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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 2020, 2022

Commission File Number: 0-24649

GraphicGraphic

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky

61-0862051

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

601 West Market Street, Louisville, Kentucky

40202

(Address of principal executive offices)

(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

Trading Symbol

Name of each exchange on which registered

Class A Common

RBCAA

The Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

(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 No

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 No

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. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

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, 20202022 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $321,802,869$421,252,833 (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 February 19, 2021January 31, 2023 was 18,665,37017,596,420 and 2,198,848.2,159,495.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held April 22, 202120, 2023 are incorporated by reference into Part III of this Form 10-K.

Table of Contents

TABLE OF CONTENTS

PART I

    

    

 

Item 1.

Business.

5

Item 1A.

Risk Factors.

23

Item 1B.

Unresolved Staff Comments.

3536

Item 2.

Properties.

3637

Item 3.

Legal Proceedings.

38

Item 4.

Mine Safety Disclosures.

38

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

39

Item 6.

[Selected Financial Data.Reserved]

41

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

4541

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

8886

Item 8.

Financial Statements and Supplementary Data.

8887

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

182177

Item 9A.

Controls and Procedures.

182177

Item 9B.

Other Information.

182179

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

179

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

183179

Item 11.

Executive Compensation.

184181

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

184181

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

185181

Item 14.

Principal AccountingAccountant Fees and Services.

185181

PART IV

Item 15.

Exhibits, Financial Statement Schedules.

185182

Item 16.

Form 10-K Summary.

185182

Index to Exhibits

186183

Signatures

194190

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GLOSSARY OF TERMS

The terms identified in alphabetical order below are used throughout this Form 10-K. You may find it helpful to refer to this page as you read this report.

Term

    

Definition

    

Term

    

Definition

    

Term

    

Definition

ACH

Automated Clearing House

EBITDAEFTA

Earnings Before Interest, Taxes, Depreciation and AmortizationElectronic Fund Transfers Act

OFAC

Office of Foreign Assets Control

ACL

Allowance for Credit Losses

Economic Aid ActEITC

The Economic Aid to Hard Hit Small Business, Not for Profits and Venues ActEarned Income Tax Credit

OREO

Other Real Estate Owned

ACLC

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

EFTAERA

Electronic Fund TransfersEarly Season Refund Advance

PATH Act

PatriotProtecting Americans from Tax Hikes Act

U.S. Patriot Act of 2015

ACLL

Allowance for Credit Losses on Loans

EITC

Earned Income Tax Credit

PCD

Purchased Credit Deteriorated

ACLS

Allowance for Credit Losses on Securities

ESPP

Employee Stock Purchase Plan

PCIPatriot Act

Purchased Credit ImpairedU.S. Patriot Act

AFSACLS

AvailableAllowance for SaleCredit Losses on Securities

EVP

Executive Vice President

PCI-1PCD

PCI - Group 1Purchased Credit Deteriorated

AllowanceAFS

AllowanceAvailable for Credit LossesSale

FASB

Financial Accounting Standards Board

PCI-SubPCI

PCI - SubstandardPurchased Credit Impaired

Allowance

Allowance for Credit Losses

FCA

Financial Conduct Authority

PD

Probability of Default

AML

Anti-Money Laundering

FCRA

Fair Credit Reporting Act

PDPPP

Probability of DefaultPaycheck Protection Program

AOCI

Accumulated Other Comprehensive Income

FDIA

Federal Deposit Insurance Act

PPPPrime

Paycheck Protection ProgramThe Wall Street Journal Prime Interest Rate

ARM

Adjustable Rate Mortgage

FDICIA

Federal Deposit Insurance Corporation Improvement Act

PrimeProvision

The Wall Street Journal Prime Interest RateProvision for Expected Credit Loss Expense

ASC

Accounting Standards Codification

FFTR

Federal Funds Target Rate

ProvisionPSU

Provision for Expected Credit Loss ExpensePerformance Stock Unit

ASU

Accounting Standards Update

FHA

Federal Housing Administration

PSUPurchase Agreement

Performance Stock UnitMay 13, 2021 Asset Purchase Agreement for the sale of substantially all of the Bank's TRS assets and operations to Green Dot

ATM

Automated Teller Machine

FHC

Financial Holding Company

R&DRA

Research and DevelopmentRefund Advance

ATR

Ability to Repay

FHLB

Federal Home Loan Bank

RB&T / the BankR&D

Republic Bank & Trust CompanyResearch and Development

Basic EPS

Basic earnings per Class A Common Share

FHLMC

Federal Home Loan Mortgage Corporation or Freddie Mac

RBCTRB&T / the Bank

Republic Bancorp CapitalBank & Trust Company

BHC

Bank Holding Company

FICO

Fair Isaac Corporation

RCSRBCT

Republic Credit SolutionsBancorp Capital Trust

BHCA

Bank Holding Company Act

FNMA

Federal National Mortgage Association or Fannie Mae

Republic / the CompanyRCS

Republic Bancorp, Inc.Credit Solutions

BOLI

Bank Owned Life Insurance

FOMC

Federal Open Market Committee

RESPARepublic / Company

Real Estate Settlement Procedures ActRepublic Bancorp, Inc.

BPO

Brokered Price Opinion

FRA

Federal Reserve Act

ROARESPA

Return on Average AssetsReal Estate Settlement Procedures Act

BSA

Bank Secrecy Act

FRB

Federal Reserve Bank

ROEROA

Return on Average EquityAssets

C&D

Construction and Development

FTE

Full Time Equivalent

RPGROE

Republic Processing GroupReturn on Average Equity

C&I

Commercial and Industrial

FTP

Funds Transfer Pricing

RPSRPG

Republic Payment SolutionsProcessing Group

CARD Act

Credit Card Accountability Responsibility and Disclosure Act of 2009

GAAP

Generally Accepted Accounting Principles in the United States

RTRPS

Refund TransferRepublic Payment Solutions

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

GLBA

Gramm-Leach-Bliley Act

S&PRT

Standard and Poor'sRefund Transfer

CCAD

Commercial Credit Administration Department

Green Dot

Green Dot Corporation

S&P

Standard and Poor's

CDI

Core Deposit Intangible

HEAL

Home Equity Amortizing Loan

SABSAC

SEC Staff Accounting BulletinSpecial Asset Committee

CDICECL

Core Deposit IntangibleCurrent Expected Credit Losses

HELOC

Home Equity Line of Credit

SACSale Transaction

Special Asset CommitteeSale contemplated in the May 13, 2021 Purchase Agreement between the Bank and Green Dot

CEO

Chief Executive Officer

HMDA

Home Mortgage Disclosure Act

SBA

Small Business Administration

CFO

Chief Financial Officer

HTM

Held to Maturity

SEC

Securities and Exchange Commission

CFPB

Consumer Financial Protection Bureau

IRS

Internal Revenue Service

SERP

Supplemental Executive Retirement Plan

CFTC

Commodity Futures Trading Commission

ITM

Interactive Teller Machine

SSUARSOFR

Securities Sold Under Agreements to RepurchaseSecured Overnight Financing Rate

CMO

Collateralized Mortgage Obligation

KDFI

Kentucky Department of Financial Institutions

SVPSSUAR

Senior Vice PresidentSecurities Sold Under Agreements to Repurchase

CMT

Constant Maturity Treasury Index

LGD

Loss Given Default

TCJASVP

2017 Tax Cuts and Jobs ActSenior Vice President

Core Bank

The Traditional Banking, Warehouse Lending, and Mortgage Banking reportable segments

LIBOR

London Interbank Offered Rate

TDRTBA

Troubled Debt RestructuringTo be Announced

COVID-19

Coronavirus Disease of 2019

LOC I

RCS product introduced in 2014 for which the Bank participates out a 90% interest and holds a 10% interest

TDR

Troubled Debt Restructuring

CRA

Community Reinvestment Act

LOC II

RCS product introduced in 2021 for which the Bank participates out a 95% interest and holds a 5% interest

Captive

Republic Insurance Services, Inc.

CRE

Commercial Real Estate

LPO

Loan Production Office

The CaptiveTILA

Republic Insurance Services, Inc.Truth in Lending Act

CRADIF

Community Reinvestment ActDeposit Insurance Fund

LTV

Loan to Value

TILATPS

Truth in Lending ActTrust Preferred Securities

CREDiluted EPS

Commercial Real EstateDiluted earnings per Class A Common Share

MBS

Mortgage BackedMortgage-Backed Securities

TPS

Trust Preferred Securities

DIF

Deposit Insurance Fund

MPP

Mortgage Purchase Program

TRS

Tax Refund Solutions

Diluted EPSDodd-Frank Act

Diluted earnings per Class A Common ShareThe Dodd-Frank Wall Street Reform and Consumer Protection Act

MSRs

Mortgage Servicing Rights

TRUP

TPS Investment

Dodd-Frank ActDTA

The Dodd-Frank Wall Street Reform and Consumer Protection ActDeferred Tax Assets

NA

Not Applicable

USDA

U.S. Department of Agriculture

DTADTL

Deferred Tax AssetsLiabilities

NASDAQ

NASDAQ Global Select Market®

VA

U.S. Department of Veterans Affairs

DTLEBITDA

Deferred Tax LiabilitiesEarnings Before Interest, Taxes, Depreciation and Amortization

NM

Not Meaningful

Warehouse

Warehouse Lending

EAEconomic Aid Act

Easy AdvanceEconomic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act

OCI

Other Comprehensive Income

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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 Part I Item 1 “Business,” Part I Item 1A “Risk Factors” and Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As used in this filing, 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. The term the “Bank” refers to the Company’s subsidiary bank: Republic Bank & Trust Company. The term the “Captive” refers to the Company’s insurance subsidiary: Republic Insurance Services, Inc.

Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss future events or conditions, the statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” “potential,” 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 the statements are made and management undertakes no obligation to update forward-looking statements, except as required by applicable law.

Broadly speaking, forward-looking statements include:

the potential impact of the COVID-19 pandemicinflation on Company operations;
projections of revenue, income, expenses, losses, earnings per share, capital expenditures, dividends, capital structure, loan volume, loan growth, deposit growth, or other financial items;
descriptions of plans or objectives for future operations, products, or services;
descriptions and projections related to management strategies for loans, deposits, investments, and borrowings;
forecasts of future economic performance; and
descriptions of assumptions underlying or relating to any of the foregoing.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from 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 the following:

the impact of inflation on the COVID-19 pandemic on Company’s operations and credit losses;
litigation liabilities, including related costs, expenses, settlements and judgments, or the abilityoutcome of borrowers who received COVID-19 loan accommodations to resume repaying their loans upon maturity of such accommodations;matters before regulatory agencies, whether pending or commencing in the future;
natural disasters impacting the Company’s operations;
changes in political and economic conditions;
the discontinuation of LIBOR;
the magnitude and frequency of changes to the FFTR implemented by the FOMC of the FRB;
long-term and short-term interest rate fluctuations as well asand the overall steepness of the U.S. Treasury yield curve;curve, as well as their impact on the Company’s net interest income and Mortgage Banking operations;
competitive product and pricing pressures in each of the Company’s five reportable segments;
equity and fixed income market fluctuations;
client bankruptcies and loan defaults;
inflation;
recession;
future acquisitions;
integrations of acquired businesses;
changes in technology;
changes in applicable laws and regulations or the interpretation and enforcement thereof;
changes in fiscal, monetary, regulatory, and tax policies;
changes in accounting standards;
monetary fluctuations;

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monetary fluctuations;
changes to the Company’s overall internal control environment;
the ability of the Company to remediate its material weaknesses in its internal control over financial reporting;
success in gaining regulatory approvals when required;
the Company’s ability to qualify for future R&D federal tax credits;
the ability for Tax Providers to successfully market and realize the expected RA and RT volume anticipated by TRS;
information security breaches or cyber security attacks involving either the Company or one of the Company’s third-party service providers; and
other risks and uncertainties reported from time to time in the Company’s filings with the SEC, including Part 1 Item 1A “Risk Factors.”

On October 26, 2022, Republic, the Bank and CBank entered into the CBank Agreement. Upon completion of the transaction, CBank will be merged with and into RB&T, with RB&T as the survivor of the merger. CBank is headquartered in Cincinnati, Ohio. This document contains statements regarding the proposed acquisition transaction that are not statements of historical fact and are considered forward-looking statements within the criteria described above. These statements are likewise subject to various risks and uncertainties that may cause actual results and outcomes of the proposed transaction to differ, possibly materially, from the anticipated results or outcomes expressed or implied in these forward-looking statements. In addition to factors disclosed in reports filed by Republic with the SEC, risks and uncertainties for Republic, CBank and the combined company include, but are not limited to: for the parties to receive all regulatory approvals as provided for in the CBank Agreement, the ability to grow CBank loan and deposit balances post-acquisition, unanticipated post-acquisition loan losses for Republic on CBank-originated loans, the ability of Republic to integrate acquired operations including obtaining synergies, integration objectives and anticipated timelines, the ability of Republic to integrate, manage and keep secure our information systems, and other risks and uncertainties reported from time to time in the Company’s filings with the SEC, including Part 1 Item 1A “Risk Factors.”

PART I

Item 1. Business.

Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-member financial institution that provides both traditional and non-traditional banking products through five reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly-ownedwholly owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives for which insurance may not be available or economically feasible.

Republic Bancorp Capital Trust is a Delaware statutory business trust that is a wholly-owned unconsolidated finance subsidiary of Republic Bancorp, Inc.

As of December 31, 2020,2022, Republic had 42 full-service banking centers with locations as follows:

Kentucky — 28

Metropolitan Louisville — 18

Central Kentucky — 7

Georgetown — 1

Lexington — 5

Shelbyville — 1

Northern Kentucky — 3

Covington — 1

Crestview Hills — 1

Florence — 1

Southern Indiana — 3

Floyds Knobs — 1

Jeffersonville — 1

New Albany — 1

·Metropolitan Tampa, Florida — 7

·Metropolitan Cincinnati, Ohio — 2

·

Metropolitan Tampa, Florida — 7

Metropolitan Cincinnati, Ohio — 2

Metropolitan Nashville, Tennessee — 2

Republic’s headquarters are in Louisville, which is the largest city in Kentucky based on population.

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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 results of operations of the Bank. AtAs of December 31, 2020,2022, Republic had total assets of $6.2$5.8 billion, total deposits of $4.7$4.5 billion, and total stockholders’ equity of $823$857 million. Based on total assets as of December 31, 2020,2022, Republic ranked as the second largest Kentucky-based financial holding company. 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 its 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 through its website, www.republicbank.com, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. The information provided on the Company’s website is not part of this report, and is therefore not incorporated by reference, unless that information is otherwise specifically referenced elsewhere in this report. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

General Business Overview

As of December 31, 2020,2022, the Company was divided into five reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first three segments (Traditional Banking, Warehouse, Mortgage Banking) to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments (TRS and RCS) collectively constitute RPG operations. MemoryBank®, the Company’s national branchless banking platform, is part of the Traditional Banking segment.

(I)  Traditional Banking segment

As of December 31, 20202022 and through the date of this filing, generally all Traditional Banking products and services except for a selection of deposit products offered through the Bank’s separately branded national branchless banking platform, MemoryBank, were offered through the Company’s traditional RB&T brand.

Lending Activities

The Bank’s principal lending activities consist of the following:

Retail Mortgage Lending Through itsthe Bank’s mortgage division, which consists of a retail channel and consumer direct channel, as well as the Bank’s private banking centersdivision and its online Consumer Direct channel,banking center network, the Bank originates single-family, residential real estate loans. In addition, the Bank originates HEALsloans and HELOCs through its retail banking centers.HELOCs. Such loans are generally collateralized by owner-occupied, residential real estate properties. For thoseThe collateral for these loans originated through the Bank’s retail banking centers, the collateral is predominately located in the Bank’s market footprint, whileexcept for a small percentage of loans originated through theits Consumer Direct channelChannel, which are generally secured by owner occupiedowner-occupied collateral located outside of the Bank’s market footprint. The Bank expects to relaunch its Correspondent Lending channel during the first quarter of 2023, with these loans secured by owner-occupied collateral generally located outside of the Bank’s market footprint, as well.

The Bank offers single-family, first-lien residential real estate ARMs with interest rate adjustments tied to various market indices with specified minimum and maximum adjustments. The Bank generally charges a higherpremium interest rate for its ARMs if the property is not owner occupied. The interest rates on the majority of ARMs are adjusted after their fixed rate periods on an annual or semi-annual basis, with most having annual and lifetime limitations on upward rate adjustments to the loan. These loans typically feature amortization periods of up to 30 years and have fixed interest-rate periods generally ranging from five to ten years, with demand dependent upon market conditions. In general, ARMs containing longer fixed-rate periods have historically been more attractive to the Bank’s clients in a relatively low-rate environment, while ARMs with shorter fixed-rate periods have historically been more attractive to the Bank’s clients in a relatively high-rate environment. While there is no requirement for clients to refinance their loans at the end of the fixed-rate period, clients have historically done so the majority of the time, as most clients are interest-rate-risk averse on their first mortgage loans.

Depending on the term and amount of the ARM, loans collateralized by single family, owner-occupied first lien residential real estate may be originated with an LTV up to 90% and a combined LTV up to 100%. The Bank also offers a 100% LTV product

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for home-purchase transactionsmedical doctors within its primary markets. The Bank does not require the borrower to obtain private mortgage insurance for ARM loans. Except for theits HEAL product under $150,000,$250,000, the Bank requires mortgagee’s title insurance on single family, first lien residential real estate

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loans to protect the Bank against defects in its liens on the properties that collateralize the loans. The Bank normally requires title, fire, and extended casualty insurance to be obtained by the borrower and, when required by applicable regulations, flood insurance. The Bank maintains an errors and omissions insurance policy to protect the Bank against loss in the event a borrower fails to maintain proper fire and other hazard insurance policies.

Single-family, first-lien residential real estate loans with fixed-rate periods of 15, 20, and 30 years are primarily originated and sold into the secondary market. MSRs attached to the sold portfolio are either sold along with the loan or retained. Loans sold into the secondary market, along with their corresponding MSRs, are included as a component of the Company’s Mortgage Banking segment, as discussed elsewhere in this filing. The Bank, as it has in the past, may retain such longer-term, fixed-rate loans from time to time in the future to help combat net interest margin compression. Any such loans retained on the Company’s balance sheet would be reported as a component of the Traditional Banking segment.

The Bank does, on occasion, purchase single-family, first-lien residential real estate loans made to low-to-moderate income borrowers and/or secured by property located in low-to-moderate income areas, which assists the Bank in order to meetmeeting its obligations under the CRA. In connection with loan purchases, the Bank receives various representations and warranties from the sellers regarding the quality and characteristics of the loans.

Commercial Lending — The Bank conducts commercial lending activities primarily through Corporate Banking, Commercial Banking, CRE Banking, Business Banking, and Retail Banking channels.

In general, commercialCommercial lending credit approvals and processing are prepared and underwritten through the Bank’s centralized CCAD. ClientsCommercial clients are generallytypically located within the Bank’s market footprint or in areas nearby the market footprint.an adjoining market.

Credit opportunities are generally driven by the following: companies expanding their businesses; companies acquiring new businesses; and/or companies refinancing existing debt from other institutions. The Bank has a focus on C&I lending, and owner-occupied and nonowner-occupiednon-owner-occupied CRE lending. The targeted C&I credit size for client relationships is typically between $1 million toand $10 million, with higher targets between $10 million to $20and $25 million for large Corporate Banking and CRE Division borrowers of higher credit quality.

C&I loans typically include those secured by general business assets, which consist of equipment, accounts receivable, inventory, and other business assets owned by the borrower/guarantor. Credit facilities include annually renewable lines of credit and term loans with maturities typically from three to five years and may also involve financial covenant requirements. These requirements are monitored by the Bank’s CCAD. Underwriting for C&I loans is based on the borrower’s capacity to repay these loans from operating cash flows, typically measured by EBITDA, with capital strength, collateral, and management experience also important underwriting considerations.

Corporate Banking focuses on larger C&I and CRE opportunities. For CRE loans, Corporate Banking focuses on stabilized CRE with low leverage and strong cash flows. Borrowers are generally single-asset entities and loan sizes typically range from $5 million to $20$30 million. Primary underwriting considerations are propertyproject cash flowflows (current and historical), quality of leases, financial capacity of sponsors, and collateral value of property financed. The majority of interest rates offered are based on a floating rate index like LIBOR or the CMT.term-SOFR and U.S. Treasuries. Fixed-rate terms of up to 10 years are available to borrowers by utilizing standard Bank products or interest rate swaps. In somemany cases, limited guarantees, or in certain instances, non-recourse (of owners) loans will be issued, with such cases based upon the equity/capital position, project cash flows, and stabilization of the borrowing entity.

The Bank’s CRE Division, which launched in 2022, focuses on large CRE projects, typically $5 million to $25 million. Borrowers are generally single-asset entities. Primary underwriting considerations are project cash flow (current and historical), financial capacity of sponsors, and collateral value financed. Fixed rate financing and reciprocal interest rate swap’s are typically used as well. Given the size of these credits, the Bank generally seeks established, well-known borrowers and projects with low credit risk.

Commercial Banking focuses on medium sizesized C&I and CRE opportunities. Borrowers are generally single-asset entities and loan sizes typically range from $1 million to $5 million. As with Corporate Banking, the primary underwriting considerations are propertyproject cash flow (current and historical), quality of leases, financial capacity of sponsors, and collateral value of property financed. Interest rates offered are based on both fixed and variable interest-rate formulas.

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The Bank’s CRE and multi-family loans are typically secured by improved property such as office buildings, medical facilities, retail centers, warehouses, apartment buildings, condominiums, schools, religious institutions, and other types of commercial use property.

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The Business Banking and Business Development groups, reporting up under Retail Banking, focus on locally based small-to-medium sized businesses in the Bank’s market footprint with primary annual revenues between $1 million and $20up to $10 million, and borrowings between $500,000$200,000 and $2$1 million. The needs of these clients range from expansion or acquisition financing, equipment financing, owner-occupied real estate financing, and smaller operating lines of credit.

The Bank is an SBA Preferred Lending Partner, which allows the Bank to underwrite and approve its own SBA loans in an expedited manner. An experienced veteran lender oversees the Bank’s SBA Department. The Bank makes loans to borrowers generally up to $1.5$3 million under the SBA “7A Program,” as well as utilize the “504 Program” for owner-occupied CRE opportunities. The Bank’s goal is to expand its SBA platform over time and support the opportunities that arise within its markets. The Bank’s lenders utilize all appropriate programs of the SBA to reduce credit risk exposure. During 2020, the Bank provided pandemic-related assistance to over 3,700 borrowers through $528 million in SBA PPP loans.

The Economic Aid Act was enacted in December 2020 in further response to the COVID-19 pandemic. Among other things, the Economic Aid Act provides relief to borrowers to access additional credit through the SBA's PPP program. The Bank began actively participating in the new program during the first quarter of 2021.

Construction and Land Development Lending — The Bank originates business loans for the construction of both single-family, residential properties and commercial properties (apartment complexes, shopping centers, office buildings). While not a focus for the Bank, the Bank may originate loans for the acquisition and development of residential or commercial land into buildable lots.

Single-family, residential-construction loans are made in the Bank’s market area to established homebuilders with solid financial records. The majority of these loans are made for “contract” homes, which the builder has already pre-sold to a homebuyer. The duration of these loans is generally less than 12 months and repaid at the end of the construction period from the sale of the constructed property. Some loans are made on “speculative” homes, which the builder does not have pre-sold to a homebuyer but expects to execute a contract to sell during the construction period. These speculative homes are considered necessary to have in inventory for homebuilders, as not all homebuyers want to wait during the construction period to purchase and move into a newly built home.

Commercial-construction loans are made in the Bank’s market to established commercial builders with solid financial records. Typically, these loans are made for investment properties and have tenants pre-committed for some or all of the space. Some projects may begin as speculative, with the builder contracting to lease or sell the property during the construction period. Generally, commercial constructioncommercial-construction loans are made for the duration of the construction period and slightly beyond and will either convert to permanent financing with the Bank or with another lender at or before maturity.

Construction-to-permanent loans are another type of construction-related financing offered by the Bank. These loans are made to borrowers who are going to build a property and retain it for ownership after construction completion. The construction phase is handled just like all other construction loans, and the permanent phase offers similar terms to a permanent CRE loan while allowing the borrower a one-time closing process at loan origination. These loans are offered on both owner-occupied and nonowner-occupied CRE.

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Consumer Lending — Traditional Banking consumer loans made by the Bank include home improvement and home equity loans, other secured and unsecured personal loans, andas well as credit cards. Except for home equity loans, whichThe Bank predominately originates consumer credit cards as the main product within this lending. Credit cards are activelygenerally marketed in conjunction with single family, first lien residential real estate loans, other Traditional Banking consumer loan products (not including products offered through RPG), while available,to existing clients of the Bank and are not and have not been actively promoted in the Bank’s markets.generally marketed to non-clients.

Aircraft Lending In October 2017, the Bank created an Aircraft Lending division. The initial loan size offered was up to $500,000. In 2019, the Bank increased the opportunity to finance up to $1.0 million and in mid-2020 the Bank raised its opportunity to finance, once again, up to $2.0 million. In 2020, the Bank’s aircraft portfolio surpassed $100 million. Aircraft loans are typically made to purchase or refinance personal aircrafts, along with engine overhauls and avionic upgrades. Loans range between $55,000 and $2,000,000$3,000,000 in size and have terms up to 20 years. The aircraft loan program is open to all states, except for Alaska and Hawaii.fifty states.

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The credit characteristics of an aircraft borrower are higher than a typical consumer in that they must demonstrate and indicate a higher degree of credit worthiness for approval.

See additional discussion regarding Lending Activities under the sections titled:

Part I Item 1A “Risk Factors”
Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 4 “Loans and Allowance for Credit Losses”

The Bank’s other Traditional Banking activities generally consist of the following:

MemoryBank — MemoryBank, a national branchless banking platform, is a separately branded division of the Bank, which, from a marketing perspective, focuses on technologically savvy clients that prefer to carry larger balances in highly liquid interest-bearing bank accounts. MemoryBank products are offered through its website, www.mymemorybank.com. MemoryBank was not actively marketed during 2020.

Private Banking — The Bank provides financial products and services to high-net-worth individuals through its Private Banking department. The Bank’s Private Banking officers have extensive banking experience and are trained to meet the unique financial needs of this clientele.

Treasury Management ServicesDepartment The Bank provides various deposit products designed for commercial business clients located throughout its market footprint. Lockbox processing, remote deposit capture, business on-line banking, account reconciliation, and ACH processing are additional services offered to commercial businesses through the Bank’s Treasury Management department. Treasury Management officers work closely with commercial and retail officers to support their client’s cash management needs.

Correspondent Lending — The Bank expects to begin acquiring single family, first lien mortgage loans for investment through its Correspondent Lending channel during the first quarter of 2023. Correspondent Lending generally involves the Bank acquiring, primarily from its Warehouse Lending clients, closed loans that meet the Bank’s specifications. Substantially all loans purchased through the Correspondent Lending channel will be purchased at a premium.  Premiums on loans held for investment acquired though the Correspondent Lending channel will be amortized into interest income on the level-yield method over the expected life of the loan.  Loans acquired through the Correspondent Lending channel will be generally made to borrowers outside of the Bank’s historical market footprint.

Internet Banking — The Bank expands its market penetration and service delivery of its RB&T brand by offering clients Internet Banking services and products through its website, www.republicbank.com.

Mobile Banking — The Bank allows clients to easily and securely access and manage their accounts through its mobile banking application.

Other Banking Services — The Bank also provides title insurance and other financial institution related products and services.

Bank Acquisitions — The Bank maintains an acquisition strategy to selectively grow its franchise as a complement to its organic growth strategies.

See additional discussion regarding the Traditional Banking segment under Footnote 25 “Segment Information” of Part II Item 8 “Financial Statements and Supplementary Data.”

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(II)  Warehouse Lending segment

The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the United States through mortgage warehouse lines of credit. These credit facilities are primarily secured by single-family, first-lien residential real estate loans. The credit facility enables the mortgage banking clients to close single-family, first-lien residential real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank. Individual advances for loans are expected to remain on the warehouse line for an average of 15 to 30 days. Advances for Reverse mortgage loans and construction loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each individual loanadvance during the time the loanadvance remains on the warehouse line and collected when the loan is sold. The Core Bank receives the sale proceeds of each loan directly from the investor and applies the funds to pay off the warehouse advance and related accrued interest and fees. The remaining proceeds are credited to the mortgage-banking client.

See additional discussion regarding the Warehouse Lending segment under Footnote 25 “Segment Information” of Part II Item 8 “Financial Statements and Supplementary Data.”

(III)  Mortgage Banking segment

Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term single-family, first-lien residential real estate loans that are originated and sold into the secondary market, primarily to the FHLMC and the FNMA. The Bank typically retains servicing on loans sold into the secondary market. Administration of loans with servicing retained by the Bank includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors. The Bank receives fees for performing these standard servicing functions.

As part of the sale of loans with servicing retained, the Bank records MSRs. MSRs represent an estimate of the present value of future cash servicing income, net of estimated costs, which the Bank expects to receive on loans sold with servicing retained by the Bank. MSRs are capitalized as separate assets. This transaction is posted to net gain on sale of loans, a component of “Mortgage Banking income” in the income statement. 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 Bank. The carrying value of MSRs is initially amortized in proportion to and over the estimated period of net servicing income and subsequently adjusted quarterly based on the weighted average remaining life of the underlying loans. The MSR amortization is recorded as a reduction to net servicing income, a component of Mortgage Banking income.

With the assistance of an independent third party, the MSRs asset is reviewed at least quarterly for impairment based on the fair value of the MSRs using groupings of the underlying loans based on predominant risk characteristics. Any impairment of a grouping is 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 is expected to decline due to increased anticipated prepayment speeds within the portfolio. Alternatively, during a period of rising interest rates, the fair value of MSRs would be expected to increase as prepayment speeds on the underlying loans would be expected to decline.

See additional discussion regarding the Mortgage Banking segment under Footnote 25 “Segment Information” of Part II Item 8 “Financial Statements and Supplementary Data.”

