levels. See Footnote 13 “Stockholders’
Equity” of this section of the document for additional discussion.
Fair Value of Financial Instruments – Fair values of financial instruments are estimated using relevant market
information and other assumptions. See Footnote 18 “Fair Value of Financial Instruments” of this section of the document
for additional discussion. Fair value estimates involve uncertainties and matters of significant judgment regarding interest
rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes
in assumptions or in market conditions could significantly affect the estimates.
61
Segment Information – Segments represent parts of the Company evaluated by management with separate financial
information. Republic’s internal information is primarily reported and evaluated in four lines of business – banking, Tax
Refund Solutions, mortgage banking and deferred deposits. See Footnote 20 “Segment Information” of this section of the
document for additional discussion.
Reclassifications – Certain amounts presented in prior periods have been reclassified to conform with the current year
presentation.
New Accounting Pronouncements – There are no new accounting pronouncements other than SFAS 123R discussed
above under the section titled “Stock Option Plans” that will have a material impact on Republic’s consolidated financial
statements.
2. RESTRICTIONS ON CASH AND CASH EQUIVALENTS
Republic is required by the Federal Reserve Bank to maintain average reserve balances. Cash and due from banks in the
consolidated balance sheet includes $2.4 million and $1.4 million of reserve balances at December 31, 2005 and 2004.
The Company does not earn interest on these cash balances.
62
Total securities available for sale
$ 452,648
$
3. SECURITIES
Securities available for sale:
December 31, 2005 (in thousands)
U.S. Treasury securities and U.S.
Government agencies
Mortgage backed securities,
including CMOs
December 31, 2004 (in thousands)
U.S. Treasury securities and U.S.
Government agencies
Mortgage backed securities,
including CMOs
Securities to be held to maturity:
December 31, 2005 (in thousands)
U.S. Treasury securities and U.S.
Government agencies
Mortgage backed securities,
including CMOs
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$ 333,348
$
13
$
(3,067)
$ 330,294
119,300
130
143
(1,859)
117,571
$
(4,926)
$ 447,865
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$ 292,925
$
29
$
(1,257)
$ 291,697
Amortized
Cost
Gross
Gross
Unrecognized Unrecognized
Gains
Losses
Fair Value
$
12,110
$
-
$
(131)
$
11,979
Total securities available for sale
$ 454,104
$
161,179
755
784
(271)
161,663
$
(1,528)
$ 453,360
Total securities to be held to maturity
$
64,298
$
52,188
525
525
(290)
52,423
$
(421)
$
64,402
December 31, 2004 (in thousands)
Cost Gains Losses Fair Value
Amortized
Gross
Unrecognized
Gross
Unrecognized
U.S. Treasury securities and U.S.
Government agencies
Mortgage backed securities,
including CMOs
$
20,112
$
-
$
(55)
$
20,057
78,121
131
131
(180)
78,072
$
(235)
$
98,129
Total securities to be held to maturity
$
98,233
$
The amortized cost and fair value of securities, by contractual maturity are as follows:
Securities
available for sale
Securities to be
held to maturity
Amortized
Amortized
December 31, 2005 (in thousands)
Cost Fair Value Cost
Fair Value
Due in one year or less
Due after one year through five years
Mortgage backed securities, including CMOs
$
Total
$
172,807
160,541
119,300
452,648
$
$
172,129
158,165
117,571
447,865
$
$
5,000
7,110
52,188
64,298
$
$
4,967
7,012
52,423
64,402
There were no sales of securities available for sale during 2005, 2004 or 2003.
63
Securities pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes, as required
or permitted by law are as follows:
December 31, (in thousands)
2005 2004
Amortized cost
Fair value
$ 400,986
397,255
$ 454,483
453,677
At December 31, 2005 and 2004, there were no holdings of securities of any one issuer, other than the U.S. Government and its
agencies in an amount greater than 10% of stockholders’ equity.
Securities with unrealized losses at December 31, 2005 and 2004, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, are as follows:
December 31, 2005 (in thousands)
U.S. Treasury securities and U.S.
Government Agencies
Mortgage backed securities,
including CMOs
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
168,490
$
(600)
$
167,119
$
(2,598)
$
335,609
$
(3,198)
27,492
(302)
65,846
(1,847)
93,338
(2,149)
Total temporarily impaired
$
195,982
$
(902)
$
232,965
$
(4,445)
$
428,947
$
(5,347)
December 31, 2004 (in thousands)
U.S. Treasury securities and U.S.
Government Agencies
Mortgage backed securities,
including CMOs
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
285,306
$
(1,312)
$
-
$
-
$
285,306
$
(1,312)
65,664
(294)
12,867
(157)
78,531
(451)
Total temporarily impaired
$
350,970
$
(1,606)
$
12,867
$
(157)
$
363,837
$
(1,763)
All unrealized losses are reviewed to determine whether the losses are other than temporary. Management evaluates securities
for other than temporary impairment on a quarterly basis, and more frequently when economic or market conditions warrant
such evaluation. Factors considered include whether the securities are backed by the U.S. Government or its agencies and
concerns surrounding the recovery of full principal. While it is likely that management will hold the securities to maturity, even
though some are classified as available for sale, management believes the unrealized losses are market driven and no ultimate
loss will occur.
4. LOANS
December 31, (in thousands)
2005 2004
Residential real estate
Commercial real estate
Real estate construction
Commercial
Consumer
Deferred deposits (“Payday loans”)
Home equity
Total loans
Less:
Unearned interest income and unamortized loan fees
Allowance for loan losses
Loans, net
$
$ 1,056,175
565,970
84,850
46,562
35,529
851,736
495,827
70,220
36,807
32,366
5,779 35,631
267,231
1,789,818
265,895
2,060,760
104
11,009
719
13,554
$ 2,049,647
$ 1,775,545
64
The following table illustrates real estate loans pledged to collateralize advances and letters of credit from the FHLB:
December 31, (in thousands)
2005
2004
First lien, single family residential
Multi-family, commercial real estate
Home equity lines of credit
$ 938,000
56,000
169,000
$ 759,000
55,000
171,000
An analysis of the Allowance for loan losses follows:
December 31, (in thousands)
2005 2004 2003
Balance, beginning of year
Provision for loan losses
Charge offs – Banking and Deferred Deposits
Charge offs – Tax Refund Solutions
Recoveries – Banking and Deferred Deposits
Recoveries – Tax Refund Solutions
$
$
13,554
(562)
(1,694)
(2,213)
667
1,257
$
13,959
1,748
(1,688)
(3,404)
917
2,022
10,148
6,574
(3,227)
(2,300)
2,314
450
Balance, end of year
$
11,009
$
13,554
$
13,959
Information regarding Republic’s impaired and non performing loans is as follows:
As of and for the years ended December 31, (in thousands) 2005 2004 2003
Loans with no allocated allowance for loan losses
Loans with allocated allowance for loan losses
Total
$
$
Amount of the allowance for loan losses allocated
Average investment in impaired loans
Interest income recognized during impairment
Interest income recognized on a cash basis on impaired loans
$
$
$
$
-
1,856
1,856
488
2,449
-
-
$
$
$
-
2,687
2,687
1,065
4,257
-
-
-
6,176
6,176
1,484
3,604
-
-
No additional funds are committed to be advanced in connection with the above impaired loans.
Detail of Non performing loans is as follows:
As of and for the years ended December 31, (in thousands)
2005 2004 2003
Loans past due 90 days and still on accrual $ 295
5,725
Non-accrual loans
$ 6,020
Total non performing loans
$ 371 $ 473
12,466
$ 12,939
5,763
$ 6,134
Non performing loans include impaired loans and smaller balance homogeneous loans as defined in Footnote 1 “Summary
of Significant Accounting Policies.”
