Republic Bank (RBCAA) – One Tough Bank
Republic Bank (RBCAA) is an example of a bank that works hard to make its customers work hard.
Some observers naively examine the low rates of loan defaults on Republic’s home mortgage loan operations and assume that it a conservative small-town community bank. Hoover’s, a web site operated by Dunn & Bradstreet, makes this comment:
“…perhaps you bank at Republic Bancorp. It’s the largest Kentucky-based bank holding company, and parent to Republic Bank & Trust, which has about 40 branches in central Kentucky and southern Indiana. In 2006 the company entered Florida, where it has four branches, via its purchase of Tampa’s GulfStream Bank, since renamed Republic Bank. The banks offer checking and savings accounts, investment management, and trust services. Their lending activities mainly consist of residential mortgages (about half of the company’s loan portfolio) and commercial real estate loans (almost 30%).”
A closer look shows that Republic’s community banking is driven by fee income on overdrafts. Outside of its hometown (Louisville), Republic provides capital to tax preparers for refund anticipation loans and refund anticipation checks. Both the fee income on overdrafts and the multiple sources of fees on tax refunds dwarf their mortgage lending.
Consider their income (pg. 5 of the 10-k) from their three business segments: banking, tax refunds, and mortgages. Banking was the largest entity, with $18.6 million in net income in 2008. However, overdraft fee income was $19.4 million – meaning that fees on overdrafts pay the bills. The rest of their banking operation lost money. The tax refund business had a net of $13.3 million. Mortgage banking made $1.8 million.
“Service charges on deposit accounts increased $827,000, or 4%, during 2008 compared to the same period in 2007. The increase was primarily due to growth in the Company’s checking account base in conjunction with growth in the Bank’s “Overdraft Honor” program, which permits selected customers to overdraft their accounts up to a predetermined dollar amount (up to a maximum of $1,000) for the Bank’s customary overdraft fee. The Company also increased its overdraft fee by 3% in March of 2008. Included in service charges on deposits are net per item overdraft/NSF fees of $13.6 million and $13.7 million for 2008 and 2007, respectively.”
Republic raised its overdraft fee in 2006, and again in 2008.
I wonder how a bank like this gets by regulators. For one, refund anticipation loans have a risk-based capital weighting of 100 percent. When RBCAA makes more than $3 billion in RALs during January and February, as they did in 2008, then how is their bank really able to state that is meeting their capital requirements. The total assets of RBCAA are only about $3.2 billion, and most of those don’t go into the denominator of the equation:
risk weighted capital/(equity + treasuries + surplus – goodwill – intangibles)
The way that they make the dodge is by selling those RALs before they have to file a quarterly report. Still, in the short-run, it seems like they are depending upon an exceptional interpretation of the law on the part of their regulators.