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(IV) Tax Refund Solutions segment

Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). SubstantiallyThe majority of all of the business generated by the TRS segmentbusiness occurs induring the first half of theeach year. The TRS segment traditionally operates at a loss duringDuring the second half of theeach year, during which time the segmentTRS generates limited revenue and incurs costs preparing for the upcomingnext year’s tax season. TRS also originated $98 million of ERAs during December 2022 related to tax returns that are anticipated to be filed during the first quarter 2023 tax filing season.

RTs are fee-based products whereby a tax refund is issued to the taxpayer after the Bank has received the refund from the federal or state government. There is no credit risk or borrowing cost associated with these products because they are only delivered to the taxpayer upon receipt of the tax refund directly from the governmental paying authority. Fees earned by the Company on RTs, net of revenue share, are reported as noninterest income under the line item “Net refund transfer fees.”

The EA taxRA credit product is a loan thatmade in conjunction with the filing of a taxpayer’s final federal tax return, which allows athe taxpayer to borrow funds as an advance of a portion of their tax refund. The EARA product had the following features during 2020the first quarters of 2022 and 2019:2021:

Offered only during the first two months of each year;
The taxpayer was given the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $6,250;
No requirement that the taxpayer pays for another bank product, such as an RT;
Multiple funds disbursement methods were available with most Tax Providers, including direct deposit, prepaid card, check, or Walmart Direct2Cash®,check, based on the taxpayer-customer’s election;
Repayment of the EARA to the Bank is deducted from the taxpayer’s tax refund proceeds; and
If an insufficient refund to repay the EARA occurs:
othere is no recourse to the taxpayer, 
ono negative credit reporting on the taxpayer, and
ono collection efforts against the taxpayer.

The ERA credit product is similar to the RA with the distinction of the timing of when the ERA is originated and the documentation available to underwrite the credit. The ERA is originated prior to the taxpayer receiving their fiscal year taxable income documentation, e.g., W-2, and the filing of the taxpayer’s final federal tax return. As such, the Company generally uses paystub information to underwrite the ERA. The repayment of the ERA is incumbent upon the taxpayer client returning to the Bank’s Tax Provider for the filing of their final federal tax return in order for the tax refund to potentially be received by the Bank from the federal government to pay off the advance. The ERA product related to the first quarter 2023 tax filing season had the following features:

Offered only during December 2022 and January 2023;
The taxpayer had the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $1,000;
No requirement that the taxpayer pays for another bank product, such as an RT;
Multiple disbursement methods were available with most Tax Providers, including direct deposit or prepaid card, based on the taxpayer-customer’s election;
Repayment of the ERA to the Bank is deducted from the taxpayer’s tax refund proceeds; and
If an insufficient refund to repay the ERA occurs, including the failure to file a final federal tax return through a Republic Tax Provider:
othere is no recourse to the taxpayer, 
ono negative credit reporting on the taxpayer, and
ono collection efforts against the taxpayer.

The Company reports fees paid for the EA productRAs, including ERAs, as interest income on loans. EAs are generallyRAs that were originated related to the first quarter 2022 tax season were repaid, on average, within 3532 days after the taxpayer’s tax return iswas submitted to the applicable taxing authority. EAsRAs do not have a contractual due date but the Company considersconsidered an EARA, related to the first quarter 2022 tax season, delinquent if it remainsremained unpaid 35 days after the taxpayer’s tax return iswas submitted to the applicable taxing authority. ProvisionThe number

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of days for delinquency eligibility is based on EAs ismanagement’s annual analysis of tax return processing times. Provisions on RAs are estimated when advances are made, with Provision for all expected EA losses made inmade. Unpaid RAs, including ERAs, related to the first quarter tax season of each year. Unpaid EAsa given year are charged-off by June 30th of eachthat year, with EAsRAs collected during the second half of eachthat year recorded as recoveries of previously charged-off loans.

Related to the overall credit losses on EAs,RAs, including ERAs, the Bank’s ability to control losses is highly dependent upon its ability to predict the taxpayer’s likelihood to receive the tax refund as claimed on the taxpayer’s tax return. Each year, the Bank’s EARA approval model is based primarily on the prior-year’s tax refund payment patterns. Because the substantial majority of the EARA volume occurs each year before that year’s tax refund payment patterns can be analyzed and subsequent underwriting changes made, credit losses during a current year could be higher than management’s predictions if tax refund payment patterns change materially between years.

In response to changes in the legal, regulatory, and competitive environment, management annually reviews and revises the EAsRA, including the ERA, product parameters. Further changes in EAthe RA product parameters do not ensure positive results and could have an overall material negative impact on the performance of the EAall RA product offeringofferings and therefore on the Company’s financial condition and results of operations.

See additional discussion regarding the EARA product under the sections titled:

Part I Item 1A “Risk Factors”
Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 4 “Loans“Loans and Allowance for Credit Losses”

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TableSee Footnote 1 “Summary of ContentsSignificant Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data” for discussion regarding the cancelled sale of the TRS business and associated litigation.

Republic Payment Solutions division

RPS is currently managed and operated within the TRS segment. The RPS division is an issuing bank offeringoffers general-purpose reloadable prepaid cards, payroll debit cards, and limited-purpose demand deposit accounts with linked debit cards as an issuing bank through third-party service providers. For the projected near-term, as the prepaid card program matures,Until the operating results of the RPS division are expected to be immaterialmaterial to the Company’s overall results of operations, andthey will be reported as part of the TRS segment. The Company does not expect to report the RPS division will not be consideredas a separate reportable segment until such time, if any, that it meets quantitative reporting thresholds.thresholds.

The Company reports fees related to RPS programs under Program fees. Additionally, the Company’s portion of interchange revenue generated by prepaid card transactions is reported as noninterest income under “Interchange fee income.”

See additional discussion regarding the TRS segment under the sections titled:

Part I Item 1A “Risk Factors”
Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 25 “Segment Information”

(V) Republic Credit Solutions segment

Through the RCS segment, the Bank offers consumer credit products. In general, the credit products are unsecured, small dollar consumer loans andthat are dependent on various factors. RCS loans typically earn a higher yield but also have higher credit risk compared to loans originated through the Traditional Banking segment, with a significant portion of RCS clients considered subprime or near-prime borrowers. The Bank uses third-party service providers for certain services such as marketing and loan servicing of RCS loans. Additional information regarding consumer loan products offered through RCS follows:

RCS line-of-credit productproductsTheUsing separate third-party service providers, the Bank originates atwo line-of-credit productproducts to generally subprime borrowers in multiple states. The first of these two products, the LOC I, has been originated by the Bank since 2014. The second, the LOC II, was introduced in January 2021.

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oRCS’s LOC I represented the substantial majority of RCS activity during 2021 and 2022. Elastic Marketing, LLC and Elevate Credit, Inc., aDecision Sciences, LLC, are third-party service providerproviders for the product and are subject to the Bank’s oversight and supervision, providessupervision. Together, these companies provide the Bank with certain marketing, servicing, technology, and support services, for the RCS line-of-credit program, while a separate third party also provides customer support, servicing, and other services for the RCS line-of-credit product on the Bank’s behalf. The Bank is the lender for the RCS line-of-creditthis product and is marketed as such. Further,Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of the RCS line-of-credit product. 

The Bank sells participation interests in the RCS line-of-creditthis product. These participation interests are a 90% interest in advances made to borrowers under the borrower’s line-of-credit account, and the participation interests are generally sold three business days following the Bank’s funding of the associated advances. Although the Bank retains a 10% participation interest in each advance, it maintains 100% ownership of the underlying RCS line-of-creditLOC I account with each borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.

oIn January 2021, RCS began originating balances through its LOC II. One of RCS’s existing third-party service providers, subject to the Bank’s oversight and supervision, provides the Bank with marketing services and loan servicing for the LOC II product. The Bank is the lender for this product and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this product. 

The RCSBank sells participation interests in this product. These participation interests are a 95% interest in advances made to borrowers under the borrower’s line-of-credit product representsaccount, and the substantial majorityparticipation interests are generally sold three business days following the Bank’s funding of RCS activity.the associated advances. Although the Bank retains a 5% participation interest in each advance, it maintains 100% ownership of the underlying LOC II account with each borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.

RCS installment loan productsproductIn December 2019, throughThrough RCS, the Bank began offeringoffers installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. AThe same third-party service provider for RCS’s LOC II is the third-party provider for the installment loans. This third-party provider is subject to the Bank’s oversight and supervision and provides the Bank with marketing services and loan servicing for these RCS installment loans. The Bank is the lender for these RCS installment loans and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this RCS installment loan product. Currently, all loan balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intention to sell these loans to itsa third-party, who is an affiliate of the Bank’s third-party service provider, generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through twothree different third-party service providers. In one program,

oFor two of the programs, the Bank retains 100% of the receivables, originated. Inwith recourse in the otherevent of default.

oFor the remaining program, in some instances the Bank retains 100% of the receivables originated, with recourse in some instances,the event of default, and in other instances, the Bank sells 100% of the

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receivables generally within one month of origination. Loan balances held for sale through this program are carried at the lower of cost or fair value.

The Company reports interest income and loan origination fees earned on RCS loans under “Loans, including fees,” while any gains or losses on sale and mark-to-market adjustments of RCS loans are reported as noninterest income under “Program fees.”

See additional discussion regarding the RCS segment under the sections titled:

Part I Item 1A “Risk Factors”
Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 25 “Segment Information”

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Employees and Human Capital Resources

As of December 31, 2020,2022, Republic had 1,094998 FTE employees. Altogether, Republic had 1,083984 full-time and 2128 part-time employees. None of the Company’s employees are subject to a collective bargaining agreement, and Republic has never experienced a work stoppage. The Company believes that it has had and continues to have good employee relations.

Employee retention helps the Company operate efficiently and effectively. Management promotes its core values through prioritizing concern for employees’ well-being, supporting employees’ career goals, offering competitive wages, offering flexible schedules, and providing valuable fringe benefits. In addition, Bank employees may become stockholders of the Company through participation in its Employee Stock Purchase Plan and its 401(k) retirement plan, which offers a Company stock investment option.

The Company actively encourages and supports the growth and development of its employees. Management generally seeks to fill positions by promotion and transfer from within the organization, whenever practical. Career development is advanced through ongoing mentoring and development programs, as well as internally developed training programs, customized corporate training engagements and educational reimbursement programs. Reimbursement is available to employees enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to the financial services industry and in compliance with the Internal Revenue Code.

The safety, health, and wellness of Republic’s employees is considered a top priority. The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations. Through teamwork and the adaptability of its employees, the Company was able to transition, over a short period of time, the substantial majority of its non-customer-facing employees to effectively working from remote locations and ensure a safely-distanced working environment for employees performing customer-facing activities at banking and operational centers. All employees have been asked not to come to work when they experience signs or symptoms of a possible COVID-19 illness and have been provided additional paid time off to cover compensation during such absences. On an ongoing basis, the Company promotes the health and wellness of its employees by encouraging work-life balance, offering flexible work schedules, and striving to keep the employee portion of health care premiums competitive with local competition. Additionally, Republic strives to clearly and frequently communicate expectations that all employee conduct must adhere to the highest ethical standards encompassed by its corporate values, including through town hall meetings and senior leadership messages.

Information about our Executive Officers

See Part III, Item 10. “Directors, Executive Officers and Corporate Governance.” for information about the Company’s executive officers.

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Competition

Traditional Banking

The Traditional Bank encounters intense competition in its market footprint in originating loans, attracting deposits, and selling other banking related financial services. Through its national branchless banking platform, MemoryBank, the Bank competes for digital and mobile clients in select pilot markets under the MemoryBank brand. The deregulation of the banking industry, the ability to create financial services holding companies to engage in a wide range of financial services other than banking and the widespread enactment of state laws that permit multi-bank holding companies, as well as the availability of nationwide interstate banking, has created a highly competitive environment for financial institutions. In one or more aspects of the Bank’s business, the Bank competes with local and regional retail and commercial banks, other savings banks, credit unions, finance companies, mortgage companies, fintech companies, and other financial intermediaries operating in Kentucky, Indiana, Florida, Tennessee, Ohio, and in other states where the Bank offers its products. The Bank also competes with insurance companies, consumer finance companies, investment banking firms, and mutual fund managers. 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. Many of the Bank’s primary competitors, some of which are affiliated with large bank holding companies or other larger financial based institutions, have substantially greater resources, larger established client bases, higher lending limits, more extensive banking center networks, numerous ATMs or ITMs, and greater advertising and marketing budgets. They may also offer services that the Bank does not currently provide. 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, can act to create more pressure on smaller financial institutions to consolidate. It is anticipated that competition from both bank and non-bank entities will continue to remain strong in the foreseeable future.

The primary factors in competing for bank products are convenient locations, ATMs, ITMs, flexible hours, deposit interest rates, services, internet banking, mobile banking, range of lending services offered, and lending fees. Additionally, the COVID-19 pandemic has created additional competitive demands, such as providing remote-only service. The Bank believes that an emphasis on highly personalized service tailored to individual client needs, together with the local character of the Bank’s business and its “community

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“community bank” management philosophy will continue to enhance the Bank’s ability to compete successfully in its market footprint.

Warehouse Lending

The Bank faces strong competition from financial institutions across the United States for mortgage banking clients in need of warehouse lines of credit. Competitors may have substantially greater resources, larger established client bases, higher lending limits, as well as underwriting standards and on-going oversight requirements that could be viewed more favorably by some clients. A few or all of these factors can lead to a competitive disadvantage to the Company when attempting to retain or grow its Warehouse client base.

Mortgage Banking

The Bank encounters intense competition from mortgage bankers, mortgage brokers, and financial institutions for the origination and funding of mortgage loans. Many competitors have branch offices in the same areas where the Bank’s loan officers operate. The Bank also competes with mortgage companies whose focus is often on telemarketing and consumer-direct lending.

Tax Refund Solutions

The TRS segment encounters direct competition for RT and EARA market share from a limited number of banks in the industry. The Bank promotes these products to Tax Providers using various revenue-share and pricing incentives, as well as product features and overall service levels.

Republic Payment Solutions (a division of TRS)

The prepaid card industry is subject to intense and increasing competition. The Bank competes with a number of companies that market different types of prepaid card products, such as general-purpose-reloadable, gift, incentive, and corporate disbursement cards.

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There is also competition from large retailers who are seeking to integrate more financial services into their product offerings. Increased competition is also expected from alternative financial services providers who are often well-positioned to service the “underbanked” and who may wish to develop their own prepaid card programs.

Republic Credit Solutions

The small-dollar consumer loan industry is highly competitive. Competitors for the Company’s small-dollar loan programs include, but are not limited to, billers who accept late payments for a fee, overdraft privilege programs of other banks and credit unions, as well as payday lenders and fintech companies.

New entrants to the small-dollar consumer loan market must successfully implement underwriting and fraud prevention processes, overcome consumer brand loyalty, and have sufficient capital to withstand early losses associated with unseasoned loan portfolios. In addition, there are substantial regulatory and compliance costs, including the need for expertise to customize products associated with licenses to lend in various states across the United States.

Supervision and Regulation

The Company and the Bank are separate and distinct entities and are subject to extensive federal and state banking laws and regulations, which establish a comprehensive framework of activities in which the Company and the Bank may engage. These laws and regulations are primarily intended to provide protection to clients and depositors, not stockholders. The Company, as a public reporting company, is also subject to various securities laws and regulations.

As an umbrella supervisor, under the GLBA's system of functional regulation, the FRB requires that FHCs operate in a safe and sound manner so that their financial condition does not threaten the viability of affiliated depository institutions. The FRB conducts periodic examinations to review the Company’s safety and soundness, and compliance with various legal and safety and soundness requirements.requirements, which directly impact the Bank.

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The Bank is a Kentucky-chartered commercial banking and trust corporation and as such, it is subject to supervision and regulation by the FDIC and the KDFI. The Bank also operates physical locations in Florida, Indiana, Ohio, and Tennessee;Tennessee, and originates and purchases loans on a national basis; and accepts deposits on a national basis through its MemoryBank digital brand.basis. All deposits, subject to regulatory prescribed limitations, held by the Bank are insured by the FDIC. The Bank is subject to restrictions, requirements, potential enforcement actions and examinations by the FDIC and KDFI. The FRB’s regulation of the Company with monetary policies and operational rules directly impact the Bank.

The Bank is a member of the FHLB System.

system. As a member of the FHLB system, the Bank must also comply with applicable regulations of the Federal Housing Finance Agency. Regulation by each of these agencies is intended primarily for the protection of the Bank’s depositorsclients and the DIF and not for the benefit of the Company’s stockholders. The Bank’s activities are also regulated under federal and state consumer protection laws applicable to the Bank’s lending, deposit, and other activities. An adverse ruling or finding against the Company or the Bank under these laws could have a material adverse effect on the results of operations.

The Company and the Bank are also subject to the regulations of the CFPB, which was established under the Dodd-Frank Act.CFPB. The CFPB has consolidated rules and orders with respect to consumer financial products and services and has substantial power to define the rights of consumers and responsibilities of lending institutions, such as the Bank. The CFPB does not, however, examine or supervise the Bank for compliance with such regulations; rather, based on the Bank’s size (less than $10 billion in assets), enforcement authority remains with the FDIC and the KDFI although the Bank may be required to submit reports or other materials to the CFPB upon its request. Notwithstanding jurisdictional limitations set forth in the Dodd-Frank Act, the CFPB and federal banking regulators may endeavor to work jointly in investigating and resolving cases as they arise.on supervision matters.

Regulators have extensive discretion in connection with their supervisory and enforcement authority and examination policies, including, but not limited to, policies that can materially impact the classification of assets and the establishment of adequate loan loss reserves. Any change in regulatory requirements and policies, whether by the FRB, the FDIC, the KDFI, the CFPB or state or federal legislation, could have a material adverse impact on Company operations.

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Regulators also have broad enforcement powers over banks and their holding companies, including, but not limited to: the power to mandate or restrict particular actions, activities, or divestitures; impose monetary fines and other penalties for violations of laws and regulations; issue cease and desist or removal orders; seek injunctions; publicly disclose such actions; and prohibit unsafe or unsound practices. This authority includes both informal and formal actions to effect corrective actions and/or sanctions. In addition, the Bank is subject to regulation and potential enforcement actions by other state and federal agencies.

Certain regulatory requirements applicable to the Company and the Bank are referred to below or elsewhere in this filing. The description of statutory provisions and regulations applicable to banks and their holding companies set forth in this filing does not purport to be a complete description of such statutes and regulations. Their effect on the Company and the Bank is qualified in its entirety by reference to the actual laws and regulations.

The Dodd-Frank Act

The Dodd-Frank Act, among other things, implemented changes that affected the oversight and supervision of financial institutions, provided for a new resolution procedure for large financial companies, created the CFPB, introduced more stringent regulatory capital requirements and significant changes in the regulation of OTCover-the-counter derivatives, reformed the regulation of credit rating agencies, increased controls and transparency in corporate governance and executive compensation practices, incorporated the Volcker Rule, required registration of advisers to certain private funds, and influenced significant changes in the securitization market. The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “EGRRCPA”) and its implementing regulations pulled back some of the more stringent requirements of the Dodd-Frank Act for community banks with total consolidated assets of less than $10 billion, such as the Bank. Due to exemptions in the Dodd-Frank Act, the EGRRCPA, and each Act’s implementing regulations, the Company and Bank are not subject to several provisions of the Dodd-Frank Act including but not limited to 1) the Durbin Amendment that would otherwise limit the interchange fees the Bank could charge on debit card transactions, 2) the Volcker Rule that would affect the Company’s ability to invest in or engage in certain trading activities, and 3) stricter regulatory capital requirements.

Incentive and Executive Compensation — In 2010, the FRB and other regulators jointly published final interagency guidance for structuring incentive compensation arrangements at financial organizations. The guidance does not set forth any formulas or pay caps but contains certain principles that companies are required to follow with respect to employees and groups of employees that may expose the company to material amounts of risk. The three primary principles are (i) balanced risk-taking incentives, (ii) compatibility with

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effective controls and risk management, and (iii) strong corporate governance. The FRB monitorsand the FDIC monitor compliance with this guidance as part of its safety and soundness oversight.

I.The Company

Source of Strength Doctrine — The Dodd-Frank Act codifies the Federal Reserve Board’s existing “source of strength” policy that holding companies act as a source of strength to their insured institution subsidiaries by providing capital, liquidity, and other support in times of distress. FRB policies and regulations also prohibit bank holding companies from engaging in unsafe and unsound banking practices. The FDIC and the KDFI have similar restrictions with respect to the Bank. Under the Dodd-Frank Act and in line with prior FRB policy, a BHC is expected to act as a source of financial strength to its banking subsidiaries and to commit resources for their support. This 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. A BHC may also be required to guarantee the capital restoration plan of an undercapitalized banking subsidiary and any applicable cross-guarantee provisions that may apply to the Company. In addition, any capital loans by the Company to its bank subsidiary are subordinate in right of payment to deposits and to certain other indebtedness of the bank subsidiary. In the event of a BHC’s bankruptcy, any commitment by the BHC to a federal bank regulatory agency to maintain the capital of subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Acquisitions and Strategic Planning — The Company 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 addition, the Bank must obtain regulatory approval before entering into certain transactions, such as adding new banking offices and mergers with, or acquisitions of, other financial institutions. This may affect the Company’s or the Bank’s acquisition or timely acquisition of interests in other banks, other merger and acquisition activity and banking office expansion.

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The BHCA and the Change in Bank Control Act also generally require the approval of the Federal Reserve before any person or company can acquire control of a bank or BHC. Acquisition of control occurs if immediately after a transaction, the acquiring person or company owns, controls, or holds voting securities of the institution with the power to vote 25% or more of any class. Control is refutably presumed to exist if, immediately after a transaction, the acquiring person or company owns, controls, or holds voting securities of the institution with the power to vote 10% or more of any class, and (i) the institution has registered securities under Section 12 of the Securities Exchange Act of 1934; or (ii) no other person will own, control, or hold the power to vote a greater percentage of that class of voting securities immediately after the transaction.

Financial ActivitiesThe Company is an FHC. A BHC may elect to become an FHC if it and each of its banking subsidiaries is well capitalized, is well managed and has at least a “Satisfactory” rating under the CRA. As an FHC, the Company is permitted to engage directly or indirectly in a broader range of activities than those permitted for a BHC under the BHCA. Permitted activities for an FHC include securities underwriting and dealing, insurance underwriting and brokerage, merchant banking and other activities that are declared by the FRB, in cooperation with the Treasury Department, to be “financial in nature or incidental thereto” or are declared by the FRB unilaterally to be “complementary” to financial activities. Permitted activities also include those determined to be “closely related to banking” activities by the FRB under the BHCA and permissible for any BHC. An FHC is allowed to conduct permissible new financial activities or acquire permissible non-bank financial companies with after-the-fact notice to the FRB. A BHC may elect to become an FHC if it and each of its banking subsidiaries is well capitalized, is well managed and has at least a “Satisfactory” rating under the CRA.

To maintain FHC status, the Company and the Bank must continue to meet the well capitalized and well managed requirements.requirements and maintain at least a “Satisfactory” rating under the CRA. The failure to meet such requirements could result in material restrictions on the activities of the Company and may also adversely affect the Company’s ability to enter into certain transactions (including mergers and acquisitions) or obtain necessary approvals in connection therewith, as well as loss of FHC status. If restrictions are imposed on the activities of an FHC, such information may not necessarily be available to the public.

II.The Bank

The Kentucky and federal banking statutes prescribe the permissible activities in which a Kentucky chartered bank may engage and where those activities may be conducted. Kentucky’s statutes contain a super parity provision that permits a well-rated Kentucky bank to engage in any banking activity in which a national bank in Kentucky, a state bank, state thrift, or state savings association operating in any other state, a federal savings bank, or a federal thrift meeting the qualified thrift lender test engages, provided it first obtains a legal opinion from counsel specifying the statutory or regulatory provisions that permit the activity.

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Safety and Soundness The federal banking regulatory agencies have prescribed, by regulation, guidelines for all insured depository institutions relating to: (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii) earnings; and (viii) compensation, fees, and benefits. The guidelines set forth safety and soundness standards that the federal banking regulatory agencies use to identify and address problems at FDIC member institutions before capital becomes impaired. If the FDIC determines that the Bank fails to meet any standard prescribed by the guidelines, the FDIC may require the Bank to submit to it an acceptable plan to achieve compliance with the standard. FDIC regulations establish deadlines for the submission and review of such safety and soundness compliance plans in response to any such determination. We are not aware of any conditions relating to these safety and soundness standards that would require us to submit a plan of compliance to the FDIC.

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 state chartered banks that have been in operation at least three years and that satisfy certain criteria relating to, among other things, their composite and management regulatory exam ratings, may establish a branch in Kentucky without the approval of the Commissioner of the KDFI, upon notice to the KDFI and any other state bank with its main office located in the county where the new branch will be located. Branching by banks not meeting these criteria requires the approval of the Commissioner of the KDFI, who must ascertain and determine that the public convenience and advantage will be served and promoted and that there is a reasonable probability of the successful operation of the branch. In any case, the proposed branch must also be approved by the FDIC, which considers a number of factors, including financial condition, capital adequacy, earnings prospects, character of management, needs of the community, and consistency with corporate powers. As a result of several legislative acts including the Dodd-Frank Act, the Bank, along with any other national or state-chartered bank, generally may branch across state lines. Such unlimited branching authority has the potential to increase competition within the markets in which the Company and the Bank operate.

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Restrictions on Affiliate Transaction RestrictionsTransactions and Loans to Insiders — Transactions between the Bank and its affiliates, and in some cases the Bank’s correspondent banks, are subject to FDIC regulations, the FRB’s Regulations O and W, and Sections 23A, 23B, 22(g), and 22(h) of the Federal Reserve Act (“FRA”). In general, these transactions must be on terms and conditions that are consistent with safe and sound banking practices and substantially the same, or at least as favorable to the bank or its subsidiary, as those for comparable transactions with non-affiliated parties. In addition, certain types of these transactions referred to as “covered transactions” are subject to quantitative limits based on a percentage of the Bank’s capital, thereby restricting the total dollar amount of transactions the Bank may engage in with each individual affiliate and with all affiliates in the aggregate. Limitations are also imposed on loans and extensions of credit by a bank to its executive officers, directors, and principal stockholders and each of their related interests. The Dodd-Frank Act expanded the scope of these regulations, including by applying them to the credit exposure arising under derivative transactions, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions.

The FRB promulgated Regulation W to implement Sections 23A and 23B of the FRA. This regulation contains many of the foregoing restrictions and 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 — Bank regulators may declare a dividend payment to be unsafe and unsound even if the Bank continues to meet its capital requirements after the dividend. Dividends paid by the Bank provide substantially all of the Company’s operating funds. Regulatory requirements limit the amount of dividends that may be paid by the Bank. Under federal regulations, the Bank cannot pay a dividend if, after paying the dividend, the Bank would be undercapitalized.

Under Kentucky and federal banking regulations, 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 state or federal banking regulators. FDIC regulations also require all insured depository institutions to remain in a safe and sound condition, as defined in regulations, as a condition of having FDIC deposit insurance.

FDIC Deposit Insurance Assessments — All Bank deposits are insured to the maximum extent permitted by the DIF. These bank deposits are backed by the full faith and credit of the U.S. Government. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, insured institutions. It also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the DIF.

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The FDIC assesses all banks quarterly. A bank’s assessment base and assessment rates are determined quarterly and are risk-based. For small banks (such as the Bank) post-Dodd-Frank, and certain rule changes effective in 2016, individual assessment rates are individually assigned based on the FDIC’s financial ratios method that estimates the probability of the bank’s failure over three years using financial data and a weighted average of the bank’s CAMELS component ratings, subject to adjustment. CAMELS composite ratings are used to set minimum and maximum assessment rates. The assessment base, post-Dodd-Frank, is the average consolidated total assets minus average tangible equity. Management cannot predict what insurance assessment rates will be in the future.

The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It may also suspend deposit insurance temporarily if the institution has no tangible capital. If insurance is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances that would result in termination of the Bank’s FDIC deposit insurance.

Anti-Money Laundering, Patriot Act; OFAC Sanctions The Company and the Bank are subject to federal laws that are designed to counter money laundering and terrorist financing, and transactions with persons, companies, or foreign governments sanctioned by the United States. These laws include the Bank Secrecy Act, the Money Laundering Control Act, the Anti-Money Laundering Act of 2020, the Corporate Transparency Act, and the USA Patriot Act, as administered by the United States Treasury Department’s Office of Foreign Assets Control.Financial Crimes Enforcement Network. These laws obligate depository institutions and broker-dealers to verify their customers’ identity, conduct customer due diligence, report on suspicious activity, file reports of certain transactions in currency, and conduct enhanced due diligence on certain accounts. They also prohibit U.S.The United States Treasury Department’s Office of Foreign Assets Control prohibits persons from engaging in transactions with certain designated restricted countries and persons. Depository institutions and broker-dealers are required by their federal regulators to maintain robust policies and procedures in order to ensure compliance with these obligations. In

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cooperation with federal banking regulatory agencies, the Financial Crimes Enforcement Network is responsible for implementing, administering,anti-money laundering and enforcing compliance with these laws.anti-terrorist financing obligations.

Failure to comply with these laws or maintain an adequate compliance program can lead to significant monetary penalties and reputational damage. Federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining whether to approve a proposed bank merger, acquisition, restructuring, or other expansionary activity.

Consumer Laws and Regulations —The Bank is subject to a number of federal and state consumer protection laws, including, but not limited to, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Military Lending Act, the Real Estate Settlement Procedures Act, the Servicemembers Civil Relief Act, the Telephone Consumer Protection Act, and these laws’ respective state-law counterparts, among many others. As discussed in more detail below, the Bank also complies with fair lending and privacy laws. Banks as well as nonbanksnonbank consumer financial providers are subject to any rule, regulation or guideline created by the CFPB. The CFPB is an independent “watchdog” within the Federal Reserve System that regulates any person or service provider who offers or provides personal, family or household financial products or services. Congress established the CFPB to create one agency in charge of protecting consumersservices by overseeing the application and implementation of “Federal consumer financial laws,” which includes (i) rules, orders and guidelines of the CFPB, (ii) all consumer financial protection functions, powers and duties transferred from other federal agencies, such as the Federal Reserve, the OCC, the FDIC, the Federal Trade Commission, and the Department of Housing and Urban Development, and (iii) a long list of consumer financial protection laws enumerated in the Dodd-Frank Act including those listed above.laws”.