Loans made to executive officers and directors of Republic and their related interests in the ordinary course of business,
subject to substantially the same credit policies as other loans and current in their terms, are as follows:
December 31, 2005 (in thousands) of Period
Loans Repayments of Period
Balance,
Change in
Beginning Related Party New
Status
Balance,
End
$ 15,281 $ 300 $ 11,365 $ (5,642) $ 21,304
65
5. MORTGAGE BANKING ACTIVITIES
Activity in the Loans held for sale account was as follows:
December 31, (in thousands)
2005
2004
Beginning balance
Origination of mortgage loans held for sale
Proceeds from the sale of mortgage loans held for sale
Net gain on sale of mortgage loans held for sale
Less: Allowance to adjust to lower of cost or market
Ending balance
$
16,485
232,903
(245,071)
2,265
-
$ 6,582
$
13,732
254,421
(254,529)
2,861
-
$ 16,485
Mortgage loans serviced for others are not reported as assets. Republic serviced loans for others (primarily FHLMC) totaling
$926 million and $843 million at December 31, 2005 and 2004. Servicing loans for others generally consists of collecting
mortgage payments, maintaining escrow accounts, disbursing payments to investors and processing foreclosures. Custodial
escrow account balances maintained in connection with serviced loans were $12 million and $11 million at December 31, 2005
and 2004.
Mortgage banking activities primarily include residential and commercial mortgage originations and servicing. The following
table presents the components of mortgage banking income:
December 31, (in thousands)
2005
2004
2003
Net gain on sale of mortgage loans held for sale
Net loan servicing income, net of amortization
Mortgage banking income
$
2,265
486
$ 2,751
$
2,861
287
$ 3,148
$
12,718
(1,614)
$ 11,104
Net loan servicing income, net of amortization reflected in the above includes amortization of servicing rights (see below) and
loan servicing income of $2,174,000, $1,965,000 and $1,293,000 for the years ended 2005, 2004 and 2003.
Activity for capitalized mortgage servicing rights is as follows:
December 31, (in thousands)
2005
2004
2003
Balance, beginning of year
Additions
Amortized to expense
Balance, end of year
Valuation allowance
$
$
$
5,321
2,736
(1,687)
6,370
-
$
$
$
4,823
2,176
(1,678)
5,321
-
$
$
$
2,882
4,848
(2,907)
4,823
-
The fair value of capitalized mortgage servicing rights was $8.9 million and $8.8 million at December 31, 2005 and 2004. The
fair value for year end 2005 and 2004 was calculated using a discount rate of 10%, prepayment speeds ranging from 128% to
486%, depending on the stratification of the specific MSR, and a weighted average default rate of 1.5%.
The weighted average estimated remaining life of the MSR portfolio is 4.8 years. Estimated amortization expense for each of
the next five years is as follows; however, actual amortization expense will be impacted by serviced loan payoffs that occur
during each year.
Year
2006
2007
2008
2009
2010
(in thousands)
$
1,248
1,212
1,193
1,170
825
66
Mortgage Banking Derivatives – Mandatory forward sales contracts and rate lock loan commitments are used in the
ordinary course of business and are considered derivatives. Forward contracts represent future commitments to deliver
loans at a specified price and date and are used to manage interest rate risk on loan commitments and loans held for sale.
Rate lock commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying
items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within 90 days
from the date of issuance. Notional amounts are amounts on which calculations and payments are based, but which do not
represent credit exposure, as credit exposure is limited to the amounts required to be received or paid. The approximate
notional amounts and realized gain / (loss) are as follows:
December 31, (in thousands)
2005
2004
Forward contracts:
Notional amount
Realized loss
Rate lock commitments:
Notional amount
Realized gain / (loss)
$ 13,000
(68)
$ 21,400
(85)
11,699
20
14,942
(4)
Forward contracts also contain an element of risk in the event that the counterparties may be unable to meet the terms of
such agreements. In the event the parties to all delivery commitments are unable to fulfill their obligations, the Company
would not incur any significant additional cost by replacing the positions at current market rates. The Company minimizes
its risk of exposure by limiting the counterparties to those major banks and financial institutions that meet established
credit and capital guidelines. Management does not expect any counterparty to default on their obligations and therefore,
does not expect to incur any cost related to counterparty default.
The Company is exposed to interest rate risk on loans held for sale and rate lock commitments. As market interest rates
increase or decrease, the fair value of loans held for sale and rate lock commitments will decline or increase. To offset this
interest rate risk, the Company enters into derivatives such as forward contracts to sell loans. The fair value of these
forward contracts will change as market interest rates change, and the change in the value of these instruments is expected
to largely, though not entirely, offset the change in fair value of loans held for sale and rate lock commitments. The
objective of this activity is to minimize the exposure to losses on rate lock commitments and loans held for sale due to
market interest rate fluctuations. The net effect of derivatives on earnings will depend on risk management activities and a
variety of other factors, including market interest rate volatility, the amount of rate lock commitments that close, the
ability to fill the forward contracts before expiration, and the time period required to close and sell loans.
67
6. PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation of premises and equipment follows:
December 31, (in thousands)
Land
Office buildings and improvements
Furniture, fixtures and equipment
Leasehold improvements
Construction in progress
Total premises and equipment
Less: Accumulated depreciation and amortization
$
2005
2004
2,834
21,102
41,282
4,272
222
69,712
37,926
$
2,834
21,418
38,601
3,225
30
66,108
32,265
Premises and equipment, net
$
31,786
$ 33,843
Depreciation expense related to premises and equipment was $5.7 million in 2005, $6.3 million in 2004 and $5.4 million
in 2003.
7. DEPOSITS
Time deposits of $100,000 or more were $169 million and $149 million at December 31, 2005 and 2004.
At December 31, 2005, the scheduled maturities of all time deposits were as follows:
Year
2006
2007
2008
2009
2010
Thereafter
(in thousands)
$ 342,050
174,337
53,760
60,246
13,496
9,645
Total
$ 653,534
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
These liabilities consist of short-term excess funds from correspondent banks, repurchase agreements and overnight
liabilities to deposit customers arising from Republic’s cash management program. While effectively deposit equivalents,
the overnight liabilities to customers are in the form of repurchase agreements, or liabilities secured by FHLB letters of
credit, or private insurance policies purchased by Republic. Repurchase agreements collateralized by securities are treated
as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a
safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the
agreements are under Republic’s control.
Information concerning Securities Sold Under Agreements to Repurchase and liabilities secured by insurance policies at
December 31, 2005 and 2004 are as follows:
December 31, (dollars in thousands)
2005
2004
Average outstanding balance during the year
Average interest rate during the year
Maximum month end balance during the year
$ 313,158
$ 359,327
2.76% 1.34%
$ 384,147
$ 364,828
At December 31, 2005, all of the Securities Sold Under Agreements to Repurchase had overnight maturities with the
exception of $20 million that had maturities ranging from 146 days to 1,307 days.
68
9. FHLB BORROWINGS
At year-end, borrowings from the FHLB were as follows:
December 31, (in thousands)
2005
2004
FHLB convertible fixed rate advances from 4.40%
to 5.22%, with a weighted average interest rate of 4.85%
at December 31, 2005 due through 2011(1)
FHLB fixed rate advances from 2.00% to 5.94%,
with a weighted average interest rate of 3.97% at
December 31, 2005, due through 2035
$
90,000
$ 115,000
471,133
$ 561,133
381,387
$ 496,387
__________________________
(1) Represents convertible advances with the FHLB. These advances have original fixed rate periods ranging from one to five years with original
maturities ranging from three to ten years if not converted earlier by the FHLB. At the end of their respective fixed rate periods, the FHLB has the right
to convert the borrowings to floating rate advances tied to LIBOR or the Company can prepay the borrowings at no penalty. The Company has $90
million in these advances that are currently eligible to be converted on their quarterly repricing date. Based on market conditions at this time,
management does not believe these advances are likely to be converted in the short-term.
FHLB advances are collateralized by a blanket pledge of eligible real estate loans. At December 31, 2005, Republic had
available collateral to borrow an additional $152 million from the FHLB. Republic also has unsecured lines of credit
totaling $175 million available through various financial institutions.
Aggregate future principal payments on FHLB borrowings, based on contractual maturity dates as of December 31, 2005
are as follows:
Year (in thousands)
2006
2007
2008
2009
2010
Thereafter
Total
10. SUBORDINATED NOTE
$ 217,136
60,000
88,500
82,000
42,370
71,127
$ 561,133
In August, 2005, Republic Bancorp Capital Trust (“RBCT”), an unconsolidated trust subsidiary of Republic Bancorp, Inc.,
issued $40 million in Trust Preferred Securities (“TPS”). The TPS pay a fixed interest rate for 10 years and adjust with
LIBOR thereafter. Currently treated as Tier 1 capital for regulatory purposes, the TPS mature on September 30, 2035 and
are redeemable at the Company’s option after ten years. The sole asset of RBCT represents the proceeds of the offering
loaned to Republic Bancorp, Inc. in exchange for subordinated debentures which have terms that are similar to the TPS.
