Republic Bank (RBCAA) is one bank that has interested me a good deal, mostly because of its amazing growth story and its ability to remain very profitable in a tough environment due to its good credit culture. Republic is based in Louisville, Kentucky and has went from fourth largest to the largest Kentucky-based bank over the past decade. The bank has $3.1 billion in assets and has three operating divisions: traditional banking, mortgage banking, and Tax Refund Solutions. Republic says it is the 4th largest processor nationwide of electronic tax refund products, which I think is definitely a niche for Republic.
Republic has some outstanding metrics: ROA 1.04% and ROE 12.58%, which are both extremely high for any bank at the moment. Republic has been recognized as the 10th best performing bank in the country by Bank Director Magazine, rated 15th best performing bank in the country by ABA Banking Journal, and 32nd best performing bank in the country by US Banker Magazine. Also, insiders own 55% of the company.
The following are the notes I took during my reading of Republic’s annual reports.
2000 Annual Report
In previous two years repurchased 440,000 shares. Announced purchase of 1 million shares of company stock through Dutch auction tender offer.
Credit culture: “We remain committed to our time-tested lending standards in the face of competition that can be quick to sacrifice credit quality in return for growth.”
Investing in efficiency can lead to profits and better relationships:
“Another initiative for 2000 was to increase the Company’s efficiency while maintaining a high level of personal client service. We achieved this in our lending function through our centralized loan operations. This area provides consistent, uniform underwriting, processing and servicing of our loans, while maintaining personal client service at our retail banking centers by leaving authority to approve loans with our experienced lending staff.”
On commercial lending: management focuses on quality loan underwriting.
Tax Refunds: For the year ended December 31, 2000, Refunds Now generated over $2.1 million in pre-tax earnings for the Company.
2001 Annual Report
No real mention of underwriting or credit culture. 2001 seems to have been a year of great expansion.
2002 Annual Report
Again, no mention of credit culture or underwriting in letter to shareholders. Another record year.
Refunds Now generated $6.5 million in revenue.
2003 Annual Report
Republic continues to expand: executives with hardhats and shovels in front of a unbuilt bank branch. Republic has become the 2nd-largest independent bank holding company in Kentucky, up from 4th-largest.
“Our goals remain lofty for 2004 despite a projected downturn in secondary market lending and its contributions to the Company’s bottom line. Our traditional banking strategies in 2004 will be simple and time-tested. In commercial banking, the focus will be to grow the balance sheet through the commercial lending and commercial cash management areas without sacrificing the credit quality we hold so dear.”
2004 Annual Report
Some shareholder friendly quotes in the letter:
“Throughout our history, asset quality has remained a primary focus of senior management. We believe there is no greater measure to the long-term success of a financial institution than asset quality.”
“Our focus on controlling non interest expenses was very successful in 2004. Non interest expenses increased only 5% for the year despite twelve full months of overhead associated with our newest banking centers. Cost containment will remain a focus in 2005; however, the Company remains steadfast in its resolve to avoid sacrificing long-term shareholder value in order to benefit from short-term economic gain.”
Cognizant of risk:
“Our non traditional business lines – Tax Refund Solutions and Deferred Deposits – continued their solid performance in 2004. These products have enabled us to profitably expand our customer base by fulfilling consumer demand for convenient and timely short term funding. We remain dedicated to providing customers with the products they desire at pricing that is appropriate for the risk involved and service required.”
2005 Annual Report
“The Company’s historically exceptional asset quality continued throughout 2005. In our opinion, no other factor determines the long-term success of a financial institution more than its asset quality, and at Republic outstanding asset quality is a way of life.”
Republic exited the payday loan business.
Says deposit-gathering remains a challenge: “We believe our deposit gathering function must grow in order for us to continue the success we experienced in the past.”
2006 Annual Report
$3 billion in assets and became the largest Kentucky-based bank holding company. Acquired a Florida bank and also created a “Private Banking” division. I like the fact that Republic has more stringent requirements for the loans its Florida bank makes as compared to the loans the Kentucky banks make.
Credit quality:
“It is important to note that we were able to achieve solid loan growth during 2006 while maintaining our strict underwriting standards. Entering 2007, we remain committed to maintaining exceptional credit quality standards and to never sacrifice these standards for the benefit of the short-term gain associated with higher loan volume.”
2007 Annual Report
The credit culture seems to be conservative and strong:
“We are pleased to report that our overall asset quality remains solid, with nonperforming assets less than 1/2 of 1 percent. While many institutions lowered their underwriting standards during the last few years due to pressure to produce higher volumes, Republic chose to maintain its traditional high credit quality standards. We have steered clear of the unsustainable returns of sub prime mortgage loans and this strategy has positioned us for continued success for years to come. As loan losses continue to grow at many banks across the country, our asset quality further underscores our value as a safe and sound, long-term investment option for our shareholders.”
3-year partnership with Jackson Hewitt announced for tax refund solutions.
2008 Annual Report
2008 seems to have been an amazing year for Republic mostly because the financial crisis basically highlighted Republic’s strengths: its credit culture, focus on prudent underwriting and credit quality.
“We attribute much of our success to the strength of our core operations and our business model, which is built on a cornerstone of prudent underwriting standards. For over 25 years, the foundation of our success has been built on a strategy of not only maintaining exceptional credit quality but a business strategy of never sacrificing long-term shareholder value at the expense of short-term gains.”
Continued to express interest in reducing and moderating overhead costs especially in light of the increased costs associated with opening new banking centers.
if you ever want to see a bank that is the exact opposite of Republic, that had branches in KY, take a look at Integra. Apparently, they had a ton of bad assets in the state.