The CFPB is authorized to prescribe rules applicable to any covered person or service provider identifying and prohibiting acts or practices that are unfair, deceptive, or abusive in connection with any transaction with a consumer for a consumer financial product or service or the offering of a consumer financial product or service.transaction. The CFPB has engaged in rulemaking and taken enforcement actions that directly impact the business operations of financial institutions offering consumer financial products or services including the Bank and its divisions. Depository institutions with $10 billion or less in assets, such as the Bank, will continue to be examined for compliance with the consumer protection laws and regulations by their primary bank regulators (the FDIC for the Bank), rather than the CFPB. The FDIC also regulates what it considers unfair and deceptive or abusive acts or practices under Section 5 of the Federal Trade Commission Act.

Such laws and regulations and the other consumer protection laws and regulations to which the Bank has been subject have historically mandated certain disclosure requirements and regulated the manner in which financial institutions must deal with customersclients when taking deposits from, making loans to, or engaging in other types of transactions with, such customers.clients. The continued effect of the CFPB on the development and promulgation of consumer protection rules and guidelines and the enforcement of federal “consumer financial laws” on the Bank, if any, cannot be determined with certainty at this time.

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Community Reinvestment Act and the Fair Lending Laws Banks have a responsibility under the CRA and related regulations of the FDIC to help meet the credit needs of their entire communities, including low- and moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An institution’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities and the denial of applications. In addition, an institution’s failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in the FDIC, other federal regulatory agencies, or the Department of Justice, taking enforcement actions against the institution. Failure by the Bank to fully comply with these laws could result in material penalties being assessed against the Bank. The Bank received a “Satisfactory” CRA Performance Evaluation in January 2020, itsthe most recent evaluation.evaluation for which it has received final ratings. A copy of the public section of this CRA Performance Evaluation is available to the public upon request.

Privacy and Data Security The FRB, FDIC, and other bank regulatory agencies, and States have adopted guidelines for safeguarding confidential, personal customer information. These guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to create, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of such information and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. If the Bank fails to properly safeguard customer information or is the subject of a successful cyber-attack, it could result in material fines and/or liabilities that would materially affect the Company’s results of operations. Moreover, in November 2021, the FRB, FDIC, and Office of the Comptroller of the Currency issued a joint final rule establishing computer-security incident notification requirements for banking organizations and their bank service providers. Effective April 2022, with full compliance no later than May 2022, banking organizations are required to satisfy specified consumer notice requirements if an incident occurs, which may include a major computer-system failure; a cyber-related interruption, such as a distributed denial of service or ransomware attack; or another type of significant operational interruption.

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In addition, various U.S. regulators, including the Federal Reserve and the SEC, have increased their focus on cyber-security through guidance, examinations, and regulations. The CompanyCompany’s Board has approved and adopted a customer information security program that has been approved by the Company’s Board of Directors.program.

The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to non-affiliated third parties. In general, the statute requires explanations to consumers on policies and procedures regarding the disclosure of such nonpublic personal information, and, except as otherwise required by law, prohibits disclosing such information except as provided in the banking subsidiary’s policies and procedures. In addition to the GLBA, the Company and the Bank are also subject to applicable state privacy laws.

Prohibitions Against Tying Arrangements — The Bank is subject to prohibitions on certain tying arrangements. A depository institution is prohibited, subject to certain exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the client obtain some additional product or service from the institution or its affiliates or not obtain services of a competitor of the institution.

Depositor Preference — The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors (including depositors whose deposits are payable only outside of the U.S.), and the parent BHC, with respect to any extensions of credit they have made to such insured depository institution.

Federal Home Loan Bank System — The FHLB offers credit to its members, which include savings banks, commercial banks, insurance companies, credit unions, and other entities. The FHLB system is currently divided into eleven federally chartered regional FHLBs that are regulated by the Federal Housing Finance Agency. The Bank is a member and owns capital stock in the FHLB Cincinnati. The amount of capital stock the Bank must own to maintain its membership depends on its balance of outstanding advances. It is required to acquire and hold shares in an amount at least equal to 1% of the aggregate principal amount of its unpaid single-family, residential real estate loans and similar obligations at the beginning of each year, or 1/20th of its outstanding advances from the FHLB, whichever is greater. Advances are secured by pledges of loans, mortgage backed securities, and capital stock of the FHLB. FHLBs also purchase mortgages in the secondary market through their MPP.Mortgage Purchase Program,. The Bank has never sold loans to the MPP.Mortgage Purchase Program.

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In the event of a default on an advance, the Federal Home Loan Bank Act establishes priority of the FHLB’s claim over various other claims. If an FHLB falls below its minimum capital requirements, the FHLB may seek to require its members to purchase additional capital stock of the FHLB. If problems within the FHLB system were to occur, it could adversely affect the pricing or availability of advances, the amount and timing of dividends on capital stock issued by FHLB Cincinnati to its members, or the ability of members to have their FHLB capital stock redeemed on a timely basis. Congress continues to consider various proposals that could establish a new regulatory structure for the FHLB system, as well as for other government-sponsored entities. The Bank cannot predict at this time, which, if any, of these proposals may be adopted or what effect they would have on the Bank’s business.

Federal Reserve System — Under regulations of the FRB, the Bank is required to maintain noninterest-earning reserves against its transaction accounts (primarily NOW and regular checking accounts). The Bank is in compliance with the foregoing reserve requirements. Required reserves must be maintained in the form of vault cash, a depository account at the FRB, or a pass-through account as defined by the FRB. The balances maintained to meet the reserve requirements imposed by the FRB may be used to satisfy liquidity requirements imposed by the FDIC. The Bank is also authorized to borrow from the FRB discount window.

Loans to One Borrower — Under current limits, loans and extensions of credit outstanding at one time to a single borrower and not fully secured generally may not exceed 15% of the institution’s unimpaired capital and unimpaired surplus. Loans and extensions of credit fully secured by certain readily marketable collateral may represent an additional 10% of unimpaired capital and unimpaired surplus.

Loans to Insiders — The Bank’s authority to extend credit to its directors, executive officers and principal shareholders, as well as to entities controlled by such persons, is governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the Federal Reserve Board. Among other things, these provisions require that extensions of credit to insiders: (a) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for

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comparable transactions with non-insiders and that do not involve more than the normal risk of repayment or present other features that are unfavorable to the Bank; and (b) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital. In addition, extensions of credit to insiders in excess of certain limits must be approved by the Bank’s Board of Directors.

Capital Adequacy Requirements

Capital Guidelines — The Company and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators, including prompt corrective action as described below, 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 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 regarding components, risk weightings, and other factors.

Banking regulators have categorized the Bank as well-capitalized. For purposes of determining if prompt corrective action is called for, the regulations in accordance with Basel III define “well capitalized” as a 10.0% Total Risk-Based Capital ratio, a 6.5% Common Equity Tier 1 Risk-Based Capital ratio, an 8.0% Tier 1 Risk-Based Capital ratio, and a 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, the Company and Bank must hold a capital conservation buffer of 2.5% composed of Common Equity Tier 1 Risk-Based Capital above their minimum risk-based capital requirements.

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As of December 31, 2020*2022 and 2019,2021, the Company’s capital ratiosratios* were as follows:

2020

2019

 

2022

2021

 

December 31, (dollars in thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

 

    

Amount

    

Ratio

    

Amount

    

Ratio

 

Total capital to risk-weighted assets

Republic Bancorp, Inc.

$

896,053

 

18.52

%  

$

825,987

 

17.01

%  

$

941,865

 

17.92

%  

$

879,310

 

17.48

%  

Republic Bank & Trust Company

 

796,114

 

16.46

 

723,248

 

14.91

 

904,592

 

17.23

 

862,637

 

17.16

Common equity tier 1 capital to risk-weighted assets

Republic Bancorp, Inc.

$

803,682

 

16.61

%  

$

742,636

 

15.29

%  

$

877,735

 

16.70

%  

$

824,326

 

16.39

%  

Republic Bank & Trust Company

 

743,743

 

15.38

 

679,897

 

14.01

 

840,462

 

16.01

 

807,653

 

16.07

Tier 1 (core) capital to risk-weighted assets

Republic Bancorp, Inc.

$

843,682

 

17.43

%  

$

782,636

 

16.11

%  

$

877,735

 

16.70

%  

$

824,326

 

16.39

%  

Republic Bank & Trust Company

 

743,743

 

15.38

 

679,897

 

14.01

 

840,462

 

16.01

 

807,653

 

16.07

Tier 1 leverage capital to average assets

Republic Bancorp, Inc.

$

843,682

 

13.70

%  

$

782,636

 

13.93

%  

$

877,735

 

14.81

%  

$

824,326

 

13.36

%  

Republic Bank & Trust Company

 

743,743

 

12.11

 

679,897

 

12.11

 

840,462

 

14.09

 

807,653

 

13.11

*  The Company and the Bank elected to defer the impact of CECL on regulatory capital. The deferral period is five years, with the total estimated CECL impact 100% deferred for the first two years,2020 and 2021, then phased in over the next three years.years of 2022 through 2024. If not for this election, the Company’s regulatory capital ratios would have been approximately 1510 basis points and 12 basis points lower than those presented in the table above as of December 31, 2020.2022 and 2021.

Corrective Measures for Capital Deficiencies — The 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. A bank is undercapitalized if it fails to meet any one of the ratios required to be adequately capitalized.

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Undercapitalized, significantly undercapitalized, and critically undercapitalized institutions are required to submit a capital restoration plan, which must be guaranteed by the 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 banking regulations, a bank may not lawfully accept, roll over, or renew brokered deposits unless it is either well capitalized or it is adequately capitalized and receives a waiver from its applicable regulator.

If a banking institution’s capital decreases below acceptable levels, bank regulatory 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. Banking regulators have limited discretion in dealing with a critically undercapitalized institution and are 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 if the institution has no tangible capital.

In addition, a BHC may face significant consequences if its bank subsidiary fails to maintain the required capital and management ratings, including entering into an agreement with the FRB that imposes limitations on its operations and may even require divestitures. 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 BHCA without prior FRB approval. Unless the period 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 notice to the FRB,

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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 BHC that has not elected to be treated as an FHC. The Company is currently classified as an FHC.

Under 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 that 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.

Other Regulation and Legislative Initiatives

Any change in the laws and regulations affecting the Bank’s operations is not predictable and could affect the Bank’s operations and profitability. The U.S. Congress and state legislative bodies also 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 the proposals will have on the financial institutions industry or the extent to which the business or financial condition and operations of the Company and its subsidiaries may be affected.

Statistical Disclosures

The statistical disclosures required by Part I Item 1 “Business” are located under Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Item 1A. Risk Factors.

FACTORS THAT MAY AFFECT FUTURE RESULTS

An investment in Republic’s common stock is subject to risks inherent in its business. The following are the material risk factors that impact us of which we are currently aware. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all the other information included in this filing. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially and adversely affect its business, financial condition, and results of operations in the future. The value or market price of the Company’s common stock could decline due to any of these identified or other risks, and an investor could lose all or part of their investment.

There are factors, many beyond the Company’s control, which may significantly change the results or expectations of the Company. Some of these factors are described below, however, many are described in the other sections of this Annual Report on Form 10-K.

COVID-19REGULATORY AND THE PUBLIC RESPONSELEGAL RISKS

The COVID-19 pandemicBank’s RPG products represent a significant legal, compliance and the public’s responseregulatory risk, and if RB&T fails to this pandemic present unique riskscomply with all statutory and regulatory requirements, it could have a material negative impact on earnings. Federal and state laws and regulations govern numerous matters relating to the Company’s operationsoffering of consumer loan products and the markets it serves. The Company’s operations and the markets it serves have been and will continueconsumer deposit. Failure to be significantly impacted by the COVID-19 pandemic and the public’s response to this pandemic. The following are relevantcomply with disclosure requirements or with laws relating to the permissibility of interest rates and fees charged could have a material negative impact on earnings. In addition, failure to comply with applicable laws and regulations could also expose RB&T to civil money penalties and litigation risk, including shareholder actions. Various states and consumer groups have, from time to time, questioned the fairness of the products offered by RPG. Initiatives at the federal and state level, including by governmental agencies and consumer groups, could result in regulatory, governmental, or legislative action or litigation, which could have a material adverse effect on the Company’s RPG operations. If the Company andcan no longer offer or must substantially alter its operations:RPG products, it will have a material adverse effect on its profits.

Adverse Economic Conditions – COVID-19 has led to a curtailment or suspension of social and economic activity in many areas of the U.S., including areas where the Bank operates. The length and breadth of these negative economic conditions is currently unknown. These conditions are expected to continue to have a significant negative impact on the Bank’s ability and willingness to offer its traditional loan products. Instead of the Bank’s traditional products, government-backed financial products, such as the SBA’s PPP, have been and may continue to be a strong focus of the Bank’s operations in the near term. Government-backed products may be substantially less profitable than the Bank’s traditional products. Additionally, these economic conditions may lead to the impairment of the Company’s intangible assets, including its goodwill and MSRs.

Loan and Credit Losses – COVID-19 has led to economic restrictions on businesses deemed non-essential by various jurisdictions, with many businesses ceasing or substantially reducing operations. Employees for many businesses have been and may continue to be furloughed or laid off. The Bank’s credit delinquencies and losses may rise steeply due to these events. Specifically, concentrations of credit in certain markets and in certain industries currently are and may continue to be more susceptible to delinquency and loss.

oGeographic Concentrations – COVID-19 has impacted certain areas of the U.S. harder than others. The Company’s market footprint is primarily in Kentucky, Florida, Ohio, Tennessee, and Indiana. These areas may be more susceptible to economic hardship in the near term.

oIndustry Concentrations – The Bank lends to clients in industries that have been deemed “non-essential” or that have had their business models upended by the pandemic. Further economic damage to these clients may leave them unable to repay their debt with the Bank.

oWarehouse Lending – Through its Warehouse Lending segment, the Bank maintains a significant concentration of loans in the form of short-term, revolving credit facilities to mortgage bankers across the U.S. The Bank’s Warehouse Lending clients may face increased stress on their liquidity and overall financial condition due to their mortgage-servicing obligations. Such increased stress may lead to default on their underlying credit facility with the Bank.

oBorrower Accommodations – In immediate response to the pandemic, and in some instances, governmental requirements, the Bank temporarily suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions. The Bank also temporarily granted fee waivers, payment deferrals, and other expanded assistance for credit card, automobile, mortgage, small business, and personal loan clients. The Bank has resumed some collection activity as permitted by federal and state law, agency guidance, and other requirements. Future
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governmental actions may extend borrower protections such as eviction moratoriums and borrower-relief programs. Also, if enough borrowers were unable to meet their loan payment obligations at the end of their accommodation periods and were also unable to further extend their accommodation arrangements with the Bank, the Bank’s delinquent and nonperforming loans would substantially increase and negatively impact the Company’s overall operating performance. 

oAccrued Interest on Accommodated Loans – If previously accommodated loans become delinquent after exiting their accommodation period, the Bank may place these loans into nonaccrual status sooner than the Bank’s current 80-day delinquency threshold for such action. In lieu of accelerating nonaccrual status for previously accommodated loans that become delinquent, the Bank may create an ACL for interest receivable on these loans. The acceleration of a significant volume of loans into nonaccrual status or a substantial provision for the uncollectability of interest receivable would negatively impact the Company’s overall financial performance.

Reliance on Forecasted Information – The Company’s model for estimating credit losses relies on forecasted economic projections. Such projections could be materially inaccurate, with different projections leading to a material adverse impact on the Company’s financial position and results of operations.

Capital and Liquidity – A prolonged period of economic stress leading to increased borrower defaults and corresponding servicing obligations could substantially weaken the Company’s capital and liquidity. As a result, the Company may lose access to capital markets and may need to suspend paying dividends.

Interconnectedness of Financial Institutions – The Company depends on other financial institutions. Negative events or publicity for other financial institutions may flow to the Bank due the interconnectedness of the financial industry.

Governmental Restrictions on Operations – Certain loan collection efforts, such as loan foreclosures and evictions, have been and may continue to be prohibited by legal or regulatory bodies.

Real Estate Market and Real Estate Lending – The COVID-19 pandemic may lead to a drop in real estate values and reduced demand for commercial and residential real estate.

Ability of Key Personnel to Perform Their Duties – Key Company personnel may be personally and directly impacted by COVID-19 and may be unable to perform their duties.

Cybersecurity – The Company and its third-party service providers have been and may continue to be subject to a heightened risk of cyber-attacks due to the number of employees working remotely.

Consumer Behavior – Consumers may behave differently in the aftermath of the pandemic, placing less value on face-to-face interaction. The Bank is a community bank that places high value on personal connection.

Reliance on Third Parties – The Company’s third-party service providers may be unable to meet their service level commitments to the Company.

Negative Interest Rates – There has been speculation regarding the COVID-19 conditions leading to negative interest rates in the U.S. The Bank has not traditionally modeled the impact of negative interest rates and this condition would be substantially negative to the Company’s financial performance.

Stock Price Fluctuations – The Company has and could continue to experience higher than historical volatility in its stock price as a direct result of COVID-19 driven economic conditions.

Business Interruption Insurance – Business interruption insurance may fail to cover material COVID-19 related costs of the Company.

Increased Litigation Risk – The Bank may experience an increase in litigation stemming from the COVID-19 pandemic.

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Company Reputation – The Company and the Bank’s reputation could be negatively impacted by the public’s perception of how the Company and Bank have operated during the pandemic.

ACCOUNTING POLICIES/ESTIMATES, ACCOUNTING STANDARDS, AND INTERNAL CONTROL

The Company’s accounting policiesBank’s RPG products represent a significant third-party management risk, and estimates are critical components ofif the Company’s presentation of its financial statements. Management must exercise judgment in selecting and adopting various accounting policies and in applying estimates. Actual outcomes may be materially different from amounts previously estimated. Management has identified several accounting policies and estimates as being critical to the presentation of the Company’s financial statements. These policies are described in Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the section titled “Critical Accounting Policies and Estimates.” The Company’s management must exercise judgment in selecting and applying many accounting policies and methodsBank’s third-party service providers fail to comply with generally accepted accounting principlesall the statutory and reflect management’s judgment of the most appropriate manner to report the Company’s financial condition and results. In some cases, management may select an accounting policy that might be reasonable under the circumstances yet might result in the Company’s reporting different results than would have been reported under a different alternative. Materially different amounts could be reported under different conditionsregulatory requirements for these products or using different assumptions or estimates.

The Bank may experience goodwill impairment, which could reduce its earnings. The Bank performed its annual goodwill impairment test during the fourth quarter of 2020 as of September 30, 2020. The evaluation of the fair value of goodwill requires management judgment. If management’s judgment was incorrect and goodwill impairment was later deemed to exist,if the Bank would be requiredfails to write downproperly monitor its goodwill resulting in a charge to earnings, which could materially, adversely affect its results of operations.

Changes in accounting standards could materially impact the Company’s financial statements. The FASB may change the financial accounting and reporting standards that govern the preparation of the Company’s financial statements. These changes can be difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. In addition, those who interpret the accounting standards, such as the SEC, the banking regulators and the Company’s independent registered public accounting firm may amend or reverse their previous interpretations or conclusions regarding how various standards should be applied. In some cases, the Company could be required to apply a new or revised standard retroactively, resulting in the Company recasting, or possibly restating, prior period financial statements. See additional discussion regarding accounting standard updates in Part II Item 8 “Financial Statements and Supplemental Data” under the section titled “Accounting Standards Updates.”

If the Company does not maintain strong internal controls and procedures,third-party service providers offering these products, it may impact profitability. Management reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures on a routine basis. This system is designed to provide reasonable, not absolute, assurance that the internal controls comply with appropriate regulatory guidance. Any undetected circumvention of these controls could have a material adversenegative impact on the Company’s financial conditionearnings. RPG and results of operations.

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TRADITIONAL BANK LENDING AND THE ALLOWANCE FOR CREDIT LOSSES ON LOANS

The ACLL could be insufficientits third-party service providers operate in a highly regulated environment and deliver products and services that are subject to coverstrict legal and regulatory requirements. Failure by the Bank’s actual loan losses. The Bank makes various assumptions and judgments about the collectabilitythird-party service providers or failure of its loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of its loans. In determining the amount of the ACLL, among other things, the Bank reviews its loss and delinquency experience, economic conditions, etc. If its assumptions are incorrect, the ACLL may not be sufficient to cover losses inherent in its loan portfolio, resulting in additions to its ACLL. In addition, regulatory agencies periodically review the ACLL and may require the Bank to increaseproperly monitor the compliance of its Provision or recognize further loan charge-offs. A material increase in the ACLL or loan charge-offs would have a material adverse effect on the Bank’s financial conditionthird-party service providers with laws and results of operations.

Deterioration in the quality of the Traditional Banking loan portfolio mayregulations could result in additional charge-offs, which would adversely impact the Bank’s operating results. When borrowers default on their loan obligations, it may result in lost principalfines and interest incomepenalties that materially and increased operating expenses associated with the increased allocation of management time and resources associated with the collection efforts. In certain situations where collection efforts are unsuccessful or acceptable “work-out” arrangements cannot be reached or performed, the Bank may charge-off loans, either in part or in whole. Additional charge-offs will adversely affect the Bank’s operating results and financial condition.

The Bank’s financial condition and earningsearnings. Such penalties could be negatively impacted toalso include the extent the Bank relies on borrower information that is false, misleading, or inaccurate. The Bank relies on the accuracy and completeness of information provided by vendors, clients, and other parties in deciding whether to extend credit and/or enter transactions with other parties. If the Bank relies on incomplete and/or inaccurate information, the Bank may incur additional charge-offs that adversely affect its operating results and financial condition.

The Bank’s use of appraisals as part of the decision process to make a loan on or secured by real property does not ensure the value of the real property collateral. As part of the decision process to make a loan secured by real property, the Bank generally requires an independent third-party appraisal of the real property. An appraisal, however, is only an estimate of the value of the property at the time the appraisal is made. An error in fact or judgment could adversely affect the reliability of the appraisal. In addition, events occurring after the initial appraisal may cause the value of the real estate to decrease. As a resultdiscontinuance of any of these factors, the value of collateral securing a loan may be less than supposed,or all third-party program manager products and if a default occurs, the Bank may not recover the outstanding balance of the loan. Additional charge-offs will adversely affect the Bank’s operating results and financial condition.

The Bank is exposed to risk of environmental liabilities with respect to properties to which it takes title. In the course of its business, the Bank may own or foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties. The Bank may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if the Bank is the owner or former owner of a contaminated site, the Bank may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect the Bank.

Prepayment of loans may negatively impact the Bank’s business. The Bank’s clients may prepay the principal amount of their outstanding loans at any time. The speeds at which such prepayments occur, as well as the size of such prepayments, are within the Bank clients’ discretion. If clients prepay the principal amount of their loans, and the Bank is unable to lend those funds to other clients or invest the funds at the same or higher interest rates, the Bank’s interest income will be reduced. A significant reduction in interest income would have a negative impact on the Bank’s results of operations and financial condition.

The Bank is highly dependent upon programs administered by the FHLMC and the FNMA. Changes in existing U.S. government-sponsored mortgage programs or servicing eligibility standards could materially and adversely affect its business, financial position, results of operations and cash flows. The Bank’s ability to generate revenues through mortgage loan sales to institutional investors depends to a significant degree on programs administered by Freddie Mac and Fannie Mae. These entities play powerful roles in the residential mortgage industry, and the Bank has significant business relationships with them. The Bank’s status as an approved seller/servicer for both is subject to compliance with their selling and servicing guides.

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Any discontinuation of, or significant reduction or material change in, the operation of Freddie Mac or Fannie Mae or any significant adverse change in the level of activity in the secondary mortgage market or the underwriting criteria of Freddie Mac or Fannie Mae would likely prevent the Bank from originating and selling most, if not all, of its mortgage loan originations.

Loans originated through the Bank’s Consumer Direct channel will subject the Bank to credit and regulatory risks that the Bank does not have through its historical origination channels. The dollar volume of loans originated through the Bank’s Consumer Direct channel is expected to be increasingly out-of-market. Loans originated out of the Bank’s market footprint inherently carry additional credit and regulatory risk, as the Bank will experience an increase in the complexity of the customer authentication requirements for such loans. Failure to appropriately identify the end-borrower for such loans could lead to fraud losses. Failure to appropriately identify the end-borrower could result in regulatory sanctions resulting from failure to comply with various customer identification regulations. Failure to appropriately manage these additional risks could lead to additional regulatory and compliance risks and burdens and reduced profitability and/or operating losses through this origination channel.

BANK OWNED LIFE INSURANCE

The Bank holds a significant amount of BOLI, which creates credit risk relative to the insurers and liquidity risk relative to the product. At December 31, 2020, the Bank held BOLI on certain employees. The eventual repayment of the cash surrender value is subject to the ability of the various insurance companies to pay death benefits or to return the cash surrender value to the Bank if needed for liquidity purposes. The Bank continually monitors the financial strength of the various insurance companies that carry these policies. However, any one of these companies could experience a decline in financial strength, which could impair its ability to pay benefits or return the Bank’s cash surrender value. If the Bank needs to liquidate these policies for liquidity purposes, it would be subject to taxation on the increase in cash surrender value and penalties for early termination, both of which would adversely impact earnings.

DEPOSITS AND RELATED ITEMS

Clients could pursue alternatives to bank deposits, causing the Bank to lose a relatively inexpensive source of funding. Checking and savings account balances and other forms of client deposits could decrease if clients perceive alternative investments, such as the stock market, as providing superior expected returns. If clients move money out of bank deposits in favor of alternative investments, the Bank could lose a relatively inexpensive source of funds, increasing its funding costs and negatively impacting its overall results of operations.

The loss of large deposit relationships could increase the Bank’s funding costs. The Bank has several large deposit relationships that do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances are moved from the Bank, the Bank would likely utilize overnight borrowing lines on a short-term basis to replace the balances. The overall cost of gathering brokered deposits and/or FHLB advances, however, could be substantially higher than the Traditional Bank deposits they replace, increasing the Bank’s funding costs and reducing the Bank’s overall results of operations.services.

The Bank’s “Overdraft Honor” program represents a significant business risk, and if the Bank terminated the program, it would materially impact the earnings of the Bank. There can be no assurance that Congress, the Bank’s regulators, or others, will not impose additional limitations on this program or prohibit the Bank from offering the program. The Bank’s “Overdraft Honor” program permits eligible clientscustomers to opt into the Bank’s overdraft program and overdraft their checking accounts up to a predetermined dollar amountlimit that is calculated and assigned each day for the Bank’s customary overdraft fee(s). Limitations or adverse modificationsGenerally, to thisbe eligible for the Overdraft Honor program, either voluntary or involuntary, would significantly reduce net income.

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Tablecustomers must qualify for one of Contentsthe Bank’s traditional checking products when the account is opened and have recurring deposit activity. During the first 30 days after an account is opened, a client may participate in the Overdraft Honor program with a small, fixed limit amount depending upon the account type. After the initial 30 day period a daily overdraft limit is calculated based upon deposits and other activity in the account. If an overdraft occurs, the Bank may pay the overdraft, at its discretion, up to the client’s individual overdraft limit. Under regulatory guidelines, customers utilizing the Overdraft Honor program may remain in overdraft status for no more than 60 days before it must be closed and charged off.

WAREHOUSE LENDING

The WarehouseLoans originated through the Bank’s Consumer Direct and Correspondent Lending business ischannels subject the Bank to numerousregulatory and legal risks that may result in losses. Risks associated with warehouse loans include, without limitation, (i) credit risks relating to the mortgage bankers that borrow from the Bank including butdoes not limited to bankruptcy, (ii) the risk of intentional misrepresentation or fraud by any of such mortgage bankershave through its historical origination and their third-party service providers, (iii) changes in the market value of mortgage loans originated by the mortgage banker during the time in warehouse, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, or (iv) unsalable or impaired mortgage loans so originated, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to purchase the loan from the mortgage banker. Failure to mitigate these risks could have a material adverse impact onservicing channels. Loans serviced outside the Bank’s financial statementstraditional footprint also subject the Bank to various state-level servicing laws and results of operations.

Outstanding Warehouse lines of credit can fluctuate significantlyregulations that are different than those within the Bank’s traditional footprint and negativelymay impact the Bank’s liquidityability to collect a deficiency and earnings. The Bank hastimely foreclose on a lending concentration in outstanding Warehouse lines of credit. Because outstanding Warehouse balances are contingent upon residential mortgage lending activity, changes in the residential real estate market nationwide can lead to wide fluctuations of balances in this product. Additionally, Warehouse Lending period-end balances are generally higher than the average balance during the period due to increased mortgage activityloan that occurs at the end of a month. A sudden increase in loans may materially impact the Company’s liquidity position, while a sudden decrease in loans may materially impact the Company’s results of operations.

Outstanding Warehouse lines of credit and their corresponding earnings could decline due to several factors, such as intense industry competition, overall mortgage demand and the interest rate environment. The Bank may experience decreased earnings on its Warehouse lines of credit due primarily to strong industry competition, a decrease in overall mortgage demand and an unfavorable interest rate environment. Such decreased earnings may materially impact the Company’s results of operations.

The Company may lose Warehouse clients due to mergers and acquisitions in the industry. The Bank’s Warehouse clients are primarily mortgage companies across the United States. Mergers and acquisitions affecting such clients may lead to an end to the client relationship with the Bank. The loss of a significant number of clients may materially impact the Company’s results of operations.

REPUBLIC PROCESSING GROUP

The Company’s lines of business and products not typically associated with traditional banking expose earnings to additional risks and uncertainties. The RPG operations are comprised of two reportable segments: TRS and RCS.

RPG’s products represent a significant business risk and management believes the Company could be subject to legislative, regulatory, and public pressure to exit or otherwise modify these product lines, which may have a material adverse effect on the Company’s operations.