The subordinated debentures and the related interest expense, currently payable quarterly at the annual rate of 6.015%, are
included in the consolidated financial statements. The proceeds obtained from the TPS offering will be used to fund loan
growth, support an existing stock repurchase program and for other general business purposes.
In March 2004, the Company executed an intragroup trust preferred transaction, with the purpose of providing Republic
Bank & Trust Company access to additional capital markets, if needed, in the future. On a consolidated basis, this
transaction has had no impact to the capital levels and ratios of the Company. The subordinated debentures held by
Republic Bank & Trust Company, as a result of this transaction, however, are treated as Tier 2 capital based on
requirements administered by the Bank's federal banking agency. If Republic Bank & Trust Company’s Tier I capital
ratios should not meet the minimum requirement to be well capitalized, the Company could immediately modify the
transaction in order to maintain its well capitalized status.
69
11. INCOME TAXES
Allocation of federal income tax between current and deferred portion is as follows:
Years Ended December 31, (in thousands)
2005
2004
2003
Current – Federal
Current – State
Deferred – Federal
Deferred – State
$
17,577
232
274
15
$
$
15,223
343
1,525
(110)
13,818
124
1,629
(9)
Total
$
18,098
$
16,981
$
15,562
The provision for income taxes differs from the amount computed at the statutory rate as follows:
Years Ended December 31, (in thousands)
2005
2004
2003
Federal statutory rate
Increase (decrease) resulting from:
State taxes, net of federal tax benefit
General business tax credits
Other, net
35.0%
35.0%
35.0%
0.3
(1.4)
0.1
0.5
(0.6)
(0.6)
0.2
(0.5)
0.9
Effective tax rate
34.0%
34.3%
35.6%
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows:
December 31, (in thousands)
2005
2004
Deferred tax assets:
Allowance for loan losses
Unrealized securities losses
Accrued expenses
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Federal Home Loan Bank dividends
Loan fees
Mortgage servicing rights
Other
Total deferred tax liabilities
Net deferred tax liability
3,087
$
1,674
1,141
3,956
$
261
752
5,902
4,969
(570)
(3,398)
(744)
(2,250)
(213)
(1,607)
(3,049)
(681)
(1,883)
(146)
(7,175)
(7,366)
$
(1,273)
$
(2,397)
70
12. EARNINGS PER SHARE
Class A and Class B shares participate equally in undistributed earnings. The difference in earnings per share between the
two classes of common stock results solely from the 10% per share dividend premium paid on Class A Common Stock
over that paid on Class B Common Stock as discussed in Footnote 13 “Stockholders’ Equity” of this section of the
document.
A reconciliation of the combined Class A and Class B Common Stock numerators and denominators of the earnings per
share and diluted earnings per share computations is presented below:
Years Ended December 31, (in thousands, except per share data)
2005
2004
2003
Net Income, basic and diluted
$
35,065
$
32,501
$
28,203
Weighted average shares outstanding
Effect of dilutive securities
19,731
812
19,775
817
19,609
427
Weighted average shares outstanding including dilutive securities
20,543
20,592
20,036
Basic Earnings Per Share:
Class A Common Share
Class B Common Share
Diluted Earnings Per Share:
Class A Common Share
Class B Common Share
$
1.78
1.75
$
1.65
1.62
$
1.44
1.40
1.71
1.68
1.58
1.56
1.41
1.37
Stock options excluded from the detailed earnings per share calculation because their impact was antidilutive are as
follows:
Years Ended December 31,
2005
2004
2003
Stock Options
49,928
-
23,153
71
13. STOCKHOLDERS’ EQUITY
Common Stock – The Class A Common shares are entitled to cash dividends equal to 110% of the cash dividend paid per
share on Class B Common Stock. Class A Common shares have one vote per share and Class B Common shares have ten
votes per share. Class B Common Stock may be converted, at the option of the holder, to Class A Common Stock on a
share for share basis. The Class A Common Stock is not convertible into any other class of Republic’s capital stock.
Dividend Restrictions – The Company’s principal source of funds for dividend payments is dividends received from the
Bank. Kentucky and Indiana banking regulations limit the amount of dividends that may be paid to the Parent Company
by the Bank without prior approval of the respective states’ banking regulators. Under these regulations, the amount of
dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net
profits of the preceding two years. At December 31, 2005, Republic Bank & Trust Company and Republic Bank & Trust
Company of Indiana could, without prior approval, declare dividends of approximately $47 million and $1 million,
respectively. The Company does not intend to pay dividends from Republic Bank & Trust Company of Indiana in the
foreseeable future.
Regulatory Capital Requirements – The Parent Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on Republic’s financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Parent Company and the Bank must meet specific capital guidelines that involve quantitative
measures of the Company’s assets, liabilities and certain off balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Parent Company and the Bank to
maintain minimum amounts and ratios (set forth in the following table) of Total and Tier I capital (as defined in the
regulations) to risk weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). As of
December 31, 2005, the Parent Company and the Bank met all capital adequacy requirements.
The most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum Total Risk Based, Tier
I Risk Based and Tier I Leverage ratios as set forth in the table. There are no conditions or events since that notification
that management believes have changed the Bank’s capital ratings.
See Footnote 10 “Subordinated Note” in this section of the document for additional discussion regarding capital and Trust
Preferred Securities.
72
13. STOCKHOLDERS’ EQUITY (continued)
Actual
Minimum Requirement
for Capital Adequacy
Purposes
Minimum Requirement
to be Well Capitalized
Under Prompt
Corrective Action
Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2005
Total Risk Based Capital (to Risk Weighted Assets)
Republic Bancorp, Inc.
Republic Bank & Trust Co.
Republic Bank & Trust Company of Indiana
Tier I Capital (to Risk Weighted Assets)
Republic Bancorp, Inc.
Republic Bank & Trust Co.
Republic Bank & Trust Company of Indiana
Tier I Leverage Capital (to Average Assets)
Republic Bancorp, Inc.
Republic Bank & Trust Co.
Republic Bank & Trust Company of Indiana
$
267,054
220,730
11,488
%
15.03
12.78
22.76
$
142,179
138,142
4,037
%
8
8
8
$
N/A
172,678
5,047
N/A
%
10
10
256,046
186,905
10,855
256,046
186,905
10,855
14.41
10.82
21.51
9.47
7.12
13.62
71,090
69,071
2,019
108,197
105,034
3,188
4
4
4
4
4
4
N/A
103,607
3,028
N/A
131,292
3,985
N/A
6
6
N/A
5
5
Actual
Amount
Ratio
Minimum Requirement
for Capital Adequacy
Purposes
Amount
Ratio
Minimum
Requirement to be
Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
(dollars in thousands)
As of December 31, 2004
Total Risk Based Capital (to Risk Weighted Assets)
Republic Bancorp, Inc.
Republic Bank & Trust Co.
Republic Bank & Trust Company of Indiana
$
209,575
198,146
6,193
%
13.03
12.61
16.46
$
128,719
125,709
3,010
%
8
8
8
$
N/A
157,136
3,763
N/A
%
10
10
Tier I Capital (to Risk Weighted Assets)
Republic Bancorp, Inc.
Republic Bank & Trust Co.
Republic Bank & Trust Company of Indiana
Tier I Leverage Capital (to Average Assets)
Republic Bancorp, Inc.
Republic Bank & Trust Co.
Republic Bank & Trust Company of Indiana
196,021
161,579
5,756
196,021
161,579
5,756
12.18
10.28
15.30
8.03
6.78
10.53
64,360
62,854
1,505
97,589
95,348
2,187
4
4
4
4
4
4
N/A
94,282
2,258
N/A
119,185
2,734
N/A
6
6
N/A
5
5
73
14. STOCK OPTION PLAN
Under the stock option plan, certain key employees are granted options to purchase shares of Republic’s Common Stock at fair value at
the date of the grant. Options granted generally become fully exercisable at the end of five to six years of continued employment and
must be exercised within one year from the date they become exercisable. There were no Class B stock options outstanding at
December 31, 2005, 2004 and 2003.
