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The break up with JTH Tax comes months after Kentucky's Republic Bancorp agreed to end its refund-anticipation loan program as part of a settlement with the FDIC.
August 30 -
Republic Bancorp booked a $28 million bargain purchase gain on its purchase of the failed Tennessee Commerce Bank. The company is now looking for other deals as it searches for ways to augment revenues it will lose from ending a controversial tax.
April 20 -
Republic Bancorp and the FDIC seemed to have put last year's legal tussle to rest after reaching an agreement to transfer ownership of Tennessee Commerce Bank.
January 30
When Republic Bancorp (RBCAA) of Louisville, Ky., said it would
Republic's purchase of First Commercial Bank in Bloomington last Friday from the Federal Deposit Insurance Corp. was financially attractive for the buyer, but the fact that the failed bank is 700 miles away from it surprised analysts.
"Had you asked me two weeks ago where I thought they were mostly like to do a deal, I would have said Florida," says Daniel Cardenas, an analyst at Raymond James in Chicago. "I think they saw this as an opportunity to have a financial gain and then see what they can do with it."
Republic bought the assets at a $79 million discount, and Cardenas says the $3.3 billion-asset Republic will likely book a large bargain purchase gain from the acquisition.
From Republic's perspective, the deal will immediately add to earnings. The deal did not include a loss-sharing arrangement with the FDIC. With a total risk-based capital ratio of 27.5% at June 30, Republic has said that it has enough capital to absorb any credit hits. As such, it prefers to avoid the reporting responsibility associated with loss sharing.
Republic was not put off by the distance between itself and the $194 million-asset First Commercial, says Steve Trager, its president and chief executive.
"We continue to look for FDIC-based opportunities across the country, and this is a good one in a good market," Trager says. He spent last weekend in Bloomington, returning to Louisville after leaving a team of 20 people to manage the newly acquired bank.
Some failed-bank buyers have agreed to out-of-state deals solely for the economics. They pick up cheap assets and essentially work them out as they wind down the bank. Trager says that isn't the path he is planning for Minnesota.
"There is some workout opportunity, but once we finish that we'll transition to growing in that market," Trager says. "We don't go anywhere to shrink."
Specifically, Trager says he sees an opportunity to steal market share from U.S. Bancorp and Wells Fargo. Those companies collectively hold about 70% of the deposits in the Minneapolis-St. Paul market, according to the latest data from the FDIC.
"We think we can offer an alternative. We think [the area] can benefit from community bank like us," Trager says. "We don't need a lot to be successful," given First Commercial's size.
First Commercial is Republic's second FDIC-assisted transaction this year. The company's ability to make failed-bank acquisitions was hamstrung in the aftermath of the financial crisis because it was
Late last year Republic agreed to stop making those loans to resolve the issue with regulators. So management is looking for ways to deploy capital and replace the $24.5 million in annual earnings it expects to lose from exiting that business.
Republic has also opened a wholesale mortgage business, and it is testing out the prepaid credit card market as it looks to increase fee income.
In January, it bought the deposits and a small portion of the assets of Tennessee Commerce Bank in Franklin. Republic booked a $28 million bargain purchase gain on that deal, which bolstered its already robust capital levels.
Trager says the company has placed bids on several failed banks since it bought Tennessee Commerce, but he declined to say exactly how many.
Trager says that Republic will take some time to integrate First Commercial, but the company is continuing to hunt for other acquisitions opportunities across the country.
"We are looking at virtually anywhere that we foresee there to be an opportunity," Trager says. "And I would be hesitant to limit that."
Cardenas says that Trager and his management team are capable leaders, but that he hopes any additional deals will fill out the company's existing markets, including its operations in Tampa, Fla.
"At the moment, I think they'll stick to where they are," Cardenas says. "It is possible that they will enter into a different market altogether next, but execution becomes key."