Various states and consumer groups have, from time to time, questioned the fairness of the products offeredbecomes delinquent. Failure by RPG. In addition, the 2020 election cycle led to a shift in political power within the executive and legislative branches of the federal government. Initiatives of President Biden and the new Congress, along with actions of the states, governmental agencies, and consumer groups, could result in regulatory, governmental, or legislative action or litigation, which could have a material adverse effect on the Company’s operations. If the Company can no longer offer or must substantially alter its RPG products, it will have a material adverse effect on its profits.

TAX REFUND SOLUTIONS

The TRS segment represents a significant operational risk, and if the Bank were unable to properly service this business, it could materially impact earnings. To process its business, the Bank must implement and test new systems, as well as train new employees. The Bank relies heavily on communications and information systems to operate the TRS segment. Any failure, sustained interruption, or breach in security, including the cyber security, of these systems could result in failures or disruptions in client relationship management and other systems. Significant operational problems could also cause a material portion of the Bank’s tax-preparer base

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to switch to a competitor to process their bank product transactions, significantly reducing the Bank’s revenue without a corresponding decrease in expenses.

The Bank’s EA and RT products represent a significant third-party management risk, and if RB&T’s third-party service providers fail to comply with all the statutory and regulatory requirements for these products or if RB&T fails to properly monitor its third-party service providers offering these products, it could have a material negative impact on earnings. TRS and its third-party service providers operate in a highly regulated environment and deliver products and services that are subject to strict legal and regulatory requirements. Failure by RB&T’s third-party service providers or failure of RB&T to properly monitor the compliance of its third- party service providers withvarious state level laws and regulations could result insubject the Bank to fines and penalties that materially and adversely affect RB&T’sthe Bank’s earnings. Such penalties could also include the discontinuance of anythe Consumer Direct Channel or all third-party program manager products and services.

The Bank’s EA and RT products represent a significant compliance and regulatory risk, and if RB&T fails to comply with all statutory and regulatory requirements, it could have a material negative impact on earnings. Federal and state laws and regulations govern numerous matters relating to the offering of consumer loan products, such as the EA, and consumer deposit products such as the RT. Failure to comply with disclosure requirements or with laws relating to the permissibility of interest rates and fees charged could have a material negative impact on earnings. In addition, failure to comply with applicable laws and regulations could also expose RB&T to civil money penalties and litigation risk, including shareholder actions.

EAs represent a significant credit risk, and if RB&T is unable to collect a significant portion of its EAs, it would materially, negatively impact earnings. There is credit risk associated with an EA because the funds are disbursed to the taxpayer customer prior to RB&T receiving the taxpayer customer’s refund as claimed on the return. Because there is no recourse to the taxpayer customer if the EA is not paid off by the taxpayer customer’s tax refund, RB&T must collect all its payments related to EAs through the refund process. Losses will generally occur on EAs when RB&T does not receive payment due to several reasons, such as IRS revenue protection strategies, including audits of returns, errors in the tax return, tax return fraud and tax debts not previously disclosed to RB&T during its underwriting process. While RB&T’s underwriting during the EA approval process takes these factors into consideration based on prior years’ payment patterns, if the IRS significantly alters its revenue protection strategies, if refund payment patterns for a given tax season meaningfully change, if the federal government fails to timely deliver refunds, or if RB&T is incorrect in its underwriting assumptions, RB&T could experience higher loan loss provisions above those projected. The provision for loan losses is a significant determining factor of the RPG operations’ overall net earnings.

Changes to the EA’s product parameters by management could have a material negative impact on the performance of the EA. In response to changes in the legal, regulatory and competitive environment, management annually reviews and revises the EA’s product parameters. Further changes in EA product parameters do not ensure positive results and could have an overall material negative impact on the performance of the EA and therefore on the Company’s financial condition and results of operations.

Due diligence measures implemented by the federal and state governments, which delay the timing of individual tax refund payments or possibly deny those individual payments outright, could present an increased credit risk to the Company. To protect against fraudulent tax returns, the federal government and many state governments have enacted laws and procedures that provide for additional due diligence by the applicable governmental authority prior to issuing an income tax refund. This additional due diligence has generally driven longer periods between the filing of a tax return and the receipt of the corresponding refund. The federal government, specifically as a result of the Protecting Americans from Tax Hikes Act of 2015, mandates that taxpayers filing tax returns with certain characteristics will not receive their corresponding refunds before February 15 each year. These funding delays will negatively impact the Company’s ability to make mid-season modifications to its EA underwriting model based on then-current year tax refund funding patterns, because the substantial majority of all EAs will have been issued prior to February 15. In addition, these enhanced due diligence measures implemented by the federal and state governments could prevent the taxpayer’s refund from being issued altogether. These governmental changes by themselves, or in combination with management’s changes to EA product parameters, could have a material negative impact on the performance of the EA product and therefore on the Company’s financial condition and results of operations if the loss rate on the EA product increases materially.

Economic impact (stimulus) payments by governmental agencies may have a significant, negative impact on demand for TRS’s EA product. During the COVID-19 pandemic, governmental agencies have provided, and may continue to provide further, economic support to certain consumers through stimulus payments and other benefits. Additionally, some federal stimulus payments were provided in January 2021 coinciding with the start of TRS’s 2021 EA product offering. These stimulus payments, along with a higher national consumer savings rate since the onset of the pandemic, may lead to lower demand for TRS’s EA product offerings because

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the majority of TRS’s client base includes beneficiaries of such stimulus payments. A significant decline in demand for TRS’s products would have a material negative impact on the Company’s financial condition and results of operations.

EA and RT products are substantially offered through retail tax preparation locations. Usage of retail tax preparation services may be negatively impacted by COVID-19 related health concerns and/or state or local governmental lockdowns. TRS’s EA and RT product offerings are substantially facilitated through third-party brick and mortar service providers. Usage of these brick and mortar service providers may be negatively impacted by COVID-19 related health concerns and state or local governmental lockdowns driving a decrease in TRS related EA and RT volume. A significant decrease in demand for TRS’s EA and RT products would have a material negative impact on the Company’s financial condition and results ofCorresponding Lending operations.

A significant decline in the amount of EITC consumers receiveFailure to appropriately manage these additional risks could lead to a significant decline in usage of TRS’s EAadditional regulatory and RT tax products. Historically, a substantial number of clients utilizing TRS’s EA and RT products are consumerscompliance risks, as well as create burdens that are eligible for the EITC when filing their income tax returns. Economic restrictions driven by the COVID-19 pandemic have substantially increased unemployment across the U.S. and many taxpayers did not have tax withheldreduce profitability or cause operating losses from their unemployment benefits. These conditions may lead to a decrease in the amount of total EITC they receive. A decrease in the EITC amount could decrease demand for TRS’s RT and EA products. A decrease in the demand for the RT and EA products could have a material negative impact on the Company’s financial condition and results of operations.

REPUBLIC CREDIT SOLUTIONS

Consumer loans originated through the RCS segment represent a higher credit risk. Loss rates for some RCS products have consistently been higher than Traditional Bank loss rates for unsecured consumer loans. A material increase in RCS loan charge-offs would have a material adverse effect on the Bank’s financial condition and results of operations and, if such increase in RCS loan charge-offs persisted for an extended period of time, could lead to the discontinuation of the underlying products.

RCS revenues and earnings are highly concentrated in its line-of-credit product. While the Company expanded its RCS product offerings in 2020, for the year ended December 31, 2020, RCS’s revenues and earnings were concentrated in one line-of-credit product. The discontinuation of this line-of-credit product, or a substantial change in the terms under which the product is offered, would have a material adverse effect on the Company’s financial condition and results of operations.

The Bank’s RCS products represent a significant third-party management risk, and if RB&T’s third-party service providers fail to comply with all the statutory and regulatory requirements for these products or if RB&T fails to properly monitor its third-party service providers offering these products, it could have a material negative impact on earnings. RCS and its third-party service providers operate in a highly regulated environment and deliver products and services that are subject to strict legal and regulatory requirements. Failure by RB&T’s third-party service providers or failure of RB&T to properly monitor the compliance of its third- party service providers with laws and regulations could result in fines and penalties that materially and adversely affect RB&T’s earnings.

RCS loansrepresent a significant compliance and regulatory risk, and if the Company fails to comply with all statutory and regulatory requirements it could have a material negative impact on the Company’s earnings. Federal and state laws and regulations govern numerous matters relating to the offering of RCS loans. Changes in the federal or state legislative or regulatory framework governing and failure to comply with laws relating to the permissibility of interest rates and fees charged could have a material negative impact on the Company’s earnings.

ASSET/LIABILITY MANAGEMENT AND LIQUIDITY

Fluctuations in interest rates could reduce profitability. The Bank’s asset/liability management strategy may not be able to prevent changes in interest rates from having a material adverse effect on results of operations and financial condition. The Bank’s primary source of income is from the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. The Bank expects to periodically experience “gaps” in the interest rate sensitivities of its assets and liabilities, meaning that either interest-bearing liabilities will be more sensitive to changes in market interest rates than interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to the Bank’s position, earnings may be negatively affected.

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A flattening or inversion of the interest rate yield curve may reduce profitability. Changes in the slope of the “yield curve,” or the spread between short-term and long-term interest rates, could reduce the Bank’s net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because the Bank’s interest-bearing liabilities tend to be shorter in duration than its interest-earning assets, when the yield curve flattens or even inverts, the Bank’s net interest margin could decrease as its cost of funds rises higher and at a faster pace than the yield on its interest-earning assets. A rise in the Bank’s cost of interest-bearing liabilities without a corresponding increase in the yield on its interest-earning assets, would have an adverse effect on the Bank’s net interest margin and overall results of operations.

Mortgage Banking activities could be adversely impacted by increasing or stagnant long-term interest rates. The Company is unable to predict changes in market 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 market interest rates generally results in higher demand for mortgage products, while an increase in rates generally results in reduced demand. Generally, 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. A decline in demand for Mortgage Banking products resulting from rising interest rates could also adversely impact other programs/products such as home equity lending, title insurance commissions and service charges on deposit accounts.

The Bank may be compelled to offer market-leading interest rates to maintain sufficient funding and liquidity levels. The Bank has traditionally relied on client deposits, brokered deposits and advances from the FHLB to fund operations. Such traditional sources may be unavailable, limited or insufficient in the future. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were canceled or curtailed, such as its borrowing line at the FHLB, or if the Bank cannot obtain brokered deposits, the Bank may be compelled to offer market-leading interest rates to meet its funding and liquidity needs. Obtaining funds at market-leading interest rates may have an adverse impact on the Company’s net interest income and overall results of operations.

The planned discontinuance of LIBOR presents risks to the Company because the Company uses LIBOR as a reference rate for a portion of its financial instruments. LIBOR is used as a reference rate for a meaningful amount of the Company’s financial instruments, which means it is the base on which relevant interest rates are determined. Transactions include those in which the Company lends and borrows money, purchases securities, and enters into derivatives to manage risk. The United Kingdom Financial Conduct Authority, the institution that regulates LIBOR, announced in July 2017 that it intends to stop persuading or compelling institutions to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021.

There are ongoing efforts to establish an alternative reference rate. The Secured Overnight Financing Rate (“SOFR”) is considered the most likely alternative reference rate suitable for replacing LIBOR, but issues remain with respect to its implementation. As a result, the scope of its ultimate acceptance and the impact on rates, pricing and the ability to manage risk, including through derivatives, remain uncertain. No other alternative rate is currently under wide consideration. If SOFR or another rate does not achieve wide acceptance as the alternative to LIBOR, there likely will be disruption to all of the markets relying on the availability of a broadly accepted reference rate. Even if SOFR or another reference rate ultimately replaces LIBOR, risks will remain for the Company with respect to outstanding loans, derivatives or other instruments referencing LIBOR. Those risks arise in connection with transitioning those instruments to a new reference rate and the corresponding value transfer that may occur in connection with that transition. That is because a new reference rate likely will not exactly imitate LIBOR. As a result, for example, over the life of a transaction that transitions from LIBOR to a new reference rate, the Company’s monetary obligations to its counterparties and its yield from transactions with clients may change, potentially adversely to the Company. For some instruments, the method of transitioning to a new reference rate may be challenging, especially if parties to an instrument cannot agree as to how to perform that transition.  If a contract is not transitioned to a new reference rate and LIBOR ceases to exist, the impact on the Company’s obligations is likely to vary by asset class and contract.  In addition, prior to LIBOR discontinuance, instruments that continue to refer to LIBOR may be impacted if there is a change in the availability or calculation of LIBOR. Risks related to transitioning instruments to a new reference rate or to how LIBOR is derived, and its availability include impacts on the yield on loans or securities held by the Company, amounts paid on Company debt, or amounts received and paid on derivative instruments it has contracted. The value of loans, securities, or derivative instruments tied to LIBOR and the trading market for LIBOR-based securities could also be impacted upon its discontinuance or if it is limited.

While the Company expects LIBOR to continue to be available in substantially its current form until at least the end of 2021 or shortly before that, it is possible that LIBOR quotes will become unavailable prior to that point. This could result, for example, if a sufficient

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number of institutions decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified. These risks may also be increased due to the shorter time for preparing for the transition.

COMPANY COMMON STOCK

The Company’s common stock generally has a low average daily trading volume, which limits a stockholder’s ability to quickly accumulate or quickly sell large numbers of shares of Republic’s stock without causing wide price fluctuations. Republic’s stock price can fluctuate widely in response to a variety of factors, as detailed in the next risk factor. A low average daily stock trading volume can lead to significant price swings even when a relatively small number of shares are being traded.

The market price for the Company’s common stock may be volatile. The market price of the Company’s common stock could fluctuate substantially in the future in response to several factors, including those discussed below. The market price of the Company’s common stock has fluctuated significantly in the past and is likely to continue to fluctuate significantly. Some of the factors that may cause the price of the Company’s common stock to fluctuate include:

Variations in the Company’s and its competitors’ operating results;
Actual or anticipated quarterly or annual fluctuations in operating results, cash flows and financial condition;
Changes in earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to the Bank or other financial institutions;
Announcements by the Company or its competitors of mergers, acquisitions and strategic partnerships;
Additions or departure of key personnel;
The announced exiting of or significant reductions in material lines of business within the Company;
Changes or proposed changes in banking laws or regulations or enforcement of these laws and regulations;
Events affecting other companies that the market deems comparable to the Company;
Developments relating to regulatory examinations;
Speculation in the press or investment community generally or relating to the Company’s reputation or the financial services industry;
Future issuances or re-sales of equity or equity-related securities, or the perception that they may occur;
General conditions in the financial markets and real estate markets in particular, developments related to market conditions for the financial services industry;
Domestic and international economic factors unrelated to the Company’s performance;
Developments related to litigation or threatened litigation;
The presence or absence of short selling of the Company’s common stock; and,
Future sales of the Company’s common stock or debt securities.

In addition, the stock market, in general, has historically experienced extreme price and volume fluctuations. This is due, in part, to investors’ shifting perceptions of the effect of changes and potential changes in the economy on various industry sectors. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their performance or prospects. These broad market fluctuations may adversely affect the market price of the Company’s common stock, notwithstanding its actual or anticipated operating results, cash flows and financial condition. The Company expects that the market price of its common stock will continue to fluctuate due to many factors, including prevailing interest rates, other economic conditions, operating performance, and investor perceptions of the outlook for the Company specifically and the banking industry in general. There can be no assurance about the level of the market price of the Company’s common stock in the future or that you will be able to resell your shares at times or at prices you find attractive.

The Company’s insiders hold voting rights that give them significant control over matters requiring stockholder approval. The Company’s Chairman/CEO and Vice Chairman hold substantial voting authority over the Company’s Class A Common Stock and Class B Common Stock. Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes. This group generally votes together on matters presented to stockholders for approval. These actions may include, for example, the election of directors, the adoption of amendments to corporate documents, the approval of mergers and acquisitions, sales of assets and the continuation of the Company as a registered company with obligations to file periodic reports and other filings with the SEC. Consequently, other stockholders’ ability to influence Company actions through their vote may be limited and the non-

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insider stockholders may not have sufficient voting power to approve a change in control even if a significant premium is being offered for their shares. Majority stockholders may not vote their shares in accordance with minority stockholder interests.

An investment in the Company’s Common Stock is not an insured deposit. The Company’s common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in the Company’s common stock is inherently risky for the reasons described in this section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire the Company’s common stock, you could lose some or all of your investment.

GOVERNMENT REGULATION / ECONOMIC FACTORSchannels.

The Company is significantly impacted by the regulatory, fiscal, and monetary policies of federal and state governments that could negatively impact the Company’s liquidity position and earnings. These policies can materially affect the value of the Company’s financial instruments and can also adversely affect the Company’s clients and their ability to repay their outstanding loans. In addition, 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 against the Company. The Board of Governors of the Federal Reserve System regulates the supply of money and credit in the U.S. Its policies determine, in large part, the Company’s cost of funds for lending and investing and the return the Company earns on these loans and investments, all of which impact net interest margin.

The Company and the Bank are heavily regulated at both the federal and state levels and are subject to various routine and non-routine examinations by federal and state regulators. This regulatory oversight is primarily intended to protect depositors, the Deposit Insurance Fund, and the banking system, not the stockholders of the Company. Changes in policies, regulations and statutes, or the interpretation thereof, could significantly impact the product offerings of Republic causing the Company to terminate or modify its product offerings in a manner that could materially adversely affect the earnings of the Company.

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 FRB possesses similar powers with respect to bank holding companies. These, and other restrictions, can limit in varying degrees, the way Republic conducts its business.

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Federal and state laws and regulations govern numerous matters relating to economic conditions,the offering of banking products. Failure to comply with disclosure requirements or with laws, including but not limitedthose relating to those caused by the COVID-19 pandemic, may adversely affectpermissibility of interest rates and fees charged, could have a material negative impact on earnings. In addition, failure to comply with applicable laws and regulations could also expose RB&T to civil money penalties and litigation risk, including shareholder actions. Initiatives of the Company’s operations, financial condition, and earnings. Enacted financial reform legislation has changed and will continue to change the bank regulatory framework. Ongoing uncertainty and adverse developments in the financial services industrycurrent President and the domesticcurrent Congress, along with actions of the states, governmental agencies, and international credit markets, and the effect of new legislation andconsumer groups, could result in regulatory, actions in response to these conditions, may adversely affect Company operations by restricting business activities, including the Company’s ability to originategovernmental, or sell loans, modify loan terms,legislative action or foreclose on property securing loans. These measures are likely to increase the Company’s costs of doing business and maylitigation, which could have a significantmaterial adverse effect on the Company’s lending activities, financial performance,operations. 

Use of third parties creates a third-party management risk. If RB&T’s third-party service providers fail to comply with all the statutory and operating flexibility. In addition,regulatory requirements for these risksproducts or if RB&T fails to properly monitor its third-party service providers offering these products, it could have a material negative impact on earnings. RB&T and its third-party service providers operate in a highly regulated environment and deliver products and services that are subject to strict legal and regulatory requirements. Failure by RB&T’s third-party service providers or failure of RB&T to properly monitor the compliance of its third-party service providers with laws and regulations could result in fines and penalties that materially and adversely affect the performance and value of the Company’s loan and investment securities portfolios, which also would negatively affect financial performance.RB&T’s earnings.

The Company may be subject to examinations by taxing authorities that could adversely affect results of operations. In the normal course of business, the Company may be subject to examinations from federal and state taxing authorities regarding the amount of taxes due in connection with investments it has made and the businesses in which the Company is engaged. Federal and state taxing authorities have continued to be aggressive in challenging tax positions taken by financial institutions. The challenges made by taxing authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in the Company’s favor, they could have an adverse effect on the Company’s financial condition and results of operations.

Transactions between the Company and its insurance subsidiary, the Captive, may be subject to certain IRS responsibilities and penalties. The Company’s Captive is a Nevada-based, wholly owned insurance subsidiary of the Company that provides property and casualty insurance coverage to the Company and the Bank as well as a group of other third-party insurance captives for which insurance may not be available or economically feasible. The Treasury Department of the United States and the IRS by way of Notice 2016-66 have stated that transactions believed similar in nature to transactions between the Company and the Captive may be deemed “transactions of interest” because such transactions may have potential for tax avoidance or evasion. If the IRS ultimately concludes such transactions do create tax avoidance or evasion issues, the Company could be subject to the payment of penalties and interest.

CREDIT RISKS

RAs represent a significant credit risk, and if the Bank is unable to collect a significant portion of its RAs, it would materially, negatively impact earnings. There is credit risk associated with an RA because the funds are disbursed to the taxpayer customer prior to the Bank receiving the taxpayer customer’s refund as claimed on the return. Management annually reviews and revises the RA’s underwriting criteria. These changes in the RA’s underwriting criteria do not ensure positive results and could have an overall material negative impact on the performance of the RA and therefore on the Company’s financial condition and results of operations.

Because there is no recourse to the taxpayer customer if the RA is not paid off by the taxpayer customer’s tax refund, the Bank must collect all its payments related to RAs through the refund process. Losses will generally occur on RAs when the Bank does not receive payment due to several reasons, such as IRS revenue protection strategies, including audits of returns, errors in the tax return, tax return fraud and tax debts not previously disclosed to the Bank during its underwriting process. While the Bank’s underwriting during the RA approval process takes these factors into consideration based on prior years’ payment patterns, if the IRS significantly alters its revenue protection strategies, if refund payment patterns for a given tax season meaningfully change, if the federal government fails to timely deliver refunds, or if the Bank is incorrect in its underwriting assumptions, the Bank could experience higher loan loss provisions above those projected. The provision for loan losses is a significant determining factor of the RPG operations’ overall net earnings.

In addition, the federal government, specifically as a result of the PATH Act, mandates that tax refunds for tax returns with certain characteristics cannot receive their corresponding refunds before February 15th each year. Substantially all the tax returns driving TRS’s product volume meet the criteria of those subject to this later funding under the PATH Act. These funding delays effectively restrict the Bank’s ability to make in-season modifications to its RA underwriting model based on then-current year tax refund funding patterns, because the substantial majority of all RAs are issued prior to February 15. As a result, the underwriting criteria that TRS

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establishes for the RA product at the beginning of the tax season could have a material negative impact on the performance of the RA before mitigating revisions can be made.

ERAs represent a significant credit risk, and if RB&T is unable to collect a significant portion of its ERAs, it would materially, negatively impact earnings. In addition to all the risks associated with its other RA products, ERAs carry additional credit risks. ERAs are substantially all originated during December prior to the upcoming first quarter tax season with the expectation the taxpayer client will return to the Bank’s Tax Provider during the first quarter tax filing season to file the taxpayer’s tax return, allowing the Bank to potentially receive the taxpayer’s tax refund from the federal government to repay the ERA with the Bank. In addition, TRS originates ERAs without the taxpayer client's final fiscal year taxable income documentation, e.g., W-2, and the filing of the taxpayer’s actual federal tax return. As with other RAs, the Bank has no recourse to the borrower if the ERA is not repaid by the taxpayer client’s tax refund. If the taxpayer client fails to return to the Bank’s Tax Provider or if the taxpayer client’s final tax return is substantially different than the early season estimate used to make the ERA, ERA losses could be substantially higher than estimated, which could cause a material adverse impact to TRS’s earnings and the overall results of operations of the Company.

Consumer loans originated through the RCS segment represent a higher credit risk. Loss rates for some RCS products have consistently been significantly higher than Traditional Bank loss rates for unsecured consumer loans. A material increase in RCS loan charge-offs would have a material adverse effect on the Bank’s financial condition and results of operations and, if such increase in RCS loan charge-offs persisted for an extended period of time, could lead to the discontinuation of the underlying products.

Consumer installment loans originated for sale through the RCS segment represent a higher risk of loss on sale. RCS originates its installment loan product for sale and sells this product at a loss if the originated loan defaults on its first payment to RCS, which is generally 16 days following the loan’s origination date. A material increase in first payment defaults for RCS installment loans would result in a material increase in these loans being sold at a loss. Such an increase could have a material adverse impact on the program, and if such losses persisted for an extended period of time, it could lead to the discontinuation of the underlying product.

Management’s changes to RPG product parameters could have a material negative impact on the performance of the RPG products. In response to changes in the legal, regulatory, and competitive environment, management annually reviews and revises product parameters. Further changes in product parameters do not ensure positive results and could have an overall material negative impact on the performance of the product and therefore on the Company’s financial condition and results of operations.

The Warehouse Lending business is subject to numerous risks that may result in losses. Risks associated with warehouse loans include, without limitation, (i) credit risks relating to the mortgage bankers that borrow from the Bank, including but not limited to bankruptcy, (ii) the risk of intentional misrepresentation or fraud by any of such mortgage bankers and their third-party service providers, (iii) changes in the market value of mortgage loans originated by the mortgage banker during the time in warehouse, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, or (iv) unsalable or impaired mortgage loans so originated, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to purchase the loan from the mortgage banker. Failure to mitigate these risks could have a material adverse impact on the Bank’s financial statements and results of operations.

The ACLL could be insufficient to cover the Bank’s actual loan losses. The Bank makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of its loans. In determining the amount of the ACLL, among other things, the Bank reviews its loss and delinquency experience, economic conditions, etc. If its assumptions are incorrect, the ACLL may not be sufficient to cover losses inherent in its loan portfolio, resulting in additions to its ACLL. In addition, regulatory agencies periodically review the ACLL and may require the Bank to increase its Provision or recognize further loan charge-offs. A material increase in the ACLL or loan charge-offs would have a material adverse effect on the Bank’s financial condition and results of operations.

Deterioration in the quality of the Traditional Banking loan portfolio may result in additional charge-offs, which would adversely impact the Bank’s operating results. When borrowers default on their loan obligations, it may result in lost principal and interest income and increased operating expenses associated with the increased allocation of management time and resources associated with the collection efforts. In certain situations where collection efforts are unsuccessful or acceptable “work-out” arrangements cannot be reached or performed, the Bank may charge-off loans, either in part or in whole. Additional charge-offs will adversely affect the Bank’s operating results and financial condition.

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Loans originated through the Bank’s Consumer Direct and Correspondent Lending channels subject the Bank to credit risks that the Bank does not have through its historical origination and servicing channels. The dollar volume of loans originated through the Bank’s Consumer Direct and Correspondent Lending channels and loans serviced as the result of the Correspondent Lending channel are primarily out-of-market. Loans originated out of the Bank’s market footprint inherently carry additional credit risk, as the Bank will experience an increase in the complexity of the customer authentication requirements for such loans. Failure to appropriately identify the end-borrower for such loans could lead to additional fraud losses.

The Bank’s financial condition and earnings could be negatively impacted to the extent the Bank relies on borrower information that is false, misleading, or inaccurate. The Bank relies on the accuracy and completeness of information provided by vendors, clients, and other parties in deciding whether to extend credit and/or enter transactions with other parties. If the Bank relies on incomplete and/or inaccurate information, the Bank may incur additional charge-offs that adversely affect its operating results and financial condition.

The Bank uses appraisals as part of the decision process to make a loan for, or secured by, real property. In addition, appraisals are used to value a loan if it becomes “collateral dependent” as a problem credit. Appraisals do not ensure the value of the real property collateral. As part of the new loan process or in valuing a collateral dependent problem credit, the Bank generally requires an independent third-party appraisal of the real property. An appraisal, however, is only an estimate of the value of the property at the time the appraisal is made. An error in fact or judgment could adversely affect the reliability of the appraisal. In addition, events occurring after the appraisal may cause the value of the real estate to decrease. As a result of any of these factors, the value of collateral securing a loan may be less than supposed, and if a default occurs, the Bank may not recover the outstanding balance of the loan. Approximately 27% of the Bank’s portfolio is secured by residential real estate and 35% is secured by commercial real estate properties. Both of these loan types are heavily dependent upon third-party appraisals in the decision process Additional charge-offs in either of these portfolios as a result of inaccurate appraisals could adversely affect the Bank’s operating results and financial condition.

The Bank is exposed to risk of environmental liabilities with respect to properties to which it takes title. In the course of its business, the Bank may own or foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties. The Bank may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if the Bank is the owner or former owner of a contaminated site, the Bank may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect the Bank.

The Bank holds a significant amount of BOLI, which creates credit risk relative to the insurers and liquidity risk relative to the product. As of December 31, 2022, the Bank held BOLI on certain employees. The eventual repayment of the cash surrender value is subject to the ability of the various insurance companies to pay death benefits or to return the cash surrender value to the Bank if needed for liquidity purposes. The Bank continually monitors the financial strength of the various insurance companies that carry these policies. However, any one of these companies could experience a decline in financial strength, which could impair its ability to pay benefits or return the Bank’s cash surrender value. If the Bank needs to liquidate these policies for liquidity purposes, it would be subject to taxation on the increase in cash surrender value and penalties for early termination, both of which would adversely impact earnings.

OPERATIONAL AND STRATEGIC RISKS

RPG products represent a significant operational risk and rely heavily on the accuracy and timeliness of data received from the Bank’s third party marketer and servicer providers. To conduct its RPG businesses, the Bank must implement and test new systems, train associates for new products and changes to existing products, and process information and data received from third party marketer and servicer providers. Due to the high volume of transaction activity across all the RPG product lines, the Bank relies heavily on the communications and information systems of the Bank as well as the communications and information systems of its third party providers to operate these products. Any failure, sustained interruption, or breach in security, including the cyber security, of these systems could result in failures or disruptions in client relationship management and other systems. If the Bank were unable to properly service this business as a result of inaccurate or untimely data from its third party marketer and servicer providers, it could materially impact earnings.

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RCS revenues and earnings are highly concentrated in its line-of-credit products. The discontinuation of these line-of-credit products, or a substantial change in the terms under which these products are offered, would have a material adverse effect on the Company’s financial condition and results of operations.

Many of the RCS programs are heavily reliant on the ability of the Bank to sell all or a significant portion of the loans originated to a third party in order to fund the programs. If the Bank were unable to sell these loans to a third-party purchaser for any reason, RCS would likely cease originating new loans under that product line, which would significantly and negatively impact the overall earnings of RCS. RCS originates installment loans and lines of credits through its various product lines. For some of its installment products, RCS sells 100% of the balances after its origination. For its line of credit products, the Bank sells a 90% or 95% participation in the product after origination, depending upon the product. If the Bank were unable to sell these loan balances for any reason, RCS would likely cease originating new loans for that particular product as soon as practical under the terms of its various agreements. The inability of RCS to originate new loans under any of its higher-yield RCS products would cause a material adverse impact to the results of operation of RCS.