A summary of Republic’s stock option activity for Class A shares and related information for the years ended December 31, follows:
2005
2004
2003
Options
Class A
Shares
Weighted
Average
Exercise
Price
Options
Class A
Shares
Weighted
Average
Exercise
Price
Options
Class A
Shares
Weighted
Average
Exercise
Price
Outstanding at beginning of year
1,761,109
$
11.30
1,541,231
$
8.83
1,781,400
$
8.31
Granted
Exercised
Forfeited
43,050
21.55
571,078
16.70
107,071
11.45
(73,215)
8.47
(166,671)
(44,222)
14.20
(184,529)
9.65
9.00
(272,293)
(74,947)
6.52
8.65
8.83
Outstanding at year end
1,686,722
11.60
1,761,109
11.30
1,541,231
Options outstanding at December 31, 2005 were as follows:
Outstanding Class A Options
Range of Exercise Prices
$5.08 – $6.00
$6.01 – $9.50
$9.51 – $11.30
$11.31 – $23.96
Total Outstanding
Number
Outstanding
180,282
791,168
109,967
605,305
1,686,722
Weighted Exercisable
Average
Remaining
Life
Weighted Weighted
Average
Average
Price Number Price
1.33
2.71
3.05
4.89
3.37
$ 5.59
9.07
10.26
16.94
11.60
21,705
-
11,576
-
33,281
$ 5.26
-
10.07
-
6.93
Employees and officers had loans outstanding of $709,000 and $731,000 at December 31, 2005 and 2004 that were
originated to fund stock option exercises. Shares from exercises funded by loans from Company are not included as
outstanding shares for financial reporting purposes.
15. BENEFIT PLANS
Republic maintains a 401(k) plan for full time employees who have been employed for 1,000 hours in a plan year and
have reached the age of 21. Participants in the plan have the option to contribute from 1% to 25% of their annual
compensation. Republic matches 50% of participant contributions up to 5% of each participant’s annual compensation.
Republic’s contribution may increase if the Company achieves certain operating goals. Republic’s matching contributions
were $812,000, $743,000, and $750,000 for the years ended December 31, 2005, 2004 and 2003.
In November 2004, the Company’s Board of Directors approved a Non Qualified Deferred Compensation Plan (the
“Plan”). The Plan governs the deferral of external Board of Director’s board and committee fees. Members of the Board
of Directors may defer up to 100% of their board and committee fees for a specified period ranging from two to five years.
The value of the deferred compensation account is deemed “invested” in Company stock. The Company will fund the
quarterly purchase of Republic’s stock from the Company stock option plan. The Plan has not and will not materially
impact the Company, as Director compensation expense will continue to be recorded when incurred. The expense
recorded for deferred compensation totaled $120,000 in 2005.
74
On January 29, 1999, Republic formed an Employee Stock Ownership Plan (“ESOP”) for the benefit of its employees.
The ESOP borrowed $3.9 million from the Parent Company and directly and indirectly purchased 330,750 shares of Class
A Common Stock from Republic’s largest beneficial owner at a market value price of $11.15 per share. The purchase
price, determined by an independent pricing committee, was the average closing price for the thirty trading days
immediately prior to the transaction. Shares in the ESOP are allocated to eligible employees based on principal payments
over the term of the loan, which is ten years. Participants become fully vested in allocated shares after five years of
credited service and may receive their distributions in the form of cash or stock. At December 31, 2005, approximately
131,250 unallocated shares had a fair value of $2.7 million.
Years Ended December 31, (in thousands)
2005
2004
2003
Unearned shares allocated to participants in the plan
Compensation expense
38,148
$ 809,000
35,077
$ 680,000
32,975
$ 447,000
The Company maintains a death benefit for the Chairman of the Company equal to three times the average compensation
paid for the two years proceeding death. Upon a change in control, defined as a sale or assignment of more than 55% of
the outstanding stock of the Company, the death benefit is canceled.
16. LEASES, TRANSACTIONS WITH AFFILIATES AND RELATED PARTY TRANSACTIONS
Republic leases office facilities under operating leases from Republic’s Chairman and from partnerships in which
Republic’s Chairman, Chief Executive Officer and Vice Chairman are partners. Rent expense for the years ended
December 31, 2005, 2004 and 2003 under these leases was $1,997,000, $1,888,000 and $1,876,000. Total rent expense on
all operating leases was $3,324,000, $3,113,000 and $2,698,000 for the years ended December 31, 2005, 2004 and 2003.
Total minimum lease commitments under non cancelable operating leases are as follows:
(in thousands)
Affiliate
Other
2006
2007
2008
2009
2010
Thereafter
Total
$
$
2,039
1,331
1,057
629
304
-
$
1,411
1,424
1,354
1,228
1,010
10,622
Total
3,450
2,755
2,411
1,857
1,314
10,622
$
5,360
$
17,049
$
22,409
A director of Republic Bancorp, Inc. is the President and Chief Executive Officer of a company that leases space to
Republic. Fees paid by Republic totaled $13,000, $14,000 and $46,000 for the years ended December 31, 2005, 2004 and
2003.
A director of Republic Bancorp, Inc. is the President of an insurance agency that is agent of record for the Company’s
workers compensation insurance. Commissions paid to the director totaled $38,000, $31,000 and $7,000 in 2005, 2004
and 2003.
Deposits from executive officers, directors, and their affiliates totaled $9 million and $6.7 million at December 31, 2005
and 2004.
75
17. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES
Republic is a party to financial instruments with off balance sheet risk in the normal course of business in order to meet
the financing needs of its customers. These financial instruments primarily include commitments to extend credit and
standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of
Republic pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case by case basis
in accordance with Republic’s credit policies. Collateral from the customer may be required based on management’s
credit evaluation of the customer and may include business assets of commercial customers, as well as personal property
and real estate of individual customers or guarantors.
Republic also extends binding commitments to customers and prospective customers. Such commitments assure the
borrower of financing for a specified period of time at a specified rate. The risk to Republic under such loan commitments
is limited by the terms of the contracts. For example, Republic may not be obligated to advance funds if the customer’s
financial condition deteriorates or if the customer fails to meet specific covenants. An approved but unfunded loan
commitment represents a potential credit risk once the funds are advanced to the customer. This is also a liquidity risk
since the customer may demand immediate cash that would require funding and interest rate risk as market interest rates
may rise above the rate committed. In addition, since a portion of these loan commitments normally expire unused, the
total amount of outstanding commitments at any point in time may not require future funding.
As of December 31, 2005, exclusive of mortgage banking loan commitments discussed in Footnote 1 “Summary of
Significant Accounting Policies” of this document, Republic had outstanding loan commitments totaling $475 million,
which included unfunded home equity lines of credit totaling $269 million. At December 31, 2004, Republic had
outstanding loan commitments totaling $382 million, which included unfunded home equity lines of credit totaling $227
million. These commitments generally have variable rates.
Standby letters of credit are conditional commitments issued by Republic to guarantee the performance of a customer to a
third party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing
loan commitments and extending credit. Commitments outstanding under standby letters of credit totaled $10 million and
$24 million at December 31, 2005 and 2004.
At December 31, 2005 and 2004, Republic had $88 million in letters of credit from the FHLB issued on behalf of the
Bank’s clients. Approximately $28 million of these letters of credit were used as credit enhancements for client bond
offerings. The remaining $60 million letter of credit was used to collateralize a public funds deposit, which the Company
classifies in short-term borrowings. These letters of credit reduce Republic’s available borrowing line at the FHLB by the
above total amount. Republic uses a blanket pledge of eligible real estate loans to secure the letters of credit.
76
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by Republic using available market information and
appropriate valuation methodologies. However, judgment of management is necessarily required to interpret market data
to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the
amounts Republic could realize in a market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
December 31, (in thousands)
Assets:
Cash and cash equivalents
Securities available for sale
Securities to be held to maturity
Mortgage loans held for sale
Loans, net
Federal Home Loan Bank stock
Accrued interest receivable
Liabilities:
Deposits:
Non interest-bearing accounts
Transaction accounts
Time deposits
Securities sold under agreements to
repurchase and other short-term borrowings 292,259
41,240
561,133
5,222
Subordinated note
Federal Home Loan Bank borrowings
Accrued interest payable
2005
2004
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
77,169
447,865
64,298
6,582
2,049,647
21,595
11,379
$ 286,484
662,547
653,534
$
77,169
447,865
64,402
6,700
2,040,380
21,595
11,379
$ 286,484
662,547
646,317
292,259
40,327
554,477
5,222
$
77,850
453,360
98,233
16,485
1,775,545
20,321
8,846
$ 261,993
646,595
509,342
364,828
-
496,387
3,774
$
77,850
453,360
98,129
16,552
1,793,069
20,321
8,846
$ 261,993
646,595
509,896
364,828
-
500,882
3,774
Cash and Cash Equivalents – The carrying amount represents a reasonable estimate of fair value.