In addition, the agreement between the Bank and the consumer for many of its line of credit products do not allow RCS to stop originating new customer draws on that product if RCS chooses to exit the product line. For these products, if the Bank were unable to sell these balances for any reason, RCS would retain 100% of the balances it originates on those products. In those circumstances, the credit risk for the Bank would increase substantially as it would then be responsible for 100% of any charge-offs for these loans, as opposed to 5% or 10% of the charge-offs when it is able to sell participating balances to a third party purchaser. While the Bank would also be retaining 100% of the revenue from these balances as well, there is no guarantee the additional revenue would offset the charge-offs in the event of an economic downturn. Such an increase in charge-offs could have a material adverse impact on the results of operations of the RCS segment and the Company, as a whole.

The Bank is highly dependent upon programs administered by Freddie Mac and Fannie Mae. Changes in existing U.S. government-sponsored mortgage programs or servicing eligibility standards could materially and adversely affect its business, financial position, results of operations, and cash flows. The Bank’s ability to generate revenues through mortgage loan sales to institutional investors depends significantly on programs administered by Freddie Mac and Fannie Mae. These entities play powerful roles in the residential mortgage industry, and the Bank has significant business relationships with them. The Bank’s status as an approved seller/servicer for both is subject to compliance with their selling and servicing guides.

Any discontinuation of, or significant reduction or material change in, the operation of Freddie Mac or Fannie Mae or any significant adverse change in the level of activity in the secondary mortgage market or the underwriting criteria of Freddie Mac or Fannie Mae would likely prevent the Bank from originating and selling most, if not all, of its mortgage loan originations.

Prepayment of loans may negatively impact the Bank’s business. The Bank’s clients may prepay the principal amount of their outstanding loans at any time. The speeds at which such prepayments occur, as well as the size of such prepayments, are within the Bank clients’ discretion. If clients prepay the principal amount of their loans, and the Bank is unable to lend those funds to other clients or invest the funds at the same or higher interest rates, the Bank’s interest income will be reduced. A significant reduction in interest income would have a negative impact on the Bank’s results of operations and financial condition.

The planned discontinuance of LIBOR presents risks to the Company because the Bank uses LIBOR as a reference rate for a material portion of its financial instruments. In July 2017, the FCA, the authority regulating LIBOR, along with various other regulatory bodies, announced that LIBOR would likely be discontinued at the end of 2021. Subsequent to that announcement, in November 2020, the FCA announced that many tenors of LIBOR would continue to be published through June 2023. In compliance with regulatory guidance, the Bank discontinued referencing LIBOR for new financial instruments during 2021 and chose SOFR to be its primary alternative reference rate for most transaction types upon the discontinuance or unavailability of LIBOR.

Risks associated with the Bank’s transition from LIBOR to SOFR or other alternative reference rates include the following:

SOFR is viewed as a near risk free rate because it is derived from rates on overnight U.S. Treasury repurchase transactions. These transactions are essentially overnight loans secured by U.S. Treasury securities, thus essentially risk free. Changing to SOFR or a similar rate could result in a value transfer between contracting parties to instruments originally based on LIBOR. Historically, in periods of economic or financial industry stress, near risk free rates that are analogous to SOFR have been relatively stable. In contrast, LIBOR, which is designed to reflect the credit risk of banks, has widened relative to near risk

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free rates, reflecting increased uncertainty regarding the credit-worthiness of banks. Accordingly, assuming that SOFR will behave like its historical equivalents, an instrument that transitions from LIBOR to SOFR may not yield identical economic outcomes for each contracting party to an instrument had the instrument continued to reference LIBOR. Similarly, SOFR, because it is near risk free, tends to be a lower rate than LIBOR. To address these differences between LIBOR and SOFR, certain industry recommended LIBOR fallback provisions include a concept of an adjustment spread that is applied when a LIBOR-based contract transitions to SOFR and that is calculated based on a five-year median look-back of the historical spot difference between the applicable LIBOR tenor and the applicable SOFR tenor. However, because any such adjustment spread will be based on a historical median, it is likely that the adjustment spread may not reflect the spot difference between LIBOR and SOFR at certain points in time and there may be a value transfer between the contracting parties over the life of the instrument because the all-in rate applied to a contract, even taking into account the spread adjustment, might have behaved differently over the life of the instrument in the absence of LIBOR cessation.

Any value transfer could be financially adverse to the Bank or to its counterparties. Repercussions from a change in reference rate would likely include changes to the yield on, and value of, loans or securities held by the Bank, and amounts received and paid on derivative instruments the Bank has contracted. Any theoretical benefit to the Bank could result in counterparty dissatisfaction, which, in turn could lead to litigation, potentially as class actions, or other adverse consequences, including dissatisfied clients or counterparties, resulting in loss of business. As a result, over the life of a transaction that transitions from LIBOR to a new reference rate, the Bank’s obligations to its counterparties or vice versa and the yield the Bank contractually receives or pays may change from that which would have resulted from a continuation of LIBOR.

Transitioning from LIBOR to alternative indexes may result in operational errors during the transition such that the replacement index is not applied in a timely manner or is incorrectly applied. This is particularly true given the volume of contracts that will require transition, the variety of potential approaches to transition, and the possible short duration of the transition period.

It is also possible that LIBOR quotes will become unavailable prior to the currently anticipated cessation date. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified. These risks may also be increased due to the shorter time for preparing for the transition.

The Bank’s failure to successfully implement the transition from LIBOR to alternative indexes could result in reduced interest income on its loans that reprice with LIBOR, and/or increased regulatory scrutiny and actions by regulators, including fines and other supervisory sanctions.

The Company may be adversely affected by the soundness of other financial institutions. Financial services institutions are interrelated because of trading, clearing, counterparty, or other relationships. The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks,

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brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or client. In addition, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Company. Any such losses could have a material adverse effect on the Company’s financial condition and results of operations.

MANAGEMENT, INFORMATION SYSTEMS, ACQUISITIONS, ETC.

The Company is dependent upon the services of key qualified personnel. The Company is dependent upon the ability and experience of a number of its key management personnel who have substantial experience with Company operations, the financial services industry, and the markets in which the Company offers services. It is possible that the loss of the services of one or more of its key personnel would have an adverse effect on operations.

The Company’s operations could be impacted if its third-party service providers experience difficulty. The Company depends on several relationships with third-party service providers, including core systems processing and web hosting. These providers are well-established vendors that provide these services to a significant number of financial institutions. If these third-party service providers experience difficulty or terminate their services and the Company is unable to replace them with other providers, its operations could be interrupted, which would adversely impact its business.

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The Company’s operations, including third-party and client interactions, are increasingly done via electronic means, and this has increased the risks related to cyber security. The Company is exposed to the risk of cyber-attacks in the normal course of business.business and incurs substantial cyber security protection costs. In general, cyber incidents can result from deliberate attacks or unintentional events. Management has observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as by causing denial-of-service attacks on websites. Cyber-attacks may be carried out directly against the Company, or against the Company’s clients or vendors by third parties or insiders using techniques that range from highly sophisticated efforts to electronically circumvent network security or overwhelm websites to more traditional intelligence gathering and social engineering aimed at obtaining information necessary to gain access. While the Company has not incurred any material losses related to cyber-attacks, the Bank may incur substantial costs and suffer other negative consequences if the Bank, the Bank’s clients, or one of the Bank’s third-party service providers fall victim to successful cyber-attacks. Such negative consequences could include: remediation costs for stolen assets or information; system repairs; consumer protection costs; increased cyber security protection costs that may include organizational changes; deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract clients following an attack; litigation and payment of damages; and reputational damage adversely affecting client or investor confidence.

The Company’s information systems may experience an interruption that could adversely impact the Company’s business, financial condition, and results of operations. The Company relies heavily on communications and information systems to conduct its business. Any failure or interruption of these systems could result in failures or disruptions in client relationship management, general ledger, deposit, loan and other systems. While the Company has policies and procedures designed to prevent or limit the impact of the failure or interruption of information systems, there can be no assurance that any such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed. The occurrences of any failures or interruptions of the Company’s information systems could damage the Company’s reputation, result in a loss of client business, subject the Company to additional regulatory scrutiny, or expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations.

New lines of business or new products and services may subject the Company to additional risks. From time to time, the Company may develop and grow new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, the Company may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of the

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Company’s system of internal controls.control. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company’s business, results of operations, and financial condition. All service offerings, including current offerings and those that may be provided in the future, may become riskier due to changes in economic, competitive, and market conditions beyond the Company’s control.

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Negative public opinion could damageThe proposed acquisition and integration of CBank pursuant to the Company’s reputation and adversely affect earnings. Reputational risk is the riskCBank Agreement includes certain acquisition-related risks to Company operations from negative public opinion. Negative public opinion can result from the actual or perceived way the Company conducts its business activities, including product offerings, sales practices, practices used in origination and servicing operations, the management of actual or potential conflicts of interest and ethical issues, and the Company’s protection of confidential client information. Negative public opinion can adversely affect the Company’s ability to keep and attract clients and can expose the Company to litigation.Bank. These risks include:

the possibility that some or all of the anticipated benefits of the proposed acquisition will not be realized or will not be realized within the anticipated timelines;
the risk that integration of CBank’s operations with those of the Company will be materially delayed or will be more costly or difficult than expected; the parties’ inability to meet expectations regarding the timing, completion and accounting and tax treatments of the acquisition; 
the failure to satisfy other conditions to completion of the acquisition, including receipt of required regulatory and other approvals; the failure of the proposed transaction to close for any other reason; diversion of management's attention from ongoing business operations and opportunities due to the acquisition;
the challenges of integrating and retaining key employees;
the effect of the announcement of the merger on the Bank’s or CBank’s respective customer and employee relationships and operating results;
the possibility that the acquisition may be more expensive to complete than anticipated, including as a result of unexpected factors or events; and
the magnitude and duration of inflation; as well as the results of operations and financial condition of the Company following the acquisition.

The Company’s ability to successfully complete acquisitions will affect its ability to grow and compete effectively in its market footprint. The Company has announced plans to pursue a policy of strategic growth through acquisitions to supplement internalorganic growth. The Company’s efforts to acquire other financial institutions and financial service companies or branches may not be successful. Numerous potential acquirers exist for many acquisition candidates, creating intense competition, which affects the purchase price for which the institution can be acquired. In many cases, the Company’s competitors have significantly greater resources than the Company has, and greater flexibility to structure the consideration for the transaction. The Company may also not be the successful bidder in acquisition opportunities that it pursues due to the willingness or ability of other potential acquirers to propose a higher purchase price or more attractive terms and conditions than the Company is willing or able to propose. The Company intends to continue to pursue acquisition opportunities in its market footprint. The risks presented by the acquisition of other financial institutions could adversely affect the Bank’s financial condition and results of operations.

Successful Company acquisitions present many risks that could adversely affect the Company’s financial condition and results of operations. An institution that the Company acquires may have unknown asset quality issues or unknown or contingent liabilities that the Company did not discover or fully recognize in the due diligence process, thereby resulting in unanticipated losses. The acquisition of other institutions also typically requires the integration of different corporate cultures, loan and deposit products, pricing strategies, data processing systems and other technologies, accounting, internal audit and financial reporting systems, operating systems and internal controls, marketing programs and personnel of the acquired institution, to make the transaction economically advantageous. The integration process is complicated and time consuming and could divert the Company’s attention from other business concerns and may be disruptive to its clients and the clients of the acquired institution. The Company’s failure to successfully integrate an acquired institution could result in the loss of key clients and employees and prevent the Company from achieving expected synergies and cost savings. Acquisitions and failed acquisitions also result in professional fees and may result in creating goodwill that could become impaired, thereby requiring the Company to recognize further charges. The Company may finance acquisitions with borrowed funds, thereby increasing the Company’s leverage and reducing liquidity, or with potentially dilutive issuances of equity securities.

REPUBLIC INSURANCE SERVICES, INC.ECONOMIC, FINANCIAL MARKETS, INTEREST RATES, AND LIQUIDITY RISKS

TransactionsMortgage Banking activities have been adversely impacted by increasing long-term interest rates. The Company is unable to predict changes in market 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 market interest rates generally results in higher demand for mortgage products, while an increase in rates generally results in reduced demand. Generally, 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. A decline in demand for Mortgage Banking products resulting from rising interest rates could also adversely impact other products which are typically cross-sold with mortgages.

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Fluctuations in interest rates could reduce profitability. The Bank’s asset/liability management strategy may not be able to prevent changes in interest rates from having a material adverse effect on results of operations and financial condition. The Bank’s primary source of income is from the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. The Bank expects to periodically experience “gaps” in the interest rate sensitivities of its assets and liabilities, meaning that either interest-bearing liabilities will be more sensitive to changes in market interest rates than interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to the Bank’s position, earnings may be negatively affected.

A flattening or inversion of the interest rate yield curve may reduce profitability. Changes in the slope of the “yield curve,” or the spread between short-term and long-term interest rates, could reduce the Bank’s net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because the Bank’s interest-bearing liabilities tend to be shorter in duration than its interest-earning assets, when the yield curve flattens or even inverts, the Bank’s net interest margin could decrease as its cost of funds rises higher and at a faster pace than the yield on its interest-earning assets. A rise in the Bank’s cost of interest-bearing liabilities without a corresponding increase in the yield on its interest-earning assets, would have an adverse effect on the Bank’s net interest margin and overall results of operations.

The Bank may be compelled to offer market-leading interest rates to maintain sufficient funding and liquidity levels. The Bank has traditionally relied on client deposits (with approximately 7% of deposits concentrated with the Bank’s top 20 depositors), brokered deposits, and advances from the FHLB to fund operations. Such traditional sources may be unavailable, limited, or insufficient in the future. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were cancelled or curtailed, such as its borrowing line at the FHLB, or if the Bank cannot obtain brokered deposits, the Bank may be compelled to offer market-leading interest rates to meet its funding and liquidity needs. Obtaining funds at market-leading interest rates would have an adverse impact on the Company’s net interest income and overall results of operations.

Clients could pursue alternatives to bank deposits, causing the Bank to lose a relatively inexpensive source of funding. Checking and savings account balances and other forms of client deposits could decrease if clients perceive alternative investments, such as the stock market, as providing superior expected returns. If clients move money out of bank deposits in favor of alternative investments, the Bank could lose a relatively inexpensive source of funds, increasing its funding costs and negatively impacting its overall results of operations.

The loss of large deposit relationships could increase the Bank’s funding costs. The Bank has several large deposit relationships that do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances are moved from the Bank, the Bank would likely utilize overnight borrowing lines on a short-term basis to replace the balances. The overall cost of gathering brokered deposits and/or FHLB advances, however, could be substantially higher than the Traditional Bank deposits they replace, increasing the Bank’s funding costs and reducing the Bank’s overall results of operations.

Government responses to economic conditions may adversely affect the Company’s operations, financial condition, and earnings. Enacted financial reform legislation has changed and will continue to change the bank regulatory framework. Ongoing uncertainty and adverse developments in the financial services industry and the domestic and international credit markets, and the effect of new legislation and regulatory actions in response to these conditions, may adversely affect Company operations by restricting business activities, including the Company’s ability to originate or sell loans, modify loan terms, or foreclose on property securing loans. These measures are likely to increase the Company’s costs of doing business and may have a significant adverse effect on the Company’s lending activities, financial performance, and operating flexibility. In addition, these risks could affect the performance and value of the Company’s loan and investment securities portfolios, which also would negatively affect financial performance.

The Company’s common stock generally has a low average daily trading volume, which limits a stockholder’s ability to quickly accumulate or quickly sell large numbers of shares of Republic’s stock without causing wide price fluctuations. Republic’s stock price can fluctuate widely in response to a variety of factors, as detailed in the next risk factor. A low average daily stock trading volume can lead to significant price swings even when a relatively small number of shares are being traded.

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The market price for the Company’s common stock may be volatile. The market price of the Company’s common stock could fluctuate substantially in the future in response to several factors, including those discussed below. Some of the factors that may cause the price of the Company’s common stock to fluctuate include:

Variations in the Company’s and its competitors’ operating results;
Actual or anticipated quarterly or annual fluctuations in operating results, cash flows, and financial condition;
Changes in earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to the Bank or other financial institutions;
Announcements by the Company or its competitors of mergers, acquisitions, and strategic partnerships;
Additions or departure of key personnel;
The announced exiting of or significant reductions in material lines of business within the Company;
Changes or proposed changes in banking laws or regulations or enforcement of these laws and regulations;
Events affecting other companies that the market deems comparable to the Company;
Developments relating to regulatory examinations;
Speculation in the press or investment community generally or relating to the Company’s reputation or the financial services industry;
Future issuances or re-sales of equity or equity-related securities, or the perception that they may occur;
General conditions in the financial markets and real estate markets in particular, developments related to market conditions for the financial services industry;
Domestic and international economic factors unrelated to the Company’s performance;
Developments related to litigation or threatened litigation;
The presence or absence of short selling of the Company’s common stock; and,
Future sales of the Company’s common stock or debt securities.

In addition, the stock market, in general, has historically experienced extreme price and volume fluctuations. This is due, in part, to investors’ shifting perceptions of the effect of changes and potential changes in the economy on various industry sectors. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their performance or prospects. These broad market fluctuations may adversely affect the market price of the Company’s common stock, notwithstanding its actual or anticipated operating results, cash flows, and financial condition. The Company expects that the market price of its common stock will continue to fluctuate due to many factors, including prevailing interest rates, other economic conditions, operating performance, and investor perceptions of the outlook for the Company specifically and its insurance subsidiary, the Captive,banking industry in general. There can be no assurance about the level of the market price of the Company’s common stock in the future or that investors will be able to resell their shares at times or at prices they find attractive.

The Company’s insiders hold voting rights that give them significant control over matters requiring stockholder approval. The Company’s Executive Chair/CEO and Vice Chair hold substantial voting authority over the Company’s Class A Common Stock and Class B Common Stock. Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes. This group generally votes together on matters presented to stockholders for approval. These actions may include, for example, the election of directors, the adoption of amendments to corporate documents, the approval of mergers and acquisitions, sales of assets, and the continuation of the Company as a registered company with obligations to file periodic reports and other filings with the SEC. Consequently, other stockholders’ ability to influence Company actions through their vote may be limited and the non-insider stockholders may not have sufficient voting power to approve a change in control even if a significant premium is being offered for their shares. Majority stockholders may not vote their shares in accordance with minority stockholder interests.

An investment in the Company’s Common Stock is not an insured deposit. The Company’s common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in the Company’s common stock is inherently risky for the reasons described in this section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire the Company’s common stock, you could lose some or all of your investment.

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COMPETITIVE RISKS

Outstanding Warehouse lines of credit and their corresponding earnings could decline due to several factors, such as intense industry competition, declining mortgage demand, and a rising interest rate environment. With the rise of inflation during 2022, the FOMC implemented a more aggressive and hawkish approach to its monetary policies during 2022 and has signaled these policies could continue into the future until inflation decreases to acceptable levels. Included in its actions are raising the FFTR, ending its quantitative easing program of buying certain IRS responsibilitiestypes of bonds in the open market, and penalties.implementing a quantitative tightening program to reduce the size of its balance sheet by selling certain types of bonds in the market.

The FOMC’s signaling of these actions caused market interest rates for U.S. Treasury bonds and mortgages to rise rapidly during the 2022. With the rise in mortgage rates, mortgage refinance activity slowed dramatically during 2022, and Warehouse usage began to decline significantly. Further monetary tightening by the FOMC in 2023 will likely further decrease mortgage demand and Warehouse line usage. In addition, a decrease in usage across the Warehouse industry could also cause competitive pricing pressure on the Bank to lower its pricing to its Warehouse clients in order to maintain higher volumes.

The Bank could likely experience decreased earnings on its Warehouse lines of credit during 2023 due to the expected interest rate environment combined with strong industry competition and pricing pressures. Such decreased earnings could materially impact the Company’s results of operations.

The Company may lose Warehouse clients due to mergers and acquisitions in the industry. The Bank’s Warehouse clients are primarily mortgage companies across the United States. Mergers and acquisitions affecting such clients may lead to an end to the client relationship with the Bank. The loss of a significant number of clients may materially impact the Company’s results of operations.

Mortgage Banking revenue will likely decline due to declining mortgage demand resulting from a rising interest rate environment, which will also lead to more intense industry competition for a shrinking mortgage market. Mortgage Banking is a significant operating segment of the Company. With the rise of inflation during 2022, the FOMC has implemented a more aggressive and hawkish approach to its monetary policies. Included in its actions are raising the FFTR multiple times, ending its quantitative easing program of buying certain types of bonds in the open market, and implementing a quantitative tightening program by reducing the size of its balance sheet and selling certain types of bonds in the market.

The FOMC’s implementation of these actions caused market interest rates for treasury bonds and mortgages to rise rapidly during 2022. With the rise in mortgage rates, mortgage refinance activity slowed dramatically during 2022, and as a result, mortgage origination volume declined significantly. Further monetary tightening by the FOMC in 2023 will likely further decrease mortgage demand. In addition, a decrease in mortgage demand across the mortgage industry could also cause competitive pricing pressure on the Bank to lower its mortgage pricing to maintain its volumes for a shrinking market, further causing its cash gains-as-a-percentage-of-loans-sold to decline.

The Bank will likely experience decreased Mortgage Banking revenue during 2023 due to expected rising market interest rates and strong industry competition, housing supply shortages, and pricing pressures. Such decreased earnings could materially impact the Company’s results of operations.

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FINANCIAL REPORTING RISKS

Management has identified material weaknesses in the Company’s internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control, which may result in material misstatements of the Company’s consolidated financial statements or cause the Company to fail to meet its periodic reporting obligations.

Management identified material weaknesses in the Company’s internal control over financial reporting as of December 31, 2022.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.  

The material weaknesses that Management identified were the following:

1)the Company did not maintain effective controls over the initial implementation of new products offered through third parties within RPG. Specifically, Management identified that an RCS product’s contractual terms were not sufficiently communicated internally, and the controls were not designed to identify and test all relevant transactional data posting to the Company’s financial statements for the product;

2)the Company did not maintain effective controls over the information and communication as it relates to the reconciliation function. Specifically, the controls were not precisely designed to identify, communicate, resolve, and timely escalate reconciliation issues to the appropriate levels within the organization; and

3)the Company did not design and maintain effective controls over the financial analysis of RCS products’ yields.  Specifically, the Company reviewed the weighted average yield of all RCS products on a segment basis rather than an individual product basis.

Management cannot guarantee that the Company’s efforts will remediate these material weaknesses or that additional material weaknesses in the Company’s internal control over financial reporting will not be identified in the future. The Company’s failure to implement and maintain effective internal control over financial reporting could result in errors in the Company’s consolidated financial statements that could result in a restatement of its financial statements and could cause the Company to fail to meet its reporting obligations, any of which could diminish investor confidence and cause a decline in the price of the Company’s Class A common stock. See Item 9A. “Controls and Procedures” for further discussions of the identified material weaknesses and the Company’s remediation efforts.

Republic’s Management is required to evaluate the effectiveness of the Company’s disclosure controls and internal control over financial reporting. If the Company is unable to maintain effective disclosure controls and internal control over financial reporting, investors may lose confidence in the accuracy of the Company’s financial reports.

As a public company, the Company is required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act requires that Management evaluate and determine the effectiveness of the Company’s internal control over financial reporting. Additionally, the Company’s independent registered public accounting firm is required to deliver an attestation report on the effectiveness of the Company’s internal control over financial reporting.

In order to maintain and improve the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting, the Company has expended, and anticipates that it will continue to expend, significant resources, including accounting-related costs and significant management oversight.  If any of these new or improved controls and systems do not perform as expected, the Company may experience further deficiencies in its controls.

The Company’s current controls and any new controls that it develops may become inadequate because of changes in conditions in its business. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm the Company’s results of operations, cause the Company to fail to meet its reporting obligations, and adversely affect the results of periodic management evaluations and the Company’s independent registered public accounting firm’s attestation reports required by the SEC. Ineffective internal control over financial reporting could diminish investor confidence, negatively affect the

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price of the Company’s Class A common stock, and could result in the Company’s delisting on the Nasdaq. See Item 9A. “Controls and Procedures” for further discussions of the identified material weaknesses.

The Company’s accounting policies and estimates are critical components of the Company’s presentation of its financial statements. Management must exercise judgment in selecting and adopting various accounting policies and in applying estimates. Actual outcomes may be materially different from amounts previously estimated. Management has identified certain accounting policies and estimates as being critical to the presentation of the Company’s financial statements. These policies are described in Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the section titled “Critical Accounting Policies and Estimates.” The Company’s Captive is a Nevada-based, wholly-owned insurance subsidiarymanagement must exercise judgment in selecting and applying many accounting policies and methods to comply with generally accepted accounting principles and reflect management’s judgment of the Companymost appropriate manner to report the Company’s financial condition and results. In some cases, management may select an accounting policy that provides propertymight be reasonable under the circumstances yet might result in the Company’s reporting different results than would have been reported under a different alternative. Materially different amounts could be reported under different conditions or using different assumptions or estimates.

The Bank may experience goodwill impairment, which could reduce its earnings. The Bank performed its annual goodwill impairment test during the fourth quarter of 2022 as of September 30, 2022. The evaluation of the fair value of goodwill requires management judgment. If management’s judgment was incorrect and casualty insurance coveragegoodwill impairment was later deemed to the Company andexist, the Bank as well aswould be required to write down its goodwill resulting in a groupcharge to earnings, which could materially, adversely affect its results of other third-party insurance captives for which insurance may not be available or economically feasible. The Treasury Department of the United States and the IRS by way of operations.

Notice 2016-66 have stated that transactions believed similar in nature to transactions between the Company and the Captive may be deemed “transactions of interest” because such transactions may have potential for tax avoidance or evasion. If the IRS ultimately concludes such transactions do create tax avoidance or evasion issues, the Company could be subject to the payment of penalties and interest.

Item 1B. Unresolved Staff Comments.

None

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Item 2. Properties.

The Company’s executive offices principal support and operational functions are located at 601 West Market Street in Louisville, Kentucky. The Company also has principal support and operational functions located in three additional facilities in Louisville at 9600 Brownsboro Road, 661 South Hurstbourne Parkway and 200 South Seventh Street. As of December 31, 2020,2022, Republic had 28 banking centers located in Kentucky, seven banking centers in Florida, three banking centers in Indiana, two banking centers in Tennessee, and two banking centers in Ohio.

The location of Republic’s facilities, their respective approximate square footage, and their form of occupancy are as follows:

   

Approximate

   

   

Square

   

Owned (O)/

Bank Offices

   

Footage

   

Leased (L)

Kentucky Banking Centers:

    

    

Louisville Metropolitan Area

2801 Bardstown Road, Louisville

 

5,000

 

L (1)  

601 West Market Street, Louisville

57,000

L (1)  

661 South Hurstbourne Parkway, Louisville

42,000

L (1)  

9600 Brownsboro Road, Louisville

15,00042,000

L (1)  

5250 Dixie Highway, Louisville

5,000

O/L (2)  

10100 Brookridge Village Boulevard, Louisville

5,000

O/L (2)  

9101 U.S. Highway 42, Prospect

3,000

O/L (2)  

11330 Main Street, Middletown

6,000

O/L (2)  

3902 Taylorsville Road, Louisville

4,000

O/L (2)  

3811 Ruckriegel Parkway, Louisville

4,000

O/L (2)  

5125 New Cut Road, Louisville

4,000

O/L (2)  

4808 Outer Loop, Louisville

4,000

O/L (2)  

438 Highway 44 East, Shepherdsville

4,000

O/L (2)  

1420 Poplar Level Road, Louisville

3,000

O

4921 Brownsboro Road, Louisville

3,000

L

3950 Kresge Way, Suite 108, Louisville

<1,000

L

3726 Lexington Road, Louisville

4,000

L

1720 West Broadway, Suite 103, Louisville

3,000

L

Lexington

3098 Helmsdale Place

5,000

O/L (2)  

3608 Walden Drive

4,000

O/L (2)  

2401 Harrodsburg Road

6,000

O

641 East Euclid Avenue

3,000

O

333 West Vine Street

4,000

L

Northern Kentucky

535 Madison Avenue, Covington

4,000

L

25 Town Center Blvd., Suite 104, Crestview Hills

3,000

L

8513 U.S. Highway 42, Florence

4,000

L

(continued)

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Approximate

   

   

Square

   

Owned (O)/

Bank Offices

   

Footage

   

Leased (L)

(continued)

Georgetown, 430 Connector Road

5,000

O/L (2)  

Shelbyville, 1614 Midland Trail

6,0004,000

L (2)  

Florida Banking Centers:

12933 Walsingham Road, Largo

4,000

O

10577 State Road 54, New Port Richey

3,000

L

6300 4th Street N, St. Petersburg

10,000

O

6600 Central Avenue, St. Petersburg

9,000

O

7800 Seminole Blvd., Seminole

3,000

O

6906 E. Fowler Avenue, Temple Terrace

2,000

L

1300 North West Shore Blvd. Suite 150, Tampa

3,0004,000

L

Southern Indiana Banking Centers:

4571 Duffy Road, Floyds Knobs

4,000

O/L(2)  

3141 Highway 62, Jeffersonville

4,000

O

3001 Charlestown Crossing Way, New Albany

2,000

L

Tennessee Banking Centers:

113 Seaboard Lane, Franklin

2,000

L

2034 Richard Jones Road, Nashville

3,000

L

Tennessee Loan Production Office:

8 Cadillac Drive, Brentwood

4,000

L (3)

Ohio Banking Center:

4030 Smith Road, Norwood

5,000

L

9110 West Chester Towne Center Dr., West Chester

3,0001,000

L

Support and Operations:

200 South Seventh Street, Louisville, KY

64,00080,000

L(1)  

Closed Banking Centers Currently Marketed for Sale:

9100 Hudson Avenue, Hudson, FL

4,000

O

(1)Locations are leased from partnerships in which the Company’s ChairmanExecutive Chair and Chief Executive Officer, Steven E. Trager,Trager; its Vice ChairmanChair and President, A. Scott Trager,Trager; its Director, Andrew Trager-Kusman; or family members of Steven E. Trager, and A. Scott Trager, and Andrew Trager-Kusman, have a financial interest. See additional discussion included under Part III Item 13 “Certain Relationships and Related Transactions, and Director Independence.” For additional discussion regarding Republic’s lease obligations, see Part II Item 8 “Financial Statements and Supplementary Data” Footnote 6 “Right-of-Use Assets and Operating Leases Liabilities.”

(2)The banking centers at these locations are owned by Republic; however, the banking center is located on land that is leased through long-term agreements with third parties.

(3)Location was closed in January 2021.

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Item 3. Legal Proceedings.

See Footnote 1 “Summary of Significant Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data” for discussion regarding the cancelled sale of the TRS business and associated litigation.

In the ordinary course of operations, Republic and the Bank are defendants in various legal proceedings. There is no proceeding, pending, or threatened litigation in which Republic and the Bank are a defendant, to the knowledge of management, in which an adverse decision could result in a material adverse change in the business or consolidated financial position of Republic or the Bank.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market and Dividend Information

At February 19, 2021, the Company’s Class A Common Stock was held by 804 shareholders of record and the Class B Common Stock was held by 98 shareholders of record. Republic’s Class A Common Stock is traded on the NASDAQ under the symbol “RBCAA.” There is no established public trading market for the Company’s Class B Common Stock.Stock, however, the Company’s Class B Common Stock is fully convertible into the Company’s publicly-traded Class A Common Stock on a one-for-one basis.

On February 10, 2023, the Company’s Class A Common Stock was held by 1,021 shareholders of record and the Class B Common Stock was held by 92 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 numerous other considerations.

��

For additional discussion regarding regulatory restrictions on dividends, see Part II Item 8 “Financial Statements and Supplementary Data” Footnote 14 “Stockholders’ Equity and Regulatory Capital Matters.”

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 the form of broker’s transactions. As of December 31, 2020,2022, the trustee held 255,102253,228 shares of Class A Common Stock and 2,4051,214 shares of Class B Common Stock on behalf of the plan.

Details of Republic’s Class A Common Stock purchases during the fourth quarter of 20202022 are included in the following table:

    

    

    

    

    

Total Number of

    

Maximum Number

 

    

    

    

    

Total Number of

    

Additional

    

Maximum Number

 

Shares Purchased

of Shares that May

 

Shares Purchased

Shares

of Shares that May

 

as Part of Publicly

Yet Be Purchased

 

as Part of Publicly

Authorized

Yet Be Purchased

 

Total Number of

Average Price

Announced Plans

Under the Plans

 

Total Number of

Average Price

Announced Plans

Under Plans

Under the Plans

 

Period

Shares Purchased

Paid Per Share

or Programs

or Programs

 

Shares Purchased

Paid Per Share

or Programs

or Programs

or Programs

 

October 1 - October 31

 

$

 

 

$

 

292,806

500,000

November 1 - November 30

 

 

 

 

 

 

500,000

December 1 - December 31

 

29,000

 

37.31

 

29,000

 

10,000

 

41.34

 

10,000

490,000

Total

 

29,000

$

37.31

 

29,000

 

58,423

 

10,000

$

41.34

 

10,000

 

292,806

 

490,000

During 2020,2022, the Company repurchased 114,437273,134 shares. In addition, in connection with employee stock awards, there were 272 shares withheld upon vesting of stock grants to cover withholding taxes and 16,6433,288 shares withheld upon exercise of stock options and vesting of restricted stock awards to satisfy the withholding taxes and, for stock options, the exercise price. During 2011,The Board took the following actions as it relates to the Company’s Board of Directors amended its existing sharestock repurchase program by approving the repurchase of 300,000 additional shares from time to time, as market conditions are deemed attractive to the Company. program:

On January 27, 2021, the Board increased the Company’s existing authorization to purchase shares of its Class A Common Stock to 1,000,000 shares,
On November 17, 2021, the Board increased the Company’s existing authorization to purchase shares of its Class A Common Stock by an additional 250,000 shares,
On July 20, 2022, the Board increased the Company’s existing authorization to purchase shares of its Class A Common Stock by an additional 200,000 shares, and
On October 25, 2022, the Board increased the Company’s existing authorization to purchase shares of its Class A Common Stock to 500,000 shares.

The repurchase program will remain effective until the total number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of December 31, 2020,2022, the Company had 58,423490,000 shares which could be repurchased under its current share repurchase programs. On January 27, 2021, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase shares of its Class A Common Stock to 1,000,000 shares.

During 2020,2022, there were approximately 7,0005,408 shares of Class A Common Stock issued upon conversion of shares of Class B Common Stock by stockholders 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.

39

Table of Contents

STOCK PERFORMANCE GRAPH

The following stock performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates the performance graph by reference therein.

The following stock performance graph sets forth the cumulative total shareholder return (assuming reinvestment of dividends) on Republic’s Class A Common Stock as compared to the KBW NASDAQ Bank Stocks Index and the S&P 500 Index. The graph covers the period beginning December 31, 20152017 and ending December 31, 2020.2022. The calculation of cumulative total return assumes an initial investment of $100 in Republic’s Class A Common Stock, the KBW NASDAQ Bank Index and the S&P 500 Index on December 31, 2015.2017. The stock price performance shown on the graph below is not necessarily indicative of future stock price performance.

  

  

December 31, 

  

  

December 31, 

  

  

December 31, 

  

  

December 31, 

  

  

December 31, 

  

  

December 31, 

  

2015

2016

2017

2018

2019

2020

 

Republic Class A

Common Stock (RBCAA)

$

100.00

$

153.94

$

151.56

$

157.88

$

195.31

$

155.91

S&P 500 Index

 

100.00

 

111.96

 

136.40

 

130.42

 

171.49

 

203.04

SNL Bank NASDAQ Index

 

100.00

 

138.65

 

145.97

 

123.04

 

154.47

 

132.56

Graphic

  

  

December 31, 

  

  

December 31, 

  

  

December 31, 

  

  

December 31, 

  

  

December 31, 

  

  

December 31, 

  

2017

2018

2019

2020

2021

2022

 

Republic Class A

Common Stock (RBCAA)

$

100.00

$

104.17

$

128.87

$

102.87

$

148.68

$

123.50

S&P 500 Index

 

100.00

 

95.62

 

125.72

 

148.85

 

191.58

 

156.88

KBW NASDAQ Bank Index

 

100.00

 

82.29

 

112.01

 

100.46

 

138.97

 

109.23

Graphic

40

Table of Contents

ItemItem 6. Selected Financial Data.[Reserved]

The following table sets forth Republic Bancorp Inc.’s selected financial data from 2016 through 2020. This information should be read in conjunction with Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II Item 8 “Financial Statements and Supplementary Data.” Certain amounts presented in prior periods have been reclassified to conform to the current period presentation.

As of and for the Years Ended December 31, 

(in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

Balance Sheet Data:

Cash and cash equivalents

$

485,587

$

385,303

$

351,474

$

299,351

$

289,309

Investment securities

 

580,270

 

537,074

 

543,771

 

591,458

 

534,139

Loans held for sale

 

51,643

 

31,468

 

21,809

 

16,989

 

15,170

Gross loans

 

4,813,103

 

4,433,151

 

4,148,227

 

4,014,034

 

3,810,778

Allowance for credit losses

 

(61,067)

 

(43,351)

 

(44,675)

 

(42,769)

 

(32,920)

Right-of-use assets

43,345

35,206

Goodwill

 

16,300

 

16,300

 

16,300

 

16,300

 

16,300

Bank owned life insurance

 

68,018

 

66,433

 

64,883

 

63,356

 

61,794

Total assets

 

6,168,325

 

5,620,319

 

5,240,404

 

5,085,362

 

4,816,309

Noninterest-bearing deposits

 

1,890,416

 

1,033,379

 

1,003,969

 

1,022,042

 

971,952

Interest-bearing deposits

 

2,842,765

 

2,752,629

 

2,452,176

 

2,411,116

 

2,188,740

Total deposits

 

4,733,181

 

3,786,008

 

3,456,145

 

3,433,158

 

3,160,692

Securities sold under agreements to repurchase and other short-term borrowings

 

211,026

 

167,617

 

182,990

 

204,021

 

173,473

Operating lease liabilities

44,340

36,530

Federal Home Loan Bank advances

 

235,000

 

750,000

 

810,000

 

737,500

 

802,500

Subordinated note

 

41,240

 

41,240

 

41,240

 

41,240

 

41,240

Total liabilities

 

5,345,002

 

4,856,075

 

4,550,470

 

4,452,938

 

4,211,903

Total stockholders’ equity

 

823,323

 

764,244

 

689,934

 

632,424

 

604,406

Average Balance Sheet Data:

Federal funds sold and other interest-earning deposits

$

283,151

$

260,131

$

255,708

$

188,427

$

130,889

Investment securities, including FHLB stock

 

584,300

 

564,631

 

542,258

 

574,027

 

572,599

Gross loans, including loans held for sale

 

4,796,841

 

4,470,347

 

4,094,918

 

3,831,406

 

3,568,383

Allowance for credit losses

 

(60,008)

 

(50,624)

 

(47,774)

 

(39,202)

 

(29,880)

Total assets

 

6,011,865

 

5,577,643

 

5,130,628

 

4,826,208

 

4,485,829

Noninterest-bearing deposits

 

1,672,442

 

1,120,608

 

1,147,432

 

1,073,181

 

894,049

Interest-bearing deposits

 

2,913,486

 

2,755,946

 

2,445,385

 

2,267,663

 

2,058,592

Total interest-bearing liabilities

 

3,415,231

 

3,629,682

 

3,268,860

 

3,091,970

 

2,964,981

Total stockholders’ equity

 

802,726

 

734,281

 

666,979

 

628,329

 

597,463

Income Statement Data - Total Company:

Total interest income

$

252,258

$

280,883

$

256,181

$

218,778

$

173,992

Total interest expense

 

19,943

 

44,757

 

30,123

 

20,258

 

17,938

Net interest income

 

232,315

 

236,126

 

226,058

 

198,520

 

156,054

Provision for expected credit loss expense

 

31,278

 

25,758

 

31,368

 

27,704

 

14,493

Total noninterest income

 

87,053

 

75,008

 

63,425

 

58,414

 

57,509

Total noninterest expense

 

185,457

 

172,183

 

163,852

 

150,844

 

130,107

Income before income tax expense

 

102,633

 

113,193

 

94,263

 

78,386

 

68,963

Income tax expense

 

19,387

 

21,494

 

16,411

 

32,754

 

23,060

Net income

 

83,246

 

91,699

 

77,852

 

45,632

 

45,903

Income Statement Data - Core Bank (1):

Total interest income

$

203,717

$

223,914

$

203,764

$

179,986

$

156,252

Total interest expense

 

17,017

 

39,340

 

27,238

 

19,284

 

17,831

Net interest income

 

186,700

 

184,574

 

176,526

 

160,702

 

138,421

Provision for expected credit loss expense

 

16,870

 

3,066

 

3,568

 

3,773

 

3,945

Total noninterest income

 

59,378

 

48,219

 

35,380

 

32,410

 

33,350

Total noninterest expense

 

164,208

 

153,051

 

144,162

 

132,794

 

116,190

Income before income tax expense

 

65,000

 

76,676

 

64,176

 

56,545

 

51,636

Income tax expense

 

10,852

 

13,223

 

9,986

 

23,097

 

16,777

Net income

 

54,148

 

63,453

 

54,190

 

33,448

 

34,859

(continued)

41

Table of Contents

Item 6. Selected Financial Data. (continued)

As of and for the Years Ended December 31, 

(in thousands, except per share data, FTEs and # of banking centers)

    

2020

    

2019

    

2018

    

2017

    

2016

 

Per Share Data:

Basic weighted average shares outstanding

 

21,039

 

21,023

 

20,960

 

20,921

 

20,942

Diluted weighted average shares outstanding

 

21,069

 

21,135

 

21,065

 

21,007

 

20,954

Period-end shares outstanding:

Class A Common Stock

 

18,697

 

18,737

 

18,675

 

18,607

 

18,615

Class B Common Stock

 

2,199

 

2,206

 

2,213

 

2,243

 

2,245

Basic earnings per share:

Class A Common Stock

$

4.00

$

4.41

$

3.76

$

2.21

$

2.22

Class B Common Stock

 

3.64

 

4.01

 

3.41

 

2.01

 

2.02

Diluted earnings per share:

Class A Common Stock

$

3.99

$

4.39

$

3.74

$

2.20

$

2.22

Class B Common Stock

 

3.63

 

3.99

 

3.40

 

2.00

 

2.01

Cash dividends declared per share:

Class A Common Stock

$

1.144

$

1.056

$

0.968

$

0.869

$

0.825

Class B Common Stock

 

1.040

 

0.960

 

0.880

 

0.790

 

0.750

Market value per share at December 31,

$

36.07

$

46.80

$

38.72

$

38.02

$

39.54

Book value per share at December 31, (2)

 

39.40

 

36.49

 

33.03

 

30.33

 

28.97

Tangible book value per share at December 31, (2)

 

38.27

 

35.41

 

31.98

 

29.27

 

27.89

Performance Ratios:

Return on average assets

 

1.38

%  

 

1.64

%  

 

1.52

%  

 

0.95

%  

 

1.02

%  

Return on average equity

 

10.37

 

12.49

 

11.67

 

7.26

 

7.68

Efficiency ratio (3)

 

58

 

57

 

57

 

59

 

61

Yield on average interest-earning assets

 

4.45

 

5.30

 

5.24

 

4.76

 

4.07

Cost of average interest-bearing liabilities

 

0.58

 

1.23

 

0.92

 

0.66

 

0.60

Cost of average deposits (4)

 

0.33

 

0.75

 

0.47

 

0.29

 

0.21

Net interest spread

 

3.87

 

4.07

 

4.32

 

4.10

 

3.47

Net interest margin - Total Company

 

4.10

 

4.46

 

4.62

 

4.32

 

3.65

Net interest margin - Core Bank

 

3.39

 

3.61

 

3.70

 

3.55

 

3.30

Capital Ratios - Total Company:

Average stockholders’ equity to average total assets

 

13.35

%  

 

13.16

%  

 

13.00

%  

 

13.02

%  

 

13.32

%  

Total risk-based capital

 

18.52

 

17.01

 

16.80

 

16.04

 

16.37

Common equity tier 1 capital

16.61

15.29

14.92

14.15

14.59

Tier 1 risk-based capital

 

17.43

 

16.11

 

15.81

 

15.06

 

15.55

Tier 1 leverage capital

 

13.70

 

13.93

 

14.11

 

13.21

 

13.54

Dividend payout ratio

 

29

 

24

 

26

 

39

 

37

Dividend yield

 

3.17

 

2.26

 

2.50

 

2.29

 

2.09

Other Information:

Period-end FTEs (5) - Total Company

 

1,094

 

1,080

 

1,051

 

997

 

938

Period-end FTEs - Core Bank

997

997

968

915

869

Number of banking centers

 

42

 

41

 

45

 

45

 

44

(continued)

42

Table of Contents

Item 6. Selected Financial Data. (continued)

As of and for the Years Ended December 31, 

(dollars in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

Credit Quality Data and Ratios:

Credit Quality Asset Balances:

Nonperforming Assets - Total Company:

Loans on nonaccrual status

$

23,548

$

23,332

$

15,993

$

14,118

$

15,892

Loans past due 90-days-or-more and still on accrual

 

47

 

157

 

145

 

956

 

167

Total nonperforming loans

 

23,595

 

23,489

 

16,138

 

15,074

 

16,059

Other real estate owned

 

2,499

 

113

 

160

 

115

 

1,391

Total nonperforming assets

$

26,094

$

23,602

$

16,298

$

15,189

$

17,450

Nonperforming Assets - Core Bank (1):

Loans on nonaccrual status

$

23,548

$

23,332

$

15,993

$

14,118

$

15,892

Loans past due 90-days-or-more and still on accrual

 

5

 

 

13

 

19

 

85

Total nonperforming loans

 

23,553

 

23,332

 

16,006

 

14,137

 

15,977

Other real estate owned

 

2,499

 

113

 

160

 

115

 

1,391

Total nonperforming assets

$

26,052

$

23,445

$

16,166

$

14,252

$

17,368

Delinquent loans:

Delinquent loans - Core Bank

$

9,713

$

13,042

$

8,875

$

8,460

$

6,821

Delinquent loans - RPG (6)

10,234

7,762

7,087

5,641

2,137

Total delinquent loans - Total Company

$

19,947

$

20,804

$

15,962

$

14,101

$

8,958

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans

 

0.49

%  

 

0.53

%  

 

0.39

%  

 

0.38

%  

 

0.42

%  

Nonperforming assets to total loans (including OREO)

 

0.54

 

0.53

 

0.39

 

0.38

 

0.46

Nonperforming assets to total assets

 

0.42

 

0.42

 

0.31

 

0.30

 

0.36

ACLL to total loans

 

1.27

 

0.98

 

1.08

 

1.07

 

0.86

ACLL to nonperforming loans

 

259

 

185

 

277

 

284

 

205

Delinquent loans to total loans (7)

 

0.41

 

0.47

 

0.38

 

0.35

 

0.24

Net loan charge-offs to average loans

 

0.42

 

0.61

 

0.72

 

0.47

 

0.25

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans

0.50

%  

0.54

%  

0.40

%  

0.36

%  

 

0.42

%  

Nonperforming assets to total loans (including OREO)

0.56

0.54

0.40

0.36

 

0.46

Nonperforming assets to total assets

0.45

0.43

0.32

0.28

 

0.36

ACLL to total loans

1.11

0.70

0.78

0.77

 

0.74

ACLL to nonperforming loans

221

129

197

213

 

175

Delinquent loans to total loans

0.21

0.30

0.22

0.21

 

0.18

Net charge-offs to average loans

0.03

0.11

0.06

0.04

 

0.05

43

Table of Contents

Item 6. Selected Financial Data. (continued)

(1)“Core Bank” or “Core Banking” operations consist of the Traditional Banking, Warehouse Lending and Mortgage Banking segments.

See Footnote 25 “Segment Information” under Part II Item 8 “Financial Statements and Supplemental Data” for additional information regarding the segments that constitute the Company’s Core Banking operations.

(2)The following table provides a reconciliation of total stockholders’ equity in accordance with GAAP to tangible stockholders’ equity in accordance with applicable regulatory requirements, a non-GAAP measure. The Company provides the tangible book value per share, another non-GAAP measure, in addition to those defined by banking regulators, because of its widespread use by investors as a means to evaluate capital adequacy.

Years Ended December 31, (dollars in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

Total stockholders' equity - GAAP (a)

$

823,323

$

764,244

$

689,934

$

632,424

$

604,406

Less: Goodwill

16,300

16,300

16,300

 

16,300

 

16,300

Less: Mortgage servicing rights

 

7,095

 

5,888

 

4,919

 

5,044

 

5,180

Less: Core deposit intangible

 

189

 

469

 

654

 

858

 

1,070

Tangible stockholders' equity - Non-GAAP (c)

$

799,739

$

741,587

$

668,061

$

610,222

$

581,856

Total assets - GAAP (b)

$

6,168,325

$

5,620,319

$

5,240,404

$

5,085,362

$

4,816,309

Less: Goodwill

 

16,300

 

16,300

 

16,300

 

16,300

 

16,300

Less: Mortgage servicing rights

 

7,095

 

5,888

 

4,919

 

5,044

 

5,180

Less: Core deposit intangible

 

189

 

469

 

654

 

858

 

1,070

Tangible assets - Non-GAAP (d)

$

6,144,741

$

5,597,662

$

5,218,531

$

5,063,160

$

4,793,759

Total stockholders' equity to total assets - GAAP (a/b)

 

13.35

%  

 

13.60

%  

 

13.17

%  

 

12.44

%  

 

12.55

%

Tangible stockholders' equity to tangible assets - Non-GAAP (c/d)

 

13.02

%  

 

13.25

%  

 

12.80

%  

 

12.05

%  

 

12.14

%

Number of shares outstanding (e)

 

20,896

 

20,943

 

20,888

 

20,850

 

20,860

Book value per share - GAAP (a/e)

$

39.40

$

36.49

$

33.03

$

30.33

$

28.97

Tangible book value per share - Non-GAAP (c/e)

 

38.27

 

35.41

 

31.98

 

29.27

 

27.89

(3)The efficiency ratio, a non-GAAP measure with no GAAP comparable, equals total noninterest expense divided by the sum of net interest income and noninterest income. The ratio excludes net gains (losses) on sales, calls and impairment of investment securities, if applicable, and the Company’s net gain from its November 2019 branch divestiture.

Years Ended December 31, (dollars in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

Net interest income - GAAP

$

232,315

$

236,126

$

226,058

$

198,520

$

156,054

Noninterest income - GAAP

87,053

75,008

63,425

58,414

57,509

Less: Net gain on branch divestiture

 

 

7,829

 

 

 

Less: Net gain (loss) on sales, calls, and impairment of debt and equity securities

 

49

 

78

 

(122)

 

(136)

 

Total adjusted income - Non-GAAP (a)

$

319,319

$

303,227

$

289,605

$

257,070

$

213,563

Noninterest expense - GAAP (b)

$

185,457

$

172,183

$

163,852

$

150,844

$

130,107

Efficiency Ratio - Non-GAAP (b/a)

 

58

%  

 

57

%  

 

57

%  

 

59

%  

 

61

%

(4)The cost of average deposits ratio equals total interest expense on deposits divided by total average interest-bearing deposits plus total average noninterest-bearing deposits.

(5)FTEs – Full-time-equivalent employees.

(6)RPG operations consist of the TRS and RCS segments.

(7)The delinquent loans to total loans ratio equals loans 30-days-or-more past due divided by total loans.Depending on loan class, loan delinquency is determined by the number of days or the number of payments past due.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The consolidated financial statements include the accounts of Republic Bancorp, Inc. (the “Parent Company”) and its wholly-ownedwholly owned subsidiaries, Republic Bank & Trust Company and Republic Insurance Services, Inc. As used in this filing, 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. The term the “Bank” refers to the Company’s subsidiary bank: Republic Bank & Trust Company. The term the “Captive” refers to the Company’s insurance subsidiary: Republic Insurance Services, Inc. All significant intercompany balances and transactions are eliminated in consolidation.

Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-member financial institution that provides both traditional and non-traditional banking products through five reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly-ownedwholly owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives for which insurance may not be available or economically feasible.

In 2005, Republic Bancorp Capital Trust, is a Delaware statutory businessan unconsolidated trust that is a wholly-owned unconsolidated finance subsidiary of Republic, Bancorp, Inc.was formed and issued $40 million in TPS. On September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic redeemed these securities at the par amount of approximately $40 million, without penalty. Although the TPS were treated as part of Republic’s Tier I Capital while outstanding, Republic’s capital ratios remained well above “well capitalized” levels following this redemption.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of Republic should be read in conjunction with Part II Item 8 “Financial Statements and Supplementary Data.”

Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss future events or conditions, the statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” “potential,” 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 the statements are made and management undertakes no obligation to update forward-looking statements, except as required by applicable law.

Broadly speaking, forward-looking statements include:

the potential impact of the COVID-19 pandemicinflation on Company operations;
projections of revenue, income, expenses, losses, earnings per share, capital expenditures, dividends, capital structure, loan volume, loan growth, deposit growth, or other financial items;
descriptions of plans or objectives for future operations, products, or services;
descriptions and projections related to management strategies for loans, deposits, investments, and borrowings;
forecasts of future economic performance; and
descriptions of assumptions underlying or relating to any of the foregoing.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from 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 the following:

the impact of the COVID-19 pandemicinflation on the Company’s operations and credit losses;
litigation liabilities, including related costs, expenses, settlements and judgments, or the abilityoutcome of borrowers who received COVID-19 loan accommodations to resume repaying their loans upon maturity of such accommodations;matters before regulatory agencies, whether pending or commencing in the future;
natural disasters impacting the Company’s operations;
changes in political and economic conditions;
the discontinuation of LIBOR;

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the magnitude and frequency of changes to the FFTR implemented by the FOMC of the FRB;
long-term and short-term interest rate fluctuations as well asand the overall steepness of the U.S. Treasury yield curve;curve, as well as their impact on the Company’s net interest income and Mortgage Banking operations;
competitive product and pricing pressures in each of the Company’s five reportable segments;
equity and fixed income market fluctuations;
client bankruptcies and loan defaults;

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inflation;
recession;
future acquisitions;
integrations of acquired businesses;
changes in technology;
changes in applicable laws and regulations or the interpretation and enforcement thereof;
changes in fiscal, monetary, regulatory, and tax policies;
changes in accounting standards;
monetary fluctuations;
changes to the Company’s overall internal control environment;
the ability of the Company to remediate its material weaknesses in its internal control over financial reporting;
success in gaining regulatory approvals when required;
the Company’s ability to qualify for future R&D federal tax credits;
the ability for Tax Providers to successfully market and realize the expected RA and RT volume anticipated by TRS;
information security breaches or cyber security attacks involving either the Company or one of the Company’s third-party service providers; and
other risks and uncertainties reported from time to time in the Company’s filings with the SEC, including Part 1 Item 1A “Risk Factors.”

On October 26, 2022, Republic, the Bank and CBank entered into the CBank Agreement. Upon completion of the transaction, CBank will be merged with and into RB&T, with RB&T as the survivor of the merger. CBank is headquartered in Cincinnati, Ohio. This document contains statements regarding the proposed acquisition transaction that are not statements of historical fact and are considered forward-looking statements within the criteria described above. These statements are likewise subject to various risks and uncertainties that may cause actual results and outcomes of the proposed transaction to differ, possibly materially, from the anticipated results or outcomes expressed or implied in these forward-looking statements. In addition to factors disclosed in reports filed by Republic with the SEC, risks and uncertainties for Republic, CBank and the combined company include, but are not limited to: for the parties to receive all regulatory approvals as provided for in the CBank Agreement, the ability to grow CBank loan and deposit balances post-acquisition, unanticipated post-acquisition loan losses for Republic on CBank-originated loans, the ability of Republic to integrate acquired operations including obtaining synergies, integration objectives and anticipated timelines, the ability of Republic to integrate, manage and keep secure our information systems, and other risks and uncertainties reported from time to time in the Company’s filings with the SEC, including Part 1 Item 1A “Risk Factors.”

Accounting Standards Updates

For disclosure regarding the impact to the Company’s financial statements of ASUs, see Footnote 1 “Summary of Significant Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data.”

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CRITICAL ACCOUNTING POLICIES AND ESTIMATESCritical Accounting Estimates

Republic’s consolidated financial statements and accompanying footnotes have been prepared in accordance with GAAP. 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 and assumptions are based on historical experience, accounting and regulatory guidance, and information obtained from independent third-party professionals. 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, and 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 independent third parties or available pricing, sensitivity of the estimates to changes in economic conditions and whether alternative methods of accounting may be utilized under GAAP. 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 relate to the following:

ACLL and ProvisionAtAs of December 31, 2020,2022, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the ACLL monthly and presents and discusses the ACLL with the Audit Committee and the Board of Directors quarterly.

Effective January 1, 2020, the Company adopted ASC 326 Financial Instruments – Credit Losses, which replaced the pre-January 1, 2020 “probable-incurred” method for calculating the Company’s ACL with the CECL method. CECL is applicable to financial assets measured at amortized cost, including loan and lease receivables and held-to-maturity debt securities. CECL also applies to certain off-balance sheet credit exposures.

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When measuring an ACL, CECL primarily differs from the probable-incurred method by: a) incorporating a lower “expected” threshold for loss recognition versus a higher “probable” threshold; b) requiring life-of-loan considerations; and c) requiring reasonable and supportable forecasts. The Company’s CECL method is a “static-pool” method that analyzes historical closed pools of loans over their expected lives to attain a loss rate, which is then adjusted for current conditions and reasonable, supportable forecasts prior to being applied to the current balance of the analyzed pools. Due to its reasonably strong correlation to the Company's historical net loan losses, the Company has chosen to use the U.S. national unemployment rate as its primary forecasting tool. For its CRE loan pool, the Company also usesinitially employed a one-year forecastsforecast of CRE vacancy rates forthrough March 31, 2021 but discontinued use of this forecast during the second quarter of 2021 in favor of a one-year forecast of general CRE values. This change in forecast method had no material impact on the Company’s market footprint.ACLL.

Management’s evaluation of the appropriateness of the ACLL is often the most critical accounting estimate for a financial institution, as the ACLL requires significant reliance on the use of estimates and significant judgment as to the reliance on historical loss rates, consideration of quantitative and qualitative economic factors, and the reliance on a reasonable and supportable forecast.

Adjustments to the historical loss rate for current conditions include differences in underwriting standards, portfolio mix or term, delinquency level, or term, as well as for changes in environmental conditions, such as changes in property values or other relevant factors. One-year forecast adjustments to the historical loss rate are based on the U.S. national unemployment rate and vacancy rates for CRE in the Company’s market footprint.values. Subsequent to the one-year forecasts, loss rates are assumed to immediately revert back to long-term historical averages.

Prospectively, theThe impact of utilizing the CECL approach to calculate the ACLL will beis significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the ACLL, and therefore, greater volatility to the Company’s reported earnings.

See additional detail regarding the Company’s adoption of ASC 326 and the CECL method under Footnote 1 “Summary of Significant Accounting Policies” and Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements and Supplementary Data.”

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Management’s Evaluation of the ACLL

Management evaluates the ACLL for its Core Banking operations separately from its non-traditional RPG operations. Core Banking operations consist of the Company’s Traditional Banking, Warehouse, and Mortgage Banking segments. RPG operations consist of the Company’s TRS and RCS segments.

In prior periods under the probable-incurred standard, management conducted two annual calculations to evaluate the reasonableness of its Core Bank ACLL:

an absorption rate, which considered annual net loan losses for the year just ended as a percent of the beginning-of-the-year ACLL; and
an exhaustion rate, which calculated how many years of charge-offs the beginning-of-year ACLL could withstand based on gross charge-offs for the year just ended.

Management considered these historic absorption and exhaustion formulas less meaningful at December 31, 2020 because of its January 1, 2020 CECL adoption and because Core Bank loan losses were substantially restrained during 2020 by pandemic-related financial relief provided to borrowers.