Securities Available for Sale, Securities to be Held to Maturity and Federal Home Loan Bank Stock – Fair value
equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities. The carrying value of FHLB Stock approximates the fair value based on the
redemption provisions of the Federal Home Loan Bank.
Mortgage Loans Held for Sale – Estimated fair value is based on the market value of the loan including the amount of
fees deferred in accordance with SFAS 91.
Loans, Net – The fair value is estimated by discounting the future cash flows using the interest rates at which similar
loans would be made to borrowers with similar credit ratings for the same remaining maturities.
Deposits – The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable
on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the interest rates
offered for deposits of similar remaining maturities.
Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings – The carrying amount
represents management’s estimate of fair value.
Subordinated Note – Rates currently available to the Company with similar terms and remaining maturities are used to
establish fair value of existing debt.
Federal Home Loan Bank Borrowings – The fair value is estimated based on the estimated present value of future cash
outflows using the rates at which similar loans with the same remaining maturities could be obtained.
77
Accrued Interest Receivable/Payable – The carrying amount represents management’s estimate of fair value.
Commitments to Extend Credit – The fair value of commitments to extend credit is based upon the difference between
the interest rate at which Republic is committed to make the loans and the rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities, adjusted for the estimated volume of loan
commitments expected to close. The fair value of such commitments is not material.
Commitments to Sell Loans and Loan Sales Contracts – The fair value of commitments to sell loans is based upon the
difference between the interest rates at which Republic is committed to sell the loans and the quoted secondary market
price for similar loans. The fair value of such commitments is not material.
Financial Guarantees – Estimated fair value is based on current fees or costs that would be charged to enter or terminate
such arrangements and is not material.
The fair value estimates presented herein are based on pertinent information available to management as of December 31,
2005 and 2004. Although management is not aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date
and, therefore, estimates of fair value may differ significantly from the amounts presented.
78
19. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
December 31, (in thousands)
Assets:
Cash and cash equivalents
Due from subsidiaries
Investment in subsidiaries
Other assets
Total assets
Liabilities and Stockholders’ Equity:
Subordinated note
Other liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
STATEMENTS OF INCOME
2005 2004
$
34,603
1,468
220,084
1,800
$
4,605
1,894
190,869
2,956
$ 257,955
$ 200,324
$
41,240
3,141
213,574
$
-
4,255
196,069
$ 257,955
$ 200,324
Years Ended December 31, (in thousands)
2005 2004 2003
Income and expenses:
Dividends from subsidiary
Interest income
Other income
Less:
Interest expense
Other expenses
Income before income taxes
Income tax benefit/(expense)
Income before equity in undistributed net income of subsidiaries
Equity in undistributed net income of subsidiaries
$
$
10,788
584
40
960
440
$
28,831
159
48
-
358
9,100
187
1
-
162
10,012
28,680
9,126
367
10,379
24,686
315
28,995
3,506
(35)
9,091
19,112
Net income
$
35,065
$
32,501
$
28,203
79
19. PARENT COMPANY CONDENSED FINANCIAL INFORMATION (continued)
STATEMENTS OF CASH FLOWS
Years Ended December 31, (in thousands)
2005 2004 2003
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiaries
Change in due from subsidiary
Change in other assets
Change in other liabilities
Net cash provided by operating activities
Investing activities:
Dividends on unallocated ESOP shares
Investment in Republic Bank & Trust Co. of Indiana
Investment in unconsolidated subsidiary
Purchase of common stock of Republic Invest Co.
Purchase of premises
Net cash used in investing activities
Financing activities:
Common Stock repurchases
Net proceeds from Common Stock options exercised
Cash dividends paid
Net proceeds from subordinated note
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
$
35,065
$
32,501
$
28,203
(24,686)
426
1,213
(1,338)
10,680
(44)
(5,000)
(1,240)
-
-
(6,284)
(9,820)
202
(6,020)
41,240
25,602
29,998
4,605
(3,506)
685
(2,509)
1,583
28,754
(52)
-
-
(23,500)
-
(23,552)
(383)
794
(4,968)
-
(4,557)
645
3,960
(19,112)
1,088
(11)
(545)
9,623
(102)
-
-
-
(400)
(502)
(379)
985
(8,305)
-
(7,699)
1,422
2,538
Cash and cash equivalents at end of year
$
34,603
$
4,605
$
3,960
80
20. SEGMENT INFORMATION
The reportable segments are determined by the type of products and services offered, distinguished between banking
operations, mortgage banking operations, Tax Refund Solutions and deferred deposits. Loans, investments and deposits
provide the majority of revenue from banking operations; servicing fees and loan sales provide the majority of revenue from
mortgage banking operations; RAL fees and ERC fees provide the majority of the revenue from tax refund services; and fees
for providing deferred deposits represent the primary revenue source for the deferred deposit segment. All four reportable
segments are domestic.
The accounting policies used for Republic’s reportable segments are the same as those described in the summary of significant
accounting policies. Income taxes are allocated based on income before income tax expense. Transactions among reportable
segments are made at fair value.
Segment information for the years ended December 31, is as follows:
(in thousands)
Net interest income
Provision for loan losses
Electronic Refund Check fees
Mortgage banking income
Other revenue
Income tax expense
Net income
Segment assets
(in thousands)
Net interest income
Provision for loan losses
Electronic Refund Check Fees
Mortgage banking income
Other revenue
Income tax expense
Net income
Segment assets
(in thousands)
Net interest income
Provision for loan losses
Electronic refund check fees
Mortgage banking income
Other revenue
Income tax expense
Net income
Segment assets
Banking
Tax Refund
Solutions
2005
Mortgage
Banking
Deferred
Deposits
Consolidated
Totals
$
74,738
(616)
-
-
22,525
12,247
23,730
2,720,620
$
8,807
956
6,083
-
99
2,855
5,531
1,770
$
437
-
-
2,751
(986)
422
817
6,617
$
8,697
(902)
-
-
31
2,574
4,987
6,549
$
92,679
(562)
6,083
2,751
21,669
18,098
35,065
2,735,556
Banking
Tax Refund
Solutions
2004
Mortgage
Banking
Deferred
Deposits
Consolidated
Totals
$
69,091
(36)
-
-
19,810
10,025
19,187
2,430,797
$
8,352
1,382
5,268
-
14
2,824
5,406
2,012
$
444
-
-
3,148
(1,085)
699
1,337
16,496
$
12,165
402
-
-
39
3,433
6,571
49,617
$
90,052
1,748
5,268
3,148
18,778
16,981
32,501
2,498,922
Banking
Tax Refund
Solutions
2003
Mortgage
Banking
Deferred
Deposits
Consolidated
Totals
$
66,864
4,245
-
-
19,461
8,718
15,801
2,063,676
$
6,742
1,850
3,981
-
35
1,930
3,499
1,829
$
1,353
-
-
11,104
(3,648)
2,795
5,066
13,757
$
7,306
479
-
-
-
2,119
3,837
48,814
$
82,265
6,574
3,981
11,104
15,848
15,562
28,203
2,128,076
81
21. REGULATORY MATTERS
On July 22, 2005 Republic Bank & Trust Company received its most recent Community Reinvestment Act (“CRA”)
performance evaluation prepared as of October 4, 2004. The FDIC concluded that Republic Bank & Trust Company violated
Regulation B related to its RAL line of business and assigned a “Needs to Improve” rating. Republic Bank & Trust Company
voluntarily changed certain procedures and processes to address the Regulation B issues raised by the FDIC during the CRA
Evaluation. As required by statute, the FDIC referred their conclusions regarding the Regulation B violations to the
Department of Justice (“DOJ”). Also by statute, a financial holding company, such as the Company, that controls a Bank with
a “less than satisfactory” CRA rating, has limitations on certain future business activities until the CRA rating improves.