See additional detail regarding pandemic-related financial relief provided to the Bank’s loan clients under Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements and Supplementary Data.”

Management evaluated the reasonableness of its Core Bank ACLL as of December 31, 20202022 and 2021 by evaluating modified absorption and exhaustion rates that account for CECL life-of-loan considerations and the economic hardship and uncertainty brought about by the COVID-19 pandemic. The modified absorption rate considered total Core Bank net loan losses from 2008 to 2013 as a percent of the end-of-year Core Bank ACLL. The modified exhaustion rate considered how many years of gross Core Bank loan charge-offs the end-of-year Core Bank ACLL could withstand based on average annual net Core Bank loan losses from 2008 to 2013. The years

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2008 to 2013 represent a six-year period during which the U.S. unemployment rate rose above 8% and the Core Bank incurred a historically high period of loan losses.losses relative to an average year of loan losses for the Core Bank. Management believes Core Bank losses from 2008 to 2013 are more representative of current economic conditions than more recent years just prior to the onset of the COVID-19 pandemic. At

As of December 31, 2020, four years represented2022, the weighted average term of the Core Bank loan portfolio with this term adjusted towas approximately six years after exclusion of the Bank’s PPP portfolio, which is short-term and government guaranteed, and the Bank’s Warehouse portfolio, which is also generally short-term.years. The Core Bank’s modified absorption rate was 84%85% and its modified exhaustion rate was 6.1approximately 6.0 years atas of December 31, 2020.2022. Management considers these rates reasonable under current economic conditions. The table below reflects the Core Bank’s modified and standard exhaustion and absorption rates for each of the last three years:

Years Ended December 31,

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

Core Bank:

Modified Exhaustion Rate (end of year ACLL / median annual charge-offs from 2008 to 2013)

6.07

Yrs.

 

3.50

Yrs.

 

3.67

Yrs.

Exhaustion Rate (end-of-year ACLL / median annual charge-offs from 2008 to 2013)

5.99

Yrs.

6.01

Yrs.

6.07

Yrs.

Standard Exhaustion Rate (beginning of year ACLL / charge-offs for year)

13.27

Yrs.

5.52

Yrs.

8.36

Yrs.

Modified Absorption Rate (total net charge-offs from 2008 to 2013 / end of year ACLL)

84

%  

146

%  

139

%  

Standard Absorption Rate (net charge-offs for the year / beginning of year ACLL)

4

%  

 

15

%  

 

7

%  

Absorption Rate (total net charge-offs from 2008 to 2013 / end-of-year ACLL)

85

%  

85

%  

84

%  

Based on management’s evaluation, a Core Bank ACLL of $52 million, or 1.11%1.21% of total Core Bank loans, was an adequate estimate of expected losses within the loan portfolio as of December 31, 20202022 and resulted in Core Banking Provision for its loans of $16.7 milliona net charge of $312,000 during 2020.2022. This compares to an ACLL of $30$52 million and $50 million as of December 31, 20192021 and December 31, 2020 with Provisions of a loan Provisionnet credit of $3.1$319,000 for 2021 and net charge of $16.9 million for 2019 under the probable incurred accounting standard. 2020.

If the mix and amount of future charge-off percentages differ significantly from those assumptions used by management in making its determination, an adjustment to the Core Bank ACLL and the resulting effect on the income statement could be material.

The RPG ACLL atas of December 31, 20202022 primarily relatesrelated to loans originated and held for investment through the RCS segment. RCS generally originates small-dollar, consumer credit products. In some instances, the Bank originates these products, sells 90% or 95% of the balances within three business days of loan origination, and retains a 5% or 10% interest. RCS loans typically earn a higher yield but also have higher credit risk compared to loans originated through Core Banking operations, with a significant portion of RCS clients considered subprime or near-prime borrowers.

AtAs of December 31, 2020,2022, management evaluated the ACLL only on its only active RCS productproducts that hashad incurred meaningful losses since their inception, which were its line-of-credit product.products. Due to the general short-term nature of this product,these products, management utilized its traditional absorption and exhaustion calculations using 20202022 net charge-offs and net losses with the beginning-of-the-year ACLL. The absorption and exhaustion rates were 43%69% and 2.10.88 years, respectively, andboth of which were considered reasonable.

RPG maintained an ACLL for all the loan products held at amortized cost and offered through its RCS segment atas of December 31, 2020,2022, including its line-of-credit productproducts and its healthcare-receivables products. AtAs of December 31, 2020,2022, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables portfolioportfolios to as high as 48.96%54.85% for its line-of-credit portfolio.portfolios. A lower reserve percentage was provided for RCS’s healthcare receivables atas of December 31, 2020,2022, as such receivables have recourse back to the Company’s third-party service providers in the transactions. Based on management’s

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calculation, an ACLL of $9.0$18.7 million, or 6.7%,7.3 %, of total RPG loans was an adequate estimate of expected losses within the RPG portfolio as of December 31, 2020.2022.

RPG’s TRS segment offered its EA tax-creditRA credit product during the first two months of 2022, 2021, and 2020, 2019, and 2018.its ERA credit product during December 2022 related to the first quarter 2023 tax season. An ACLL for losses on EAsRAs and ERAs is estimated during the limited, short-term period the product is offered. EAs are generallyRAs originated during the first two months of 2022, were repaid, on average, within 3532 days of origination. Provisions for EARA and ERA losses are estimated when advances are made with all estimated provisions made in the first quarterand adjusted to actual net charge-offs as of June 30th of each year. NoThe ACLL for EAs existedERAs as of December 31, 20202022 was $3.8 million for $98 million of ERAs originated during December 2022. There were no ERAs originated during 2021, and 2019, as all EAsa result there was no ACLL as of December 31, 2021 for ERAs. There was no ACLL as of December 31, 2022 or December 31, 2021 for RAs originated during the first two months of each year2022 or 2021, as all RAs originated during the first two months of those years had either been paid offrepaid or charged-off by June 30th of each year.

Related to the overall credit losses on EAs,RAs and ERAs, the Bank’s ability to control losses is highly dependent upon its ability to predict the taxpayer’s likelihood to receive the tax refund as claimed on the taxpayer’s tax return. Each year, the Bank’s EARA and ERA approval model is based primarily on the prior-year’s tax refund funding patterns. Because much of the loan volume occurs each year before that year’s

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tax refund funding patterns can be analyzed and subsequent underwriting changes made, credit losses during a current year could be higher than management’s predictions if tax refund funding patterns change materially between years.

In response to changes in the legal, regulatory, and competitive environment, management annually reviews and revises the EA’sRA and ERA product parameters. Further changes in EARA and ERA product parameters do not ensure positive results and could have an overall material negative impact on the performance of the EARA an ERA and therefore on the Company’s financial condition and results of operations.

See additional discussion regarding the EARA product under the sections titled:

Part I Item 1A “Risk Factors”
Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 4 “Loans“Loans and Allowance for Credit Losses”

RPG recorded a net charge of $14.4$22.0 million, $22.7$15.1 million, and $27.8$14.4 million to the Provision during 2020, 2019,2022, 2021, and 2018,2020, with the Provision for each year primarily due to net losses on EAsRAs and growth in short-term, consumer loans originated through the RCS segment. If the number of future charge-offs on EAsRAs and RCS loans differ significantly from assumptions used by management in making its determination, an adjustment to the RPG ACLL and the resulting effect on the income statement could be material.

2019 Branch DivestitureCancelled TRS Sale Transaction

On June 3, 2022, the Bank and Green Dot entered into the Settlement Agreement to fully resolve the Lawsuit that the Bank filed against Green Dot in the Delaware Court of Chancery on October 5, 2021.

As previously disclosed in the Company’s prior SEC filings, the Lawsuit arose from Green Dot’s inability to consummate the Sale

Transaction contemplated in the TRS Purchase Agreement through which Green Dot would purchase all of the assets and operations of the Bank’s Tax Refund Solutions business.

In July 2019,accordance with the Settlement Agreement, on June 6, 2022, Green Dot paid $13 million to the Bank, entered intowhich was in addition to a definitive agreement$5 million termination fee that Green Dot paid to sell its four banking centers located in the Kentucky citiesBank during the first quarter of Owensboro, Elizabethtown, and Frankfort to Limestone Bank (“Limestone”), a subsidiary of Limestone Bancorp, Inc. The agreement provided that Limestone acquire loans, with balances of approximately $128 million as of November 15, 2019 (the “Closing Date”), and assume deposits with balances of approximately $132 million as2022 under the terms of the Closing Date, associatedTRS Purchase Agreement. On June 6, 2022, the Bank and Green Dot filed a stipulation of dismissal of the Lawsuit with the four banking centers.Delaware Court of Chancery, which was effective to dismiss the Lawsuit when filed.

In addition toSee Footnote 1 “Summary of Significant Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data” for discussion regarding the cancelled sale of loansthe TRS business and assumption of deposits, Limestone also acquired substantially all of the fixed assets of these locations, which had a book value of $1.3 million as of the Closing Date. Based on the Closing Date deposits, the all-in blended premium for the transaction was 6.1% of the total deposits transferred. The final calculated premium was based on the trailing 10-day average amount of the deposits as of the Closing Date, as well as the branch location for the deposits.

associated litigation.

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RECENT DEVELOPMENTS

Correction of Prior Period Error

As disclosed in Note 27, “Correction of Prior Period Error,” to our consolidated financial statements, the Company identified a prior period accounting error substantially in the form of an immaterial understatement of revenue, solely related to one RCS line of credit product. The financial reporting periods affected by this error include the Company’s previously reported audited consolidated financial statements for the fiscal year ended December 31, 2021, and the Company’s previously reported interim unaudited consolidated financial statements for each of the quarterly and fiscal year-to-date periods ended June 30, 2021; September 30, 2021; March 31, 2022; June 30, 2022; and September 30, 2022; and the unaudited consolidated quarterly financial data for the quarter ending December 31, 2021 (collectively the “previously reported financial statements”). The three month period ended December 31, 2021 and year ended December 31, 2021 also reflected certain immaterial revisions to reclassify certain gains and losses on the sale of the same RCS line of credit product.  These reclassifications impact noninterest income, noninterest expense and interest income with no impact to net income.

The Company concluded this error was not material, on an individual or aggregate basis, to the Company’s previously reported financial statements and correction of the error would not be material to the current year financial statements, including any interim periods. However, the Company corrected this error as a voluntary immaterial revision to the accompanying consolidated financial statements of this Annual Report on Form 10-K, as of and for the fiscal years ended December 31, 2022, and 2021, in the periods in which the error occurred. In addition, the Company expects to present the corrected interim 2022 amounts as a voluntary immaterial revision in its 2023 consolidated interim financial statements on a quarterly basis and a year-to-date basis upon the filing of its Quarterly Reports on Form 10-Q.

As a result, the financial results in the periods presented within the Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth below, have been revised to give effect to the correction of this error.

Bank Acquisition

On October 26, 2022, the Company, RB&T, and CBank entered into the CBank Agreement.  Upon completion of the transaction, CBank will be merged with and into RB&T, with RB&T as the survivor of the merger.  CBank is headquartered in Cincinnati, Ohio.

Under the terms of the CBank Agreement, the Company will acquire all of CBank’s outstanding common stock in an all-cash direct merger of CBank with RB&T, resulting in a total cash payment of approximately $51 million to CBank’s existing shareholders. Republic expects to fund the cash payment through existing resources on-hand at RB&T. The completion of the transaction is subject to customary closing conditions, including regulatory approval and approval by CBank’s shareholders. The CBank Agreement also contains reciprocal termination provisions in the event the transaction does not receive the required regulatory approvals within six months of the effective date of the CBank Agreement or if certain minimum capital levels are not maintained by CBank as of the closing date.

The CBank Agreement was unanimously approved by the Republic, RB&T and CBank boards of directors on October 25, 2022.  In connection with entering into the CBank Agreement, Republic entered into customary support agreements with the members of CBank’s board of directors and other shareholders in their capacities as shareholders of CBank (the “CBank Support Agreements”). Subject to the terms and conditions, and non-termination, of the CBank Support Agreements, each such shareholder agreed, among other things, to vote his or her respective shares of CBank Common Stock in favor of the approval of the CBank Agreement and the transaction contemplated thereby, and against alternative acquisition proposals.  The CBank Support Agreements do not prevent the shareholders, in their capacity as directors, from exercising their fiduciary obligations in connection with alternative acquisition proposals. The CBank Agreement provides certain termination rights for both Republic and CBank and further provides that a termination fee of $2,040,000 will be payable by CBank to Republic upon termination of the CBank Agreement under certain circumstances, including CBank’s termination of the CBank Agreement to accept a Superior Proposal (as defined in the CBank Agreement).  The CBank Agreement was approved by its shareholders on December 13, 2022.

As of January 31, 2023, CBank had approximately $257 million in assets, consisting of approximately $221 million in gross loans, no other real estate owned, approximately $16 million of marketable securities, approximately $14 million in cash and cash equivalents and approximately $6 million in other assets. Also as of January 31, 2023, CBank had approximately $228 million of liabilities, including approximately $209 million in customer deposits and $13 million in Federal Home Loan Bank advances.

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OVERVIEW

Total Company net income was $83.2$91.1 million and Diluted EPS was $3.99$4.59 for 2020,2022, compared to net income of $91.7$87.6 million and Diluted EPS of $4.39$4.28 for 2019. Unusual or infrequently occurring items impacting Fiscal 2020 and/or Fiscal 2019 included the following:

Fiscal 2020 included $2.1 million in early termination penalties upon the Company’s early pay-off of $60 million in FHLB advances.

Fiscal 2019 included non-recurring after-tax benefits from the Company’s November 2019 branch divestiture, including a $6.3 million after-tax gain and a $711,000 after-tax credit to the Provision related to divested loans.

2021. Table 1 below presents Republic’s financial performance for the years ended December 31, 2020, 2019,2022, 2021, and 2018:2020:

Table 1 — Summary

Percent Increase/(Decrease)

Percent Increase/(Decrease)

Years Ended December 31, (dollars in thousands, except per share data)

    

2020

    

2019

    

2018

 

2020/2019

    

2019/2018

    

2022

    

2021

    

2020

 

2022/2021

    

2021/2020

Income before income tax expense

$

102,633

$

113,193

$

94,263

(9)

%  

20

%  

$

116,845

$

111,442

$

102,633

5

%  

9

%  

Net income

83,246

91,699

77,852

(9)

18

91,106

87,611

83,246

4

5

Diluted EPS of Class A Common Stock

3.99

4.39

3.74

(9)

17

4.59

4.28

3.99

7

7

ROA

1.38

%  

 

1.64

%  

 

1.52

%  

(16)

8

1.48

%  

 

1.39

%  

 

1.38

%  

6

1

ROE

 

10.37

 

12.49

 

11.67

(17)

7

 

10.68

 

10.37

 

10.37

3

The increase in net income for the Total Company primarily reflected the following:

The benefit of an $13 million pre-tax legal settlement;

The benefit of a $5 million pre-tax contract termination fee;

A $32.9 million increase in non-PPP related interest income;

A $18.6 million decrease in PPP income within interest income; and

An $13.8 million decrease in Mortgage Banking income.

Additional discussion follows in this section of the filing under “Results of Operations.”

General highlights by reportable segment for the year ended December 31, 20202022 consisted of the following:

Traditional Banking segment

Traditional Banking netNet income decreased $30.8increased $5.3 million, or 61%. Fiscal 2019 included the after-tax benefits15%, from the Company’s November 2019 branch divestiture, including a $6.3 million after-tax gain and a $711,000 credit to the Provision related to divested loans.2021.

Driven primarily by net interest margin compression partially offset by PPP loan fees, netNet interest income decreased $8.7increased $14.3 million, or 5%9%, compared to $159.4 million during 2020. The Traditional Banking net interest margin decreased to 3.42% from 2019 to 2020.2021.

Driven by COVID-19 related concerns in combination with the new allowance methodology as required by the adoption of ASC 326, the Traditional Banking Provision was $16.3a net charge of $1.4 million for 20202022 compared to $2.4 million for 2019. The Provision for 2019 benefited from a pre-taxnet credit of $900,000 associated with loans divested in the Company’s branch divestiture.$38,000 for 2021.

Noninterest income decreased $11.1 million,increased $156,000, or 29% during 2020. Fiscal 2019 included a $7.8 million pre-tax net gain on the Company’s branch divestiture.less than 1%, over 2021.

Noninterest expense increased $5.4$4.3 million, or 4% during 2020. Fiscal 2020 included $2.1 million in non-recurring FHLB early termination penalties.3%, over 2021.

GrossTotal Traditional Bank non-PPP related loans increased by $120$404 million, or 3% from December 31, 2019 to December 31, 2020, with growth largely12%, during 2022, driven primarily by PPP loans.strong CRE loan growth.

Total nonperforming loans to total loans for the Traditional Bank period-end deposits grew $642 million, or 18%, fromBanking segment was 0.40% as of December 31, 20192022 compared to 0.59% as of December 31, 2020.2021.

Delinquent loans to total loans for the Traditional Banking segment was 0.16% as of December 31, 2022 compared to 0.21% as of December 31, 2021.

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Total nonperforming Traditional Bank loans to total Traditional Bank loans was 0.63% at December 31, 2020 compared to 0.65% at December 31, 2019.

Delinquent Traditional Bank loans to total Traditional Bank loans was 0.26% at December 31, 2020 compared to 0.36% at December 31, 2019.

As of December 31, 2020, $712 million of the Traditional Bank’s loan portfolio had been granted a COVID-19 hardship accommodation earlier in 2020, with $14 million remaining under an accommodation at December 31, 2020.

Warehouse Lending segment

Warehouse netNet income increased $7.1decreased $7.6 million, or 77%47%, during 2020.from 2021.

Warehouse netNet interest income increased $10.2decreased $11.5 million, and its net interest margin rose to 3.19%or 46%, a 78 basis point increase from 2019 to 2020.2021.

The Warehouse Provision was a net chargecredit of $613,000$1.1 million for 20202022 compared to a net chargecredit of $622,000$281,000 for 2019.2021.

Average committed Warehouse lines decreased to $1.3 billion during 2022 from $1.4 billion during 2021.

Average committed Warehouse lines increased to $1.2 billion during 2020 from $1.1 billion during 2019.

Average line usage was 66%44% during 2020 and 59%2022 compared to 53% during 2019.2021.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income increased $22.3decreased $13.8 million, or 235%69%, during 2020.from 2021 to 2022.

Overall, Republic’s originationsproceeds from sale of secondary market loans totaled $783$238 million during 20202022 compared to $356$718 million during the same period in 2019,2021, with the Company’s cash gain recognized as a percent of total loans sold increasing by approximately 150 basis pointscash-gain-as-a-percent-of-loans-sold decreasing to 3.01% from 20193.22% from period to 2020.period.

Tax Refund Solutions segment

TRS netNet income decreased $520,000,increased $14.1 million, or 4%111%, from 2021 to 2022.

Net interest income increased $5.9 million, or 37%, from 2021 to 2022.

Total RA originations were $311 million during 2020.the first quarter of 2022 compared to $250 million for the first quarter of 2021.

TRS net interest income increased $1.3originated $98 million or 6%,of ERAs during 2020.

Total EA originations were $388 millionthe fourth quarter of 2022 related to the anticipated filing of tax returns for 2020 compared to $389 million for 2019.the upcoming first quarter 2023 tax season.

The TRS Provision was $13.2$10.0 million for 2020,2022, compared to $11.2$6.7 million for 2019.2021.

Noninterest income was $22.8$38.5 million for 20202022 compared to $21.9$23.8 million for 2019.2021. Noninterest income for 2022 included a $5.0 million non-recurring contract termination fee and a $13.0 million non-recurring legal settlement payment.

Net RT revenue decreased $861,000,$3.2 million, or 4%16%, during 2020.from 2021 to 2022.

Noninterest expense was $17.5$15.7 million for 20202022 compared to $16.5$16.3 million for 2019.2021.

On October 19, 2022, TRS entered into a new agreement with a large Tax Provider, for which TRS had previously only provided RTs. As part of the new agreement, TRS will be the exclusive provider of RAs and ERAs originated through this provider until October 2025. As a result of the new agreement, management expects to add an additional $550 million of new RA origination volume, including ERAs originated during December 2022, to its first quarter 2023 tax filing season.

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TRS had multiple factors during 2021 and 2022 that impacted its 2022 performance and the comparability of that performance to the same periods in 2021. By year, these factors discussed below include, but may not be limited to, the following:

2021 Calendar Year

1)The start of the IRS processing season was delayed approximately two weeks later than a typical tax season; and

2)The Company believes stimulus programs from the Federal Government and pandemic-related restrictions during early 2021 negatively impacted demand for TRS’s RT and RA products.

2022 Calendar Year

1)TRS amended one of its existing third-party contracts to provide for a small revenue share from Republic to the third party, along with a ceiling on loan losses from the third party to Republic for all RA products originated through this provider;

2)TRS experienced a loss of RT and RA product volume to Green Dot directly following the execution of the TRS Purchase Agreement;

3)Although to a lesser degree than in the 2021 tax season, management believes stimulus programs from the Federal Government during the latter half of 2021 negatively impacted the 2022 tax season;

4)The Bank received a $5.0 million non-recurring termination fee in January 2022 following the cancellation of the Sales Transaction; and

5)The Bank received a $13.0 million non-recurring legal settlement in June 2022 upon settling its lawsuit against Green Dot.

As it relates to factors impacting 2021, the processing season with the IRS started approximately two weeks later than normal. As a result, RT funding volume and loan repayments from the IRS lagged normal funding patterns in non-COVID-impacted years and effectively pushed RT revenue and loan recovery activity later into the 2021 calendar year. In addition, management believes government stimulus programs during 2021 negatively impacted demand for TRS RA and RT products.

In addition to the more normal timing of the tax season in 2022 as compared to 2021, the fiscal year 2022 tax season, in totality, was favorably impacted by a contractual amendment with one of the Company’s large Tax Providers. As a result of the amended contract, TRS shares certain revenues with this provider, while this provider absorbs certain overhead costs of the program and furnishes to TRS a loan loss guaranty ceiling as a percentage of RAs originated by this provider. Through this provider, TRS originated $172 million of RAs during the first quarter of 2022 as compared to $135 million originated during the first quarter of 2021. The net cost of the revenue share to the provider from TRS was approximately $266,000 for the $172 million of RA volume, while the benefit to TRS of the overhead costs eliminated as a result of the new contract was approximately $543,000 and the net benefit to TRS of the loan loss guaranty ceiling for 2022 was approximately $516,000.

Negatively impacting 2022 as compared to 2021 was a loss of RT volume by RB&T to Green Dot from certain third-party Tax Providers following the execution of the TRS Purchase Agreement. While TRS was able to partially offset this lost volume through higher volume from other existing relationships, the lost volume to Green Dot from this one provider had a negative impact to the overall results of TRS for 2022 and may continue to have a negative impact to the overall results of TRS beyond 2022, if TRS is unable to win this business back through its normal solicitation process.

As a net result of all the factors in the preceding paragraphs as well as the positive impact to non-interest income of the Green Dot settlement, TRS experienced a net positive improvement to its 2022 operating results as compared to 2021.

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Republic Credit Solutions segment

RCS netNet income increased $1.4$1.2 million, or 9%7%, during 2020.over 2021.

RCS netNet interest income decreased $7.3increased $5.8 million, or 24%25%, during 2020.over 2021.

TheOverall, RCS recorded a net charge to the Provision was $1.2of $12.1 million during 2022 compared to a net charge of $8.4 million for 2020 compared to $11.4 million for 2019.2021.

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Noninterest income remained at $4.9increased $2.2 million, from 2019 to 2020.or 20%, over 2021.

Noninterest expense increased $1.1was $8.4 million or 44%, during 2020.for 2022 and $4.8 million for 2021.

Total nonperforming RCS loans to total loans for the RCS loanssegment was 0.04% at0.70% as of December 31, 20202022 compared to 0.10% at0.05% as of December 31, 2019.2021.

Delinquent RCS loans to total loans for the RCS loanssegment was 9.23% at8.53% as of December 31, 20202022 compared to 7.25% at6.48% as of December 31, 2019.2021.

RESULTS OF OPERATIONS

This section provides a comparative discussion of Republic’s Results of Operations for the two-year period ended December 31, 2020,2022, unless otherwise specified. Refer to Results of Operations on pages 55-6853-63 of the Company’s Annual Report on Form 10-K for the year ended December 31, 20192021 (the “2019“2021 Form 10-K”) for a discussion of the 20192021 versus 20182020 results.

Net Interest Income

Banking operations are significantly dependent upon net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and the interest expense on interest-bearing liabilities used to fund those assets, such as interest-bearing deposits, securities sold under agreements to repurchase, and FHLB advances. 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.

See the section titled “Asset/Liability Management and Market Risk” in this section of the filing regarding the Bank’s interest rate sensitivity.

A large amount of the Company’s financial instruments tracktracks closely with, or are primarily indexed to, either the FFTR, Prime, or LIBOR. These market rates trended higher from December 2015 through December 2019 but moved lower again duringbeginning in the first quarter of 2020 with the onset of the COVID pandemic, as the FOMC reduced the FFTR to approximately 25 basis points. During 2022 inflation rose to levels not seen in approximately 40 years. In response, the FOMC began executing a quantitative tightening program by 75 basis points duringreducing its balance sheet, selling certain types of bonds in the year.market, and repeatedly increasing the FFTR. The FOMC has provided on-going guidance that additional changesFOMC’s increases to the FFTR will be data dependent, depending upon market conditions.during 2022 included the following:

Additional

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Table 2 — Increases to the Federal Funds Target Rate during 2022

Increase to

FFTR

Date

the FFTR

after Increase

March 17, 2022

0.25

%  

0.50

%  

May 5, 2022

0.50

1.00

June 16, 2022

0.75

1.75

July 27, 2022

0.75

2.50

September 21, 2022

0.75

3.25

November 2, 2022

0.75

4.00

December 15, 2022

0.50

4.50

The FOMC’s actions and signals continued to place upward pressure on short-term market interest rates for bonds and loans throughout the second half of 2022. While long-term interest rates initially rose in tandem with the increases to the FFTR during the middle part of 2022, they began to decline during the second half of 2022 as the market generally began to anticipate a recession to take place in 2023. As a result of the increase in short-term interest rates and overallthe moderation of long-term interest rates, the yield curve became inverted during 2022 with some short-term rates higher than some long-term rates on the yield curve. Further monetary tightening by the FOMC in the future will likely cause short-term interest rates to continue to increase. At this time, the future of long-term market interest rates remains uncertain. Increases in short-term market interest rates are expected to impact the various business segments of the Company differently and will be discussed in further detail in the sections below.

Total Company net interest income was $236.7 million during 2022 and represented an increase of $14.0 million over 2021. Total Company net interest margin expanded to 4.12% during 2022 compared to 3.79% for 2021.

The following were the most significant components affecting the Company’s net interest income by reportable segment:

Traditional Banking segment

The Traditional Banking’s net interest income increased $14.3 million, or 9%, over 2021. Traditional Banking’s net interest margin was 3.38% for 2022, an increase of 20 basis points from 2021.

The increase in the Traditional Bank’s net interest income during 2022 was primarily attributable to the following factors:

Traditional Bank net interest income, excluding PPP fees and interest, increased $32.9 million, or 24%, over 2021. Contributing significantly to this growth in net interest income was a 44-basis point increase in the Traditional Bank’s net interest margin, excluding PPP loans and related fees and interest. Driving this increase in net interest margin, excluding PPP-related elements, was the following:

oIncreases in the FFTR during 2022 continued to benefit the Traditional Bank’s high level of interest-earning cash on its balance sheet, as well as its loan and investment portfolio yields. As a result, the Traditional Bank’s yield on interest earning assets, excluding PPP, increased 42 basis points from 2021 to 2022.

oAverage non-PPP loans at the Traditional Bank grew from $3.3 billion for 2021 to $3.6 billion for 2022.

oThe Traditional Bank was able to maintain a relatively low cost of interest-bearing deposits as compared to the benefit it received on its interest earning cash as a result of the increases to the FFTR. For further discussion of the Bank’s interest-bearing deposits, see section titled Deposits below in this section of the filing.

The Traditional Bank recognized $1.4 million of fees and interest on its PPP portfolio during 2022 compared to $20.0 million during 2021. The $18.6 million decrease in PPP fees and interest primarily highlighted the short-term nature of this program, which was closer to its peak during 2021.

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Table 3 — Traditional Bank Net Interest Income and Net Interest Margin Excluding PPP (Non-GAAP)

The Company earns fees and a coupon interest rate of 1.0% on its PPP portfolio. Due to the short-term nature of the PPP, management believes Traditional Bank net interest income excluding PPP fees and coupon interest is a more appropriate measure to analyze the performance of the Traditional Bank’s net interest income and net interest margin. The following table reconciles Traditional Bank net interest income and net interest margin to Traditional Bank net interest income and net interest margin excluding PPP fees and interest, a non-GAAP measure.

Net Interest Income

Average Interest-Earning Assets

Net Interest Margin

Years Ended Dec. 31,

Years Ended Dec. 31,

Years Ended Dec. 31,

(dollars in thousands)

  

  

2022

    

2021

    

$ Change

    

% Change

  

  

2022

    

2021

    

$ Change

% Change

  

  

2022

    

2021

    

% Change

Traditional Banking - GAAP

$

171,543

$

157,249

$

14,294

9

%

$

5,071,728

$

4,945,316

$

126,412

3

%

3.38

%

3.18

%

0.20

%

Less: Impact of PPP fees and interest

1,384

20,029

(18,645)

(93)

16,557

246,451

(229,894)

(93)

0.02

0.26

(0.24)

Traditional Banking ex PPP fees and interest - non-GAAP

$

170,159

$

137,220

$

32,939

24

$

5,055,171

$

4,698,865

$

356,306

8

3.36

2.92

0.44

As previously disclosed, short-term interest rates driven by the FOMC are expected to continue to increase into 2023 as a result of expected monetary tightening by the FOMC. Additional increases in short-term interest rates are generally believed by management to be favorable to the Bank’s net interest income and net interest margin in the near term, while additional decreases in short-term interest rates and overall market rates are generally believed by management to be unfavorable to theTraditional Bank’s net interest income and net interest margin in the near term. Increases in short-term interest rates, however, could have a negative impact onWhile many factors will determine the Traditional Bank’s net interest income and net interest margin ifin 2023 and beyond, the Bank is unableBank’s ability to maintain its deposit balances andnear their current, relatively-low pricing levels is a significant assumption driving Management’s current belief that rising short-term rates will be beneficial to the cost of those deposits at the levels assumed in its interest-rate-risk model. In addition, a further flattening or inversion of the yield curve, causing the spread between long-term interest rates and short-term interest rates to decrease, could negatively impact the Company’sTraditional Bank’s net interest income and net interest margin. Unknownmargin in the future. In addition, a continued or increased inversion of the yield curve could negatively impact the Traditional Bank’s net interest income and net interest margin in the future as many of the Bank’s loan products are priced relative to the long end of the yield curve while many of its deposit products are priced relative to the short-end of the yield curve. Additional variables which may also impact the Company’sTraditional Bank’s net interest income and net interest margin in the future include, but are not limited to, the actual steepness and shape of the yield curve, future demand for the Traditional Bank’s financial products, and the Traditional Bank’s overall future liquidity needs.