Management does not believe these limitations will have any material effect on the Company’s current business plans. At this
time, there has been no corrective action imposed by the FDIC or the DOJ.
22. SUBSEQUENT EVENT
By letter to Republic Bank & Trust Company dated February 17, 2006, the FDIC cited inherent risks associated with payday
lending activities and asked Republic Bank & Trust Company to consider terminating this line of business. Consequently, on
February 24, 2006, Republic Bank & Trust Company and ACE amended the agreement regarding Republic Bank & Trust
Company’s payday loan activities in Texas, Pennsylvania and Arkansas. With respect to Texas, Republic Bank & Trust
Company ceased offering payday loans the week of February 27, 2006. With respect to Arkansas and Pennsylvania, Republic
Bank & Trust Company will cease offering payday loans on June 30, 2006. During the fourth quarter of 2005, the Company
recorded after-tax net income of approximately $299,000 through its marketing/servicing agreement with ACE. For the year
ended December 31, 2005 the Company recorded after-tax net income of $1.7 million through its marketing/servicing
agreement with ACE.
By letter to Republic Bank & Trust Company of Indiana dated February 17, 2006, the FDIC cited inherent risks associated
with payday lending activities and asked Republic Bank & Trust Company of Indiana to consider terminating this line of
business. Republic Bank & Trust Company of Indiana voluntarily elected to terminate its Internet payday loan program the
week of February 20, 2006. The Internet payday loan program began operating in July 2005 and remained in a developmental
stage until its termination date. During the fourth quarter of 2005, the Company recorded an after-tax loss of $517,000 from
its Internet payday loan program. For the year ended December 31, 2005, the Company recorded an after-tax loss of $639,000
from its Internet payday loan program.
82
23. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2005 and 2004.
(in thousands, except per share data)
2005:
Interest income
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Income before income tax expense
Net income
Basic earnings per share:
Class A Common Stock
Class B Common Stock
Diluted earnings per share:
Class A Common Stock
Class B Common Stock
(in thousands, except per share data)
2004:
Interest income
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Income before income tax expense
Net income
Basic earnings per share:
Class A Common Stock
Class B Common Stock
Diluted earnings per share:
Class A Common Stock
Class B Common Stock
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$ 38,555
20,269
$ 36,933
20,747
$ 36,722
22,076
406 (2,585) (203)
22,279
11,956
7,944
23,332
12,187
8,050
19,863
8,684
5,753
0.30
0.29
0.29
0.28
0.41
0.40
0.39
0.39
0.40
0.39
0.39
0.38
$ 43,409
29,587
1,820
27,767
20,336
13,318
0.67
0.67
0.64
0.64
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$ 37,810
27,773
2,049
25,724
16,879
11,055
0.56
0.56
0.54
0.54
$ 33,628
21,498
$ 31,161
20,590
$ 29,767
20,191
273 (127) (447)
20,638
11,947
7,851
20,717
10,614
6,982
21,225
10,042
6,613
0.33
0.33
0.32
0.31
0.35
0.35
0.34
0.33
0.40
0.39
0.38
0.38
83
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
As of the end of the period covered by this report, an evaluation was carried out by Republic Bancorp, Inc.’s management,
with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective
as of the end of the period covered by this report. In addition, no change in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fourth quarter of our fiscal year
ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Management’s Report on Internal Control Over Financial Reporting, the Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm on
Financial Statements, thereon are set forth under Item 8. “Financial Statements and Supplementary Data.”
Item 9B. Other Information.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item appears under the headings “PROPOSAL ONE: ELECTION OF DIRECTORS,”
“SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” and “THE BOARD OF DIRECTORS AND
ITS COMMITTEES” of the Proxy Statement of Republic Bancorp, Inc. for the 2005 Annual Meeting of Shareholders to be
held April 25, 2006 (“Proxy Statement”), all of which is incorporated herein by reference.
Item 11. Executive Compensation.
Information under the sub-heading “Director Compensation” and under the headings “CERTAIN INFORMATION AS TO
MANAGEMENT” and“COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION” of the Proxy
Statement is incorporated herein by reference.
84
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information
The following table sets forth information regarding Republic’s Common Stock that may be issued upon exercise of options,
warrants and rights under all of our equity compensation plans as of December 31, 2005. There were no equity compensation
plans not approved by security holders at December 31, 2005.
(a)
(b)
Number of Securities to
be Issued Upon
Exercise of Outstanding
Options, Warrants and
Rights
Weighted-
Average Exercise
Price of
Outstanding
Options, Warrants
And Rights
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
1,637,804 (1)
48,918 (1)
$ 11.30
$ 21.43
0
3,101,029
Plan Category
1995 Stock Option Plan
2005 Stock Option Plan
_______________
(1)
Represents options issued for Class A Common Stock only. Options for Class B Common Stock have been authorized but are not issued.
Additional information required by this Item appears under the heading “SHARE OWNERSHIP” of the Proxy Statement,
which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information required by this Item is under the headings “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION” and “CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS” of the Proxy Statement,
all of which is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information required by this Item appears under the heading “INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM” of the Proxy Statement and is incorporated herein by reference.
85
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements:
The following are included under Item 8. “Financial Statements and Supplementary Data:”
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Financial Statements
Consolidated balance sheets – December 31, 2005 and 2004
Consolidated statements of income and comprehensive income – years ended December 31, 2005, 2004 and 2003
Consolidated statements of stockholders’ equity – years ended December 31, 2005, 2004 and 2003
Consolidated statements of cash flows – years ended December 31, 2005, 2004 and 2003
Notes to consolidated financial statements
(a)(2) Financial Statements Schedules:
Financial statement schedules are omitted because the information is not applicable.
(a)(3) Exhibits:
The Exhibit Index of this report is incorporated herein by reference. The management contracts and compensatory plans or
arrangements required to be filed as exhibits to this Form 10-K pursuant to Item 14(c) are noted by asterisk in the Exhibit
Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REPUBLIC BANCORP, INC.
March 16, 2006
By: Steven E. Trager
President & Chief Executive Officer
86
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated.
/s/ Bernard M. Trager
Bernard M. Trager
/s/ Steven E. Trager
Steven E. Trager
/s/ A. Scott Trager
A. Scott Trager
/s/ Bill Petter
Bill Petter
/s/ Kevin Sipes
Kevin Sipes
/s/ Charles E. Anderson
Charles E. Anderson
/s/ Henry M. Altman, Jr.
Henry M. Altman, Jr.
/s/ Sandra Metts Snowden
Sandra Metts Snowden
/s/ R. Wayne Stratton
R. Wayne Stratton
/s/ Susan Stout Tamme
Susan Stout Tamme
Chairman of the Board & Director
March 16, 2006
President, Chief Executive
Officer & Director
March 16, 2006
Vice Chairman & Director
March 16, 2006
Vice Chairman, Chief Operating
Officer & Director
Chief Financial Officer and
Chief Accounting Officer
Director
Director
Director
Director
Director
March 16, 2006
March 16, 2006
March 16, 2006
March 16, 2006
March 16, 2006
March 16, 2006
March 16, 2006
87
INDEX TO EXHIBITS
No.
Description
3(i)
3(ii)
4.1
4.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7
10.8
10.9
Articles of Incorporation of Registrant, as amended (Incorporated by reference to Exhibit 3(i) to the
Registration Statement on Form S-1 of Registrant (Registration No. 333-56583))
Bylaws of Registrant, as amended (Incorporated by reference to Exhibit 3(ii) to the Registration
Statement on Form S-1 of Registrant (Registration No. 333-56583))
Provisions of Articles of Incorporation of Registrant defining rights of security holders (see Articles
of Incorporation, as amended, of Registrant incorporated as Exhibit 3(i) herein)
Agreement Pursuant to Item 601 (b)(4)(iii) of Regulation S-K (Incorporated by reference to Exhibit
4.2 of the Annual Report on Form 10-K of Registrant for the year ended December 31, 1997
(Commission File Number: 33-77324))
Officer Compensation Continuation Agreement with Steven E. Trager, dated January 12, 1995
(Incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 (Commission File Number: 33-77324))
Officer Compensation Continuation Agreement with A. Scott Trager, dated January 12, 1995
(Incorporated by reference to Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 (Commission File Number: 33-77324))
Officer Compensation Continuation Agreement with E. William Petter, Jr., dated January 12, 1995
(Incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 (Commission File Number: 33-77324))
Death Benefit Agreement with Bernard M. Trager dated September 10, 1996 (Incorporated by
reference to Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the year ended December
31, 1996 (Commission File Number: 33-77324))
Officer Compensation Continuation Agreement with Kevin Sipes, dated June 15, 2001
(Incorporated by reference to Exhibit 10.23 of Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (Commission File Number: 0-24649))
Officer Compensation Continuation Agreement with David Vest, dated January 12, 1995
(Incorporated by reference to Exhibit 10.10 of Registrant's Annual Report on Form 10-K for the
year ended December 31, 2003 (Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 1982,
relating to 2801 Bardstown Road, Louisville (Incorporated by reference to Exhibit 10.11 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (Commission
File Number: 0-24649))
Lease between Republic Bank & Trust Company and Teeco Properties, dated May 1, 2002, relating
to property at 601 West Market Street (Incorporated by reference to exhibit 10.1 of Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (Commission File Number:
0-24649))
Lease between Republic Bank & Trust Company and Teeco Properties, dated October 1, 2005,
relating to property at 601 West Market Street, Louisville, KY, amending and modifying previously
filed exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2002 (Incorporated by reference to exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2005 (Commission File Number: 0-24649))
88
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Lease between Republic Bank & Trust Company and Jaytee Properties, dated July 1, 1993, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to
Exhibit 10.12 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 2, 1993, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to
Exhibit 10.16 of Registrant's Annual Report on Form 10-K for the year ended December 31, 2004
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 31, 1993, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to
Exhibit 10.12 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated September 1, 1995, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to
Exhibit 10.18 of Registrant's Annual Report on Form 10-K for the year ended December 31, 2003
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 16, 1996, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to
Exhibit 10.19 of Registrant's Annual Report on Form 10-K for the year ended December 31, 2003
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated January 21, 1998, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to
Exhibit 10.20 of Registrant's Annual Report on Form 10-K for the year ended December 31, 2003
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated September 11, 1998,
as amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to
Exhibit 10.21 of Registrant's Annual Report on Form 10-K for the year ended December 31, 2003
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 2004, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to
Exhibit 10.1 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 1999, as
amended, relating to 661 South Hurstbourne Parkway (Incorporated by reference to Exhibit 10.17
of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (Commission
File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 2000, as
amended, relating to 661 South Hurstbourne Parkway (Incorporated by reference to Exhibit 10.21 of
Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 (Commission File
Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated July 1, 2003, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to
Exhibit 10.2 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated September 1, 2005, as
amended, relating to 661 South Hurstbourne Parkway, Louisville, KY, amending and modifying
previously filed exhibit 10.12 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended
89
10.22
10.23
10.24
10.25
10.26*
10.27
10.28*
10.29*
10.30
10.31
10.32
10.33
10.34*
10.35*
March 31, 1998 (Incorporated by reference to Exhibit 10.2 of Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2005 (Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 1999, as
amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.18 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (Commission File
Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 2000, as
amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.22 of
Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 (Commission File
Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated May 1, 2003, as
amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.1 of
Registrant’s Annual Report on Form 10-K for the quarter ended June 30, 2003 (Commission File
Number: 0-24649))
1995 Stock Option Plan (as amended to date) (Incorporated by reference to Registrant’s Form S-8
filed November 30, 2004 (Commission File Number: 333-120856))
Form of Stock Option Agreement for Directors and Executive Officers (Incorporated by reference to
Exhibit 10.2 of Registrant’s Form 10-Q for the quarter ended September 30, 2004 (Commission File
Number: 0-24649))
2005 Stock Option Plan (Incorporated by reference to Form 8-K filed March 18, 2005 (Commission
File Number: 0-24649))
Republic Bancorp, Inc. Non-Employee Director and Key Employee Deferred Compensation Plan
and Republic Bank & Trust Company Non-Employee Director and Key Employee Deferred
Compensation Plan (Incorporated by reference to Form S-8 filed November 30, 2004 (Commission
File Number: 333-120857))
Republic Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee Deferred
Compensation (Incorporated by reference to Form S-8 filed April 13, 2005 (Commission File
Number: 333-120857))
Junior Subordinated Indenture, Amended and Restated Trust Agreement, and Guarantee Agreement
(Incorporated by reference to Exhibit 10.26 of Registrant's Form 8-K filed August 19, 2005
(Commission File Number: 0-24649))
Marketing and Servicing Agreement between Republic Bank & Trust Company and ACE Cash
Express, Inc., dated October 21, 2003, as amended (Incorporated by reference to Exhibit 10.28 of
Registrant’s Form 10-K for the year ended December 31, 2004 (Commission File Number: 0-
24649))
Marketing and Servicing Agreement, as amended between Republic Bank & Trust Company and
ACE Cash Express, Inc.
Lease between Republic Bank & Trust Company and Jaytee Properties, dated November 1, 2005, as
amended, relating to 9600 Brownsboro Road.
Steven E. Trager Officer Compensation Continuation Agreement
A. Scott Trager Officer Compensation Continuation Agreement
10.36* Bill Petter Officer Compensation Continuation Agreement
90
10.37* David Vest Officer Compensation Continuation Agreement
10.38* Kevin Sipes Officer Compensation Continuation Agreement
21
23
31.1
31.2
32.1**
32.2**
Subsidiaries of Republic Bancorp, Inc.
Consent of Crowe Chizek and Company LLC
Certification of Principal Executive Officer, pursuant to Rules 13a-14(a) of the Sarbanes-Oxley Act
of 2003.
Certification of Principal Financial Officer, pursuant to Rules 13a-14(a) of the Sarbanes-Oxley Act
of 2003.
Certification of Principal Executive Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2003.
Certification of Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2003.
_______________________
* Denotes management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K
pursuant to Item 15(c).
** This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of
1933 or the Securities Act of 1934.
91
EXHIBIT 21
Subsidiaries of Republic Bancorp, Inc.***
Name of Subsidiary
State in Which Organized
Republic Bank & Trust Company
Republic Bank & Trust Company of Indiana
Republic Invest Co.
Republic Capital LLC
Republic Bancorp Capital Trust
Subsidiaries of Republic Bank & Trust Company***
Kentucky
Indiana
Delaware
Delaware
Delaware
***
Certain subsidiaries are not listed since, considered in the aggregate as a single subsidiary, they would not
constitute a significant subsidiary at December 31, 2005.
92
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Form S-8 Registration Statement No. 333-91511, 333-120856, 333-
120857 and 333-130740 of Republic Bancorp, Inc., of our reports dated February 3, 2006 except for Footnote 22 which was
February 27, 2006, with respect to the consolidated financial statements of Republic Bancorp, Inc. and management’s
assessment of the effectiveness of internal control over financial reporting, which appear in this Annual Report on Form 10-K
of Republic Bancorp, Inc. for the year ended December 31, 2005.
Louisville, Kentucky
March 16, 2006
93
EXHIBIT 31.1
SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Steven E. Trager, the President and Chief Executive Officer of Republic Bancorp, Inc., certify that:
1)
I have reviewed this annual report on Form 10-K of Republic Bancorp, Inc.;
2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for
the periods presented in this annual report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Steven E. Trager
President & Chief Executive Officer
Date: March 16, 2006
94
EXHIBIT 31.2
SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Kevin Sipes, Executive Vice President, Chief Financial Officer and Chief Accounting Officer, certify that:
1)
I have reviewed this annual report on Form 10-K of Republic Bancorp, Inc.;
2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for
the periods presented in this annual report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Kevin Sipes
Executive Vice President , Chief Financial Officer and Chief Accounting Officer
Date: March 16, 2006
95
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
Pursuant to 18 U.S.C. § 1350, the undersigned officer of Republic Bancorp, Inc. (the “Company”), hereby certifies that the
Company’s Annual Report on Form 10-K for the year ended December 31, 2005 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 16, 2006
Steven E. Trager
President and Chief Executive
Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or
as a separate disclosure document.
96
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
Pursuant to 18 U.S.C. § 1350, the undersigned officer of Republic Bancorp, Inc. (the “Company”), hereby certifies that the
Company’s Annual Report on Form 10-K for the year ended December 31, 2005 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 16, 2006
Kevin Sipes
Executive Vice President, Chief
Financial Officer and Chief
Accounting Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or
as a separate disclosure document.
97
Republic Bancorp, Inc. Directors
Henry M. “Sonny” Altman, Jr.
Owner, Altman Consulting LLC
Charles E. “Andy” Anderson
Past CEO, Anderson Insurance & Financial Services
Bill Petter
Vice Chairman, Republic Bancorp, Inc.
Sandra Metts Snowden
President, Metts Company, Inc.
R. Wayne Stratton, CPA
Member–Owner, Jones, Nale & Mattingly PLC
Sue Stout Tamme
President and Chief Executive Officer, Baptist Hospital East
Bernard M. Trager
Chairman, Republic Bancorp, Inc.
A. Scott Trager
Vice Chairman, Republic Bancorp, Inc.
Steven E. Trager
President and Chief Executive Officer, Republic Bancorp, Inc.
Republic Bank & Trust Company Directors
Stan Curtis
Senior Vice President, Hilliard Lyons
Laura Douglas
Director of External Communications, E.on U.S.
Lawrence C. “Lonnie” Falk
Mayor, City of Prospect
George E. Fischer
Retired - Chairman, SerVend International, Inc.
D. Harry Jones
President, Jones Plastic & Engineering Corp.
Thomas M. Jurich
Vice President for Athletics, University of Louisville
Bill Petter
Executive Vice President and Chief Operating Officer, Republic Bank
& Trust Company
Michael T. Rust
President and Chief Executive Officer, Kentucky Hospital Association
Bernard M. Trager
Chairman - Executive Committee, Republic Bank & Trust Company
A. Scott Trager
President, Republic Bank & Trust Company
Steven E. Trager
Chairman and Chief Executive Officer, Republic Bank & Trust Company
Republic Bank & Trust Company of Indiana Directors
Bernard M. Trager
Director, Republic Bank & Trust Company of Indiana
Steven E. Trager
Chairman and Chief Executive Officer, Republic Bank & Trust Company
of Indiana
A. Scott Trager
President, Republic Bank & Trust Company of Indiana
Bill Petter
Executive Vice President and Chief Operating Officer, Republic Bank
& Trust Company of Indiana
Kevin Sipes
Executive Vice President and Chief Financial Officer, Republic Bank
& Trust Company of Indiana
Republic Bancorp, Inc. Executive Officers
Bernard M. Trager
Chairman and Director
Steven E. Trager
President, Chief Executive Officer and Director
A. Scott Trager
Vice Chairman and Director
Bill Petter
Vice Chairman and Director
Kevin Sipes
Executive Vice President and Chief Financial Officer
David Vest
Executive Vice President and Chief Deposit Officer
Jeff Norton
Executive Vice President and Chief Lending Officer
Republic Bank & Trust Company
Senior Management
Steven E. Trager
Chairman and Chief Executive Officer
A. Scott Trager
President
Bill Petter
Executive Vice President and Chief Operating Officer
Kevin Sipes
Executive Vice President and Chief Financial Officer
Jeff Norton
Executive Vice President and Chief Lending Officer
David Vest
Executive Vice President and Chief Deposit Officer
Bank Administration
Jeff Nelson, Senior Vice President
Business Banking
Andy Powell, Senior Vice President
Cash Management
Kanda Graas, Vice President
Collections
Duane Wilson, Senior Vice President
Community Relations
Carolle Jones Clay, Vice President
Compliance
Garry Throckmorton, Senior Vice President
Controller
Mike Beckwith, Senior Vice President
Commercial Lending
Tom Fangman, Senior Vice President
Facilities
Carol James, Vice President
Human Resources
Dorothy Pitt, Senior Vice President
Information Technology
Tom Clausen, Senior Vice President
Internal Audit
Ann Bauer, Vice President
Legal
Mike Ringswald, Senior Vice President
Loan Administration
Shannon Reid, Senior Vice President
Marketing
Michael Sadofsky, Senior Vice President
Preferred Client Services
Larry Kozlove, Senior Vice President
John Mason, Senior Vice President
Purchasing
Brian Sizemore, Vice President
Republic Financial Services
Mike Keene, President
Cathy Slider, Senior Vice President
Barbara Trager, Senior Vice President
Regional Managing Directors
Tucker Ballinger, Senior Vice President – Shelbyville, Frankfort,
Georgetown, Lexington
Claudio Monzon, Senior Vice President – Elizabethtown, Bowling
Green, Owensboro
Jonathan Payne, Senior Vice President - Louisville
Kathy Potts, Senior Vice President – Louisville
Retail Banking
Steve DeWeese, Senior Vice President
Risk Management
John Rippy, Senior Vice President
Security
Mark Speevack, Manager
Treasury
Greg Williams, Senior Vice President and Chief Investment Officer
Trust
Joe Sutter, Vice President
270-782-9111
270-769-6356
502-695-9000
502-875-4300
502-570-8868
859-264-0990
859-255-6267
859-224-1183
859-266-1165
859-273-3933
502-897-3800
502-459-2200
502-254-7555
502-339-9700
502-584-3600
502-448-7000
502-231-5522
502-964-8848
502-451-2006
502-425-2300
502-266-5466
502-588-3115
502-363-4644
502-969-8999
502-636-2661
502-228-2755
502-893-2533
502-339-2200
502-772-7500
270-684-3333
270-683-2699
502-633-6660
812-282-1200
812-949-2600
502-420-1888
502-420-1900
859-331-0888
BANKING CENTER AND LOAN OFFICE LOCATIONS
Bowling Green
Elizabethtown
Frankfort
East
West
Georgetown
Lexington
Louisville
Owensboro
Shelbyville
Andover
Chevy Chase
Harrodsburg Road
Perimeter Drive
Tates Creek
Baptist Hospital East
Bardstown Road
Blankenbaker Parkway
Brownsboro Road
Corporate Center
Dixie Highway
Fern Creek
Fern Valley Road
Hikes Point
Hurstbourne Parkway
Jeffersontown
Jewish Hospital
New Cut Road
Outer Loop
Poplar Level Road
Prospect
St. Matthews
Springhurst
West Broadway
Owensboro
Owensboro 54
1700 Scottsville Road, 42104
1690 Ring Road, 42701
1001 Versailles Road, 40601
100 Highway 676, 40601
430 Connector Road, 40324
3098 Helmsdale Place, 40509
641 East Euclid Avenue, 40502
2401 Harrodsburg Road, 40504
651 Perimeter Drive, 40517
3608 Walden Drive, 40517
3950 Kresge Way, Suite 108, 40207
2801 Bardstown Road, 40205
11330 Main Street, Middletown, KY 40243
4921 Brownsboro Road, 40222
601 West Market Street, 40202
5250 Dixie Highway, 40216
10100 Brookridge Village Blvd., 40291
3605 Fern Valley Road, 40219
3902 Taylorsville Road, 40220
661 South Hurstbourne Parkway, 40222
3811 Ruckriegel Parkway, 40299
224 East Muhammad Ali Blvd., 40202
5125 New Cut Road, 40214
4655 Outer Loop, 40219
1420 Poplar Level Road, 40217
9101 US Hwy 42, Prospect, KY 40059
3726 Lexington Road, 40207
9600 Brownsboro Road, 40241
2028 West Broadway, 40203
3500 Frederica Street, 42301
3332 Villa Point Drive, 42303
1614 Midland Trail, 40065
Republic Bank & Trust Company of Indiana
Jeffersonville
New Albany
3141 Highway 62, 47130
3001 Charlestown Crossing Way, 47150
Republic Finance (A Division of Republic Bank & Trust Company)
Louisville
Cedar Springs
Stony Brook
Republic Bank Loan Office
Ft. Wright
6844 Bardstown Road, 40291
9128 Taylorsville Road, 40299
1945 Highland Pike, 41017
Bank Offices (Including LPOs)
Louisville, KY
Lexington, KY
Frankfort, KY
Bowling Green, KY
Elizabethtown, KY
Fort Wright, KY
Georgetown, KY
Owensboro, KY
Shelbyville, KY
Jeffersonville, IN
New Albany, IN
Indicates principal office
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Ft. Wright