Total CompanyWarehouse Lending segment

Net interest income within the Warehouse segment decreased $11.5 million, or 46%, from 2021, driven by decreases in both average outstanding balances and net interest income decreased $3.8margin. Overall average outstanding Warehouse balances declined from $748 million or 2%, during 2020 comparedthe 2021 to $510 million for 2022, driven largely by the same periodsharp rise in 2019. Total Companylong-term interest rates during 2022, which depressed mortgage-refinancing demand and resulted in a significant drop in Warehouse line usage.

In addition, the Warehouse net interest margin decreased 68 basis points from 3.37% during 2021 to 4.10%2.69% during 2022. The decline in the Warehouse net interest margin occurred as its funding costs, as charged through the Company’s internal FTP methodology, generally rose in tandem with the increase in short-term interest rates during the year, while its yield increases were delayed until the adjustable rates on its clients’ lines of credit surpassed their contractual interest rate floors. These interest rate floors benefited Warehouse’s net interest margin substantially during 2020 comparedand 2021 when market rates declined to 4.46% in 2019.historical lows but have produced margin compression since the onset of the FFTR increases during 2022. Committed Warehouse lines-of-credit decreased from $1.4 billion as of December 31, 2021 to $1.1 billion as of December 31, 2022, while average usage rates for Warehouse lines were 44% and 53%, respectively, during 2022 and 2021.

The most significant components affecting the total Company’sAdditional increases in short-term interest rates are generally believed by management to be favorable to Warehouse’s net interest income and net interest margin in the near term, however, the benefit of an increase in rates could be partially or entirely offset by reportable segment follow:

Traditional Banking segment

The Traditional Banking segment’s neta reduction in average outstanding balances driven by a decline in demand from Warehouse clients, as higher long-term interest income decreased $8.7 million, or 5%, during 2020 compared to 2019. The Traditional Banking net interest margin decreased to 3.42%rates generally drive lower demand for 2020 compared to 3.76%Warehouse borrowings. In addition, a lower demand for 2019.

Warehouse borrowings could cause additional competitive pricing pressures for the industry, driving down the yield Warehouse earns on its lines of credit.

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The following factors primarily impacted the Traditional Bank’s net interest income and net interest margin during 2020:

The Traditional Bank’s net interest spread, the weighted average rate earned on its interest-earning assets less the weighted average cost paid on its interest-bearing liabilities, compressed 30 basis points and its net interest margin compressed 33 basis points primarily because the Core Bank’s liabilities had less room to reprice downward than its interest-earning asset counterparts.

Because the Bank is already paying zero interest on its noninterest-bearing funding sources, such as noninterest-bearing deposits and common stockholders’ equity, it had no ability to reprice any of these funding sources downward to offset the negative impact of the decline in yield on its interest-earning assets, which these noninterest-bearing sources fund.

Also negatively impacting net interest income from Traditional Banking was a decline in loan balances, excluding PPP loans. The decrease in Traditional Bank loans included the negative impact of the sale of $128 million of the Traditional Bank’s loans in November 2019 as part of the Company’s branch divestiture.

Partially offsetting the decline in net interest income driven by items noted above, interest income increased by approximately $12.2 million from the origination of $528 million of PPP loans during the year, as well as, the SBA’s forgiveness and early payoff of $127 million of these loans. The PPP portfolio contributed $342 million in average Traditional Bank loans for 2020. As part of the SBA’s forgiveness and early payoff, all unearned fees associated with these loans are credited to interest income upon their payoff. Approximately $2.8 million of PPP fee income recognized in interest income during 2020 was from the forgiveness and early payoff of the loans. As of December 31, 2020, approximately $8.6 million of PPP fees remained unearned on the Company’s balance sheet to be earned and recognized over the remaining life of these loans.

For additional information on the potential future effect of changes in short-term interest rates on Republic’s net interest income, see the table titled “Bank Interest Rate Sensitivity at December 31, 2020 and 2019” under “Financial Condition.”

Warehouse Lending segment

Net interest income increased $10.2 million, or 64%, for 2020 compared to 2019. Average outstanding Warehouse balances grew from $654 million during 2019 to $813 million during 2020, as falling mortgage rates during 2020 drove a surge in consumer refinance volume for Warehouse clients. Overall, committed Warehouse lines-of-credit grew from $1.1 billion to $1.2 billion and usage rates on those lines were 59% and 66%, respectively, during the same periods. In addition, the Warehouse net interest margin increased to 3.19% for 2020 compared to 2.42% for 2019, as many of the Bank’s Warehouse client reached contractual interest rate floors on their lines-of-credit during the second quarter of 2020 preventing further declines in the segment’s loan yields, while the segment’s cost of funds continued to decline.

Warehouse Lending net interest income is greatly influenced by the overall mortgage market and the competitive environment. The Mortgage Bankers Association’s economic forecast released in January 2021 projected mortgage originations to decrease 24% across the United States from 2020 to 2021. If this economic forecast turns out to be substantially accurate, management believes that usage rates among the Bank’s Warehouse Lending clients may also decrease. This predicted decrease in mortgage volume would likely increase the competitive environment and may negatively impact the Bank’s ability to maintain its existing Warehouse Lending clients and to attract new mortgage companies to its warehouse platform, thus making it difficult to increase net interest income overall within the Warehouse Lending segment.

Tax Refund Solutions segment

TRS’s net interest income increased $1.3$5.9 million for 2020 compared to 2019. TRS’s EA product earned $19.7 millionover 2021, driven by an increase in RA fees, which are recorded as interest income on loans; an increase in outstanding commercial loan balances; and an increase in interest income on TRS’s prepaid card balances as a function of the Company’s internal FTP methodology and a rise in interest rates. TRS’s RA product, including ERAs originated during 2020,December 2022, earned $14.5 million in fees during 2022, a $557,000$1.3 million increase from 2021, resulting primarily from modificationsa $159 million increase in RA originations from year to year.

Republic Credit Solutions segment

RCS’s net interest income increased $5.8 million, or 25%, from 2021. The increase was driven primarily by an increase in fee income from RCS’s LOC products.

RCS’s LOC loan fees, which are recorded as interest income on loans, increased to $27.3 million during 2022 compared to $19.3 million during 2021. Interest income on RCS’s LOC I product increased $2.5 million during 2022, driven by a $3.4 million increase in average outstanding balances for this product from 2021 to 2022.

Interest income on RCS’s LOC II product increased $5.4 million, as the Company first piloted this product during early 2021 with limited originations during the pilot phase.

Interest income from RCS’s hospital receivables decreased $381,000 from 2021 resulting from a $21 million decrease in average receivables from period to period.

Overall product demand for the RCS segment is not assumed to be interest rate sensitive and therefore management does not believe a rising interest rate environment will impact demand for its various consumer loan products. A rising interest rate environment, however, likely will impact the Company’s internal FTP cost allocated to this segment. As a result, the impact of rising interest rates to RCS during 2023 will likely be negative to the product’s pricing tiers. EA pricing includes a direct fee tosegment’s financial results, although the taxpayer, with the annual percentage rate to the taxpayer for his or her portionexact amount of the total fee being less than 36% for all offering tiers.

negative impact will depend on the internal FTP cost assigned, as well as the overall volume and mix of loans it generates.

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See additional discussion regarding the EA product under the sections titled:

Part I Item 1A “Risk Factors”
Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 4 “Loans and Allowance for Credit Losses”

Republic Credit Solutions segment

RCS’s net interest income decreased $7.3 million, or 24%, from 2019 to 2020. The decrease was driven primarily by a decline in fee income from RCS’s line-of-credit product. Loan fees on RCS’s line-of-credit product recorded as interest income decreased to $18.5 million during 2020 compared to $25.6 million during 2019 and accounted for 78% and 79% of all RCS interest income on loans during the periods. The decrease in loan fees was the direct result of a decline in outstanding line-of-credit balances, as the Company reduced marketing for the product in response to the COVID-19 pandemic.

Future long-term growth in interest income from RCS’s line-of-credit product is restricted by a current on-balance-sheet Board-approved risk limit of $40 million for the Company. As of December 31, 2020, the total outstanding on-balance-sheet amount, including loans held for sale, related to this product was $19 million.

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Table 24 — Total Company Average Balance Sheets and Interest Rates

Years Ended December 31,

Years Ended December 31,

2020

2019

2018

 

2022

2021

2020

 

    

Average

    

    

Average

    

Average

    

    

Average

    

Average

    

    

Average

 

    

Average

    

    

Average

    

Average

    

    

Average

    

Average

    

    

Average

 

(dollars in thousands)

    

Balance

Interest

Rate

Balance

Interest

Rate

Balance

Interest

Rate

 

    

Balance

Interest

Rate

Balance

Interest

Rate

Balance

Interest

Rate

 

 

 

ASSETS

Interest-earning assets:

Federal funds sold and other interest-earning deposits

$

283,151

$

911

 

0.32

%  

$

260,131

$

5,781

 

2.22

%  

$

255,708

$

4,752

 

1.86

%  

$

738,399

$

11,370

 

1.54

%  

$

806,811

$

1,108

 

0.14

%  

$

283,151

$

911

 

0.32

%  

Investment securities, including FHLB stock (1)

584,300

10,303

 

1.76

564,631

15,038

 

2.66

542,258

13,808

 

2.55

671,858

11,739

 

1.75

555,599

7,706

 

1.39

584,300

10,303

 

1.76

TRS Easy Advance loans (2)

38,843

19,671

50.64

33,931

19,114

56.33

31,112

17,832

57.32

RCS line-of-credit producti (2)

20,217

18,522

91.62

28,110

25,591

91.04

29,622

26,267

88.67

TRS Refund Advance loans (2)

28,085

14,481

51.56

26,283

13,202

50.23

38,843

19,671

50.64

RCS LOC products (2)

28,986

27,318

94.25

20,662

19,345

93.63

20,217

18,522

91.62

Other RPG loans (3) (7)

 

105,569

 

6,101

 

5.78

 

92,721

 

7,478

 

8.07

 

62,301

 

5,980

 

9.60

 

96,538

 

5,744

 

5.95

 

107,129

5,991

 

5.59

 

105,569

 

6,101

 

5.78

Outstanding Warehouse lines of credit (4) (7)

812,862

31,199

3.84

653,865

30,815

4.71

496,380

25,526

5.14

510,417

21,351

4.18

747,840

27,169

3.63

812,862

31,199

3.84

Paycheck Protection Program loans (5) (7)

341,704

12,178

3.56

16,557

1,384

8.36

246,451

20,029

8.13

341,704

12,178

3.56

All other Core Bank loans (6) (7)

 

3,477,646

 

153,373

 

4.41

 

3,661,720

 

177,066

 

4.84

 

3,475,503

 

162,016

 

4.66

 

3,657,850

 

150,797

 

4.12

 

3,370,912

133,856

 

3.97

 

3,477,646

 

153,373

 

4.41

Total interest-earning assets

 

5,664,292

 

252,258

 

4.45

 

5,295,109

 

280,883

 

5.30

 

4,892,884

 

256,181

 

5.24

 

5,748,690

 

244,184

 

4.25

 

5,881,687

 

228,406

 

3.88

 

5,664,292

 

252,258

 

4.45

Allowance for credit losses

 

(60,008)

 

(50,624)

 

(47,774)

 

(67,951)

 

(66,481)

 

(60,008)

Noninterest-earning assets:

Noninterest-earning cash and cash equivalents

 

125,904

 

99,580

 

109,798

 

186,636

 

167,556

 

125,904

Premises and equipment, net

 

42,991

 

45,276

 

46,300

 

33,892

 

38,428

 

42,991

Bank owned life insurance

 

67,264

 

65,682

 

64,132

 

100,452

 

91,329

 

67,264

Other assets (1)

 

171,422

 

122,620

 

65,288

 

167,251

 

189,339

 

171,422

Total assets

$

6,011,865

$

5,577,643

$

5,130,628

$

6,168,970

$

6,301,858

$

6,011,865

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:

Transaction accounts

$

1,291,980

$

1,201

 

0.09

%  

$

1,141,084

$

5,626

 

0.49

%  

$

1,120,633

$

4,341

 

0.39

%  

$

1,696,809

$

1,974

 

0.12

%  

$

1,580,570

$

361

 

0.02

%  

$

1,291,980

$

1,201

 

0.09

%  

Money market accounts

 

739,524

 

1,930

 

0.26

 

772,854

 

7,477

 

0.97

 

639,560

 

4,026

 

0.63

 

779,457

 

2,000

 

0.26

 

784,777

385

 

0.05

 

739,524

 

1,930

 

0.26

Time deposits

 

400,704

 

7,868

 

1.96

 

409,301

 

8,254

 

2.02

 

348,670

 

5,699

 

1.63

 

240,701

 

2,636

 

1.10

 

300,784

3,625

 

1.21

 

400,704

 

7,868

 

1.96

Reciprocal money market and time deposits

274,725

1,776

0.65

207,126

2,739

1.32

301,291

2,289

0.76

55,042

147

0.27

226,503

644

0.28

274,725

1,776

0.65

Brokered deposits

 

206,553

 

2,314

 

1.12

 

225,581

 

5,039

 

2.23

 

35,231

 

662

 

1.88

 

 

 

 

30,863

24

 

0.08

 

206,553

 

2,314

 

1.12

Total interest-bearing deposits

 

2,913,486

 

15,089

 

0.52

 

2,755,946

 

29,135

 

1.06

 

2,445,385

 

17,017

 

0.70

 

2,772,009

 

6,757

 

0.24

 

2,923,497

 

5,039

 

0.17

 

2,913,486

 

15,089

 

0.52

SSUARs

 

204,797

 

177

 

0.09

 

236,883

 

1,211

 

0.51

 

225,145

 

1,125

 

0.50

SSUARs and other short-term borrowings

 

265,188

 

397

 

0.15

 

231,430

 

63

 

0.03

 

204,797

 

177

 

0.09

Federal Reserve PPP Liquidity Facility

43,932

153

0.35

 

43,932

153

0.35

Federal Home Loan Bank advances

 

211,776

 

3,524

 

1.66

 

595,613

 

12,791

 

2.15

 

557,090

 

10,473

 

1.88

 

21,233

 

339

 

1.60

 

29,479

 

57

 

0.19

 

211,776

 

3,524

 

1.66

Subordinated note

 

41,240

 

1,000

 

2.42

 

41,240

 

1,620

 

3.93

 

41,240

 

1,508

 

3.66

 

 

 

 

30,732

 

507

 

1.65

 

41,240

 

1,000

 

2.42

Total interest-bearing liabilities

 

3,415,231

 

19,943

 

0.58

 

3,629,682

 

44,757

 

1.23

 

3,268,860

 

30,123

 

0.92

 

3,058,430

 

7,493

 

0.24

 

3,215,138

 

5,666

 

0.18

 

3,415,231

 

19,943

 

0.58

Noninterest-bearing liabilities and Stockholders’ equity:

Noninterest-bearing liabilities and Stockholders’ equity:

Noninterest-bearing deposits

 

1,672,442

 

1,120,608

 

1,147,432

 

2,148,848

 

2,129,222

 

1,672,442

Other liabilities

 

121,466

 

93,072

 

47,357

 

108,965

 

112,466

 

121,466

Stockholders’ equity

 

802,726

 

734,281

 

666,979

 

852,727

 

845,032

 

802,726

Total liabilities and stockholders’ equity

$

6,011,865

$

5,577,643

$

5,130,628

$

6,168,970

$

6,301,858

$

6,011,865

Net interest income

$

232,315

$

236,126

$

226,058

$

236,691

$

222,740

$

232,315

Net interest spread

 

3.87

%  

 

4.07

%  

 

4.32

%  

 

4.01

%  

 

3.70

%  

 

3.87

%  

Net interest margin

 

4.10

%  

 

4.46

%  

 

4.62

%  

 

4.12

%  

 

3.79

%  

 

4.10

%  

(1)For the purpose of this calculation, the fair market value adjustment on investmentdebt securities resulting from ASC Topic 320, Investments — Debt and Equity Securities, is included as a component of other assets.
(2)Interest income for Easy AdvancesRAs and the RCS line-of-credit productproducts is composed entirely of loan fees.
(3)Interest income includes loan fees of $882,000, $1.7 million, and $1.4 million $1.4 millionfor 2022, 2021, and $900,000 for 2020, 2019, and 2018.2020.
(4)Interest income includes loan fees of $1.7 million, $3.1 million, and $3.4 million $2.9 millionfor 2022, 2021, and $3.0 million for 2020, 2019, and 2018.2020.
(5)Interest income includes loan fees of $1.2 million, $17.5 million, and $8.6 million for 2022, 2021, and 2020.
(6)Interest income includes loan fees of $4.8 million, $4.1 million, and $3.4 million $5.4 millionfor 2022, 2021, and $5.7 million for 2020, 2019, and 2018.2020.
(7)Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees, and costs.

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Table 35 illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities impacted 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 35 — Total Company Volume/Rate Variance Analysis

Year Ended December 31, 2020

Year Ended December 31, 2019

 

Compared to

Compared to

 

Year Ended December 31, 2019

Year Ended December 31, 2018

 

Total Net

Increase / (Decrease) Due to

Total Net

Increase / (Decrease) Due to

 

(in thousands)

    

Change

    

Volume

    

Rate

    

Change

    

Volume

    

Rate

 

Interest income:

Federal funds sold and other interest-earning deposits

$

(4,870)

$

471

$

(5,341)

$

1,029

$

84

$

945

Investment securities, including FHLB stock

(4,735)

507

(5,242)

1,230

582

648

TRS Easy Advance loans*

557

(1,936)

2,493

1,282

(1,817)

3,099

RCS line-of-credit product

(7,069)

(7,231)

162

(676)

(1,365)

689

Other RPG loans

 

(1,377)

 

939

 

(2,316)

 

1,498

 

2,569

 

(1,071)

Outstanding Warehouse lines of credit

384

6,704

(6,320)

5,289

7,563

(2,274)

Paycheck Protection Program loans

12,178

12,178

All other Core Bank loans

 

(23,693)

 

(8,616)

 

(15,077)

 

15,050

 

8,872

 

6,178

Net change in interest income

 

(28,625)

 

3,016

 

(31,641)

 

24,702

 

16,488

 

8,214

Interest expense:

Transaction accounts

 

(4,425)

 

659

 

(5,084)

 

1,285

 

80

 

1,205

Money market accounts

 

(5,547)

 

(309)

 

(5,238)

 

3,451

 

965

 

2,486

Time deposits

 

(386)

 

(172)

 

(214)

 

2,555

 

1,088

 

1,467

Reciprocal money market and time deposits

(963)

 

716

 

(1,679)

450

 

(872)

 

1,322

Brokered deposits

 

(2,725)

 

(394)

 

(2,331)

 

4,377

 

4,229

 

148

SSUARs

 

(1,034)

 

(144)

 

(890)

 

86

 

60

 

26

Federal Reserve PPP Liquidity Facility

 

153

 

153

 

 

 

 

Federal Home Loan Bank advances

 

(9,267)

 

(6,868)

 

(2,399)

 

2,318

 

758

 

1,560

Subordinated note

 

(620)

 

 

(620)

 

112

 

 

112

Net change in interest expense

 

(24,814)

 

(6,359)

 

(18,455)

 

14,634

 

6,308

 

8,326

Net change in net interest income

$

(3,811)

$

9,375

$

(13,186)

$

10,068

$

10,180

$

(112)

*Volume for Easy Advances is based on total loans originated during the period presented.

Year Ended December 31, 2022

Year Ended December 31, 2021

 

Compared to

Compared to

 

Year Ended December 31, 2021

Year Ended December 31, 2020

 

Total Net

Increase / (Decrease) Due to

Total Net

Increase / (Decrease) Due to

 

(in thousands)

    

Change

    

Volume

    

Rate

    

Change

    

Volume

    

Rate

 

Interest income:

Federal funds sold and other interest-earning deposits

$

10,262

$

(102)

$

10,364

$

197

$

947

$

(750)

Investment securities, including FHLB stock

4,033

1,799

2,234

(2,597)

(486)

(2,111)

TRS Refund Advance loans

1,279

922

357

(6,469)

(6,310)

(159)

RCS LOC products

7,973

7,844

129

823

401

422

Other RPG loans

 

(247)

 

(615)

 

368

 

(110)

 

89

 

(199)

Outstanding Warehouse lines of credit

(5,818)

(9,510)

3,692

(4,030)

(2,416)

(1,614)

Paycheck Protection Program loans

(18,645)

(19,200)

555

7,851

(4,172)

12,023

All other Core Bank loans

 

16,941

 

11,694

 

5,247

 

(19,517)

 

(4,597)

 

(14,920)

Net change in interest income

 

15,778

 

(7,168)

 

22,946

 

(23,852)

 

(16,544)

 

(7,308)

Interest expense:

Transaction accounts

 

1,613

 

29

 

1,584

 

(840)

 

222

 

(1,062)

Money market accounts

 

1,615

 

(3)

 

1,618

 

(1,545)

 

111

 

(1,656)

Time deposits

 

(989)

 

(679)

 

(310)

 

(4,243)

 

(1,665)

 

(2,578)

Reciprocal money market and time deposits

(497)

 

(460)

 

(37)

(1,132)

 

(270)

 

(862)

Brokered deposits

 

(24)

 

(24)

 

 

(2,290)

 

(1,093)

 

(1,197)

SSUARs and other short-term borrowings

 

334

 

10

 

324

 

(114)

 

20

 

(134)

Federal Reserve PPP Liquidity Facility

 

 

 

 

(153)

 

(153)

 

Federal Home Loan Bank advances

 

282

 

(20)

 

302

 

(3,467)

 

(1,710)

 

(1,757)

Subordinated note

 

(507)

 

(507)

 

 

(493)

 

(219)

 

(274)

Net change in interest expense

 

1,827

 

(1,654)

 

3,481

 

(14,277)

 

(4,757)

 

(9,520)

Net change in net interest income

$

13,951

$

(5,514)

$

19,465

$

(9,575)

$

(11,787)

$

2,212

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Provision

Effective January 1, 2020, theTotal Company adopted ASC 326 Financial Instruments – Credit Losses, which replaces the pre-January 1, 2020 “probable-incurred” methodProvision was a net charge of $22.3 million for calculating the Company’s ACL with the CECL method. CECL is applicable2022 compared to financial assets measured at amortized cost, including loan and lease receivables and held-to-maturity debt securities. CECL also applies to certain off-balance sheet credit exposures.

See additional detail regarding the Company’s adoptiona net charge of ASC 326 and the CECL method under Footnote 1 “Summary of Significant Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data.”$14.8 million for 2021.

The Company recorded a Provision of $31.3 million during 2020, compared to $25.8 million in 2019. Thefollowing were the most significant components comprising the Company’s Provision by reportable segment follow:segment:

Traditional Banking segment

The Traditional Banking Provision during 20202022 was $16.3a net charge of $1.4 million compared to $2.4 million in 2019.a net credit of $38,000 for 2021. An analysis of the Provision for 20202022 compared to 20192021 follows:

Related to the Bank’s pass-rated and non-rated loans, the Bank recorded net charges of $15.2 million and $562,000 to the Provision for 2020 and 2019. For 2020,2022, the Traditional Bank recorded approximately $19.6 million of additional Provision due to the expected economic impact of the COVID-19 pandemic. The Company’s analysis includedprimarily reflected the following:

oThe Traditional Bank released $2.8 million of reserves following the pandemic’s impact on national unemployment;payoff or upgrade of Substandard and Special Mention loans.
oan analysis of the Bank’s loans to industries more directly harmed by the pandemic, such as the hospitality industry;
othe number and amount in loans receiving pandemic related accommodations from the  Bank; and,
oa forecasted rise in vacancy rates for CRE within the Traditional Bank’s market footprint.

Offsetting the increase in the Provision due to the impact of the COVID-19 pandemic was a reduction in the Provision of approximately $4.4 million driven by a $274 million decrease in Traditional Bank non-PPP period-end balances during 2020.

The Provision in 2019 included the impact of a $900,000 credit upon the final settlement of the Company’s branch divestiture.

oTheNon-PPP Traditional Bank recorded net chargesloans grew $404 million from December 31, 2021 to the Provision of $916,000 and $2.2 million for 2020 and 2019 related to loans rated Substandard, Special Mention, or PCD. The charge during 2020 was driven byDecember 31, 2022, driving approximately $68$4.5 million of loans downgradedadditional Provision tied to Special Mention during 2020 partially offset by a $470,000 recovery recorded upon the payoff of a large CRE relationship that had been partially charged-off in a prior period. Downgrades to Special Mention during 2020 were primarily driven by economic concerns resulting from the COVID-19 pandemic. The charge during 2019 includes $2.8 million of Provisiongeneral formula reserves for two commercial relationships that defaulted during the period.loan growth.  

RelatedFor 2021, there was a minimal net credit to the Bank’s corporate bonds held within its investment securities portfolio,Traditional Bank Provision, generally based on an improving economic outlook in conjunction with limited net charge-offs incurred by the Traditional Bank recorded $127,000 of Provisionsince making significant life-of-loan reserves during 2020 drivenfollowing the onset of the pandemic. The net credit recorded during 2021 primarily included nominal ACLL releases for the residential real estate, CRE, and HELOC portfolios offset by higher PD and LGD assumptions stemming from COVID-19 economic concerns. The Company began provisioningadditional reserves for credit loss for its investment securities in 2020 as partcertain Special Mention loans with continued signs of its adoption of ASC 326; therefore, no similar Provision was recognized during 2019.pandemic-related hardship through December 31, 2021.

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.34% from1.32% as of December 31, 20202022 compared to 0.78% at1.41% as of December 31, 2019.2021. The Company believes, based on information presently available, that it has adequately provided for Traditional BankBanking loan losses atas of December 31, 2020.2022.

Table 6 — Traditional Bank ACLL to Non-PPP Traditional Bank Loans (Non-GAAP)

December 31, 

2022

2021

Allowance

Allowance

(dollars in thousands)

    

Gross Loans

    

Allowance

    

to Loans

    

Gross Loans

    

Allowance

    

to Loans

Traditional Bank - GAAP

    

$

3,855,142

$

50,709

1.32

%

$

3,501,959

$

49,407

1.41

%

Less: Paycheck Protection Program

4,980

56,014

Traditional Bank, Less PPP - non-GAAP

$

3,850,162

$

50,709

1.32

$

3,445,945

$

49,407

1.43

See the sections titled “Allowance for Credit Losses” and “Asset Quality” in this section of the filing under “Financial Condition” for additional discussion regarding the Provision and the Bank’s delinquent, nonperforming, impaired, and TDR loans.

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Table of Contents

See additional detail regarding the impact of COVID-19 under:

Part I Item 1A “Risk Factors”

Part II Item 8 “Financial Statements and Supplementary Data”
oFootnote 2 “Investment Securities”
oFootnote 4 “Loans and Allowance for Credit Losses”
oFootnote 13 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

Warehouse Lending segment

The Warehouse Provision wasrecorded a net chargecredit of $613,000$1.1 million for 20202022 compared to a net chargecredit of $622,000$281,000 for 2019.2021. Provision expense for both 2020 and 2019 reflects theperiods reflected changes in general reserves for fluctuationsconsistent with changes in outstanding balances during the periods.period-end balances. Outstanding Warehouse period-end balances increased $246decreased $447 million during 2020 and $2492022 compared to a decrease of $112 million during 2019.2021.

As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% atas of December 31, 20202022, and 2019.December 31, 2021. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses atas of December 31, 2020.2022.

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Table of Contents

Tax Refund Solutions segment

TRS recorded a net charge to the Provision of $13.2$10.0 million during 20202022 compared to a net charge of $11.2$6.7 million for in 2019.2021. Substantially all TRS Provision in both periods was related to its RA product, including the ERA product.

The higher net chargesTRS recorded a charge to the Provision for RA loans of $10.5 million, or 2.56 % of its $409 million in total RAs and ERAs originated during 2020 resulted from EA repayment rates from the U.S. Treasury that significantly lagged those during the same period in 2019. Management believes the significant decline in repayment rates from the U.S. Treasury during 2020, particularly during the second quarter, was directly related2022 compared to a charge to the impactProvision of the COVID-19 pandemic.

$6.7 million, or 2.69% of its $250 million of RAs originated during 2021. The decrease in Provision as a percentage of originations for 2022 was primarily due to a contractual loss guaranty that TRS received from one of its large Tax Providers during 2022 that set a percentage ceiling on losses for RAs originated through this provider. Through this provider, TRS originated $388$172 million of EAsRAs during 2020 compared2022. The net benefit to $389 million in 2019. The Company’s net loss on EAs to total EA originationsthe TRS Provision for 2020 increased 62 basis points from 2019 to 3.36%. Each 0.10% in estimatedthis loan loss reserves for EAsguaranty arrangement during 2020 equates to2022 was approximately $388,000 in Provision expense, while each 0.10% during 2019 equated to approximately $389,000.

$516,000.

As of December 31, 2020 and 2019, all unpaid EAs originated during each year had been charged-off.

See additional detail regarding the EA productRA and ERA products under Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements and Supplemental Data.”

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Table of Contents

Republic Credit Solutions segment

RCS recorded a net charge to the Provision of $1.2$12.1 million during 2020, a decrease of $10.2 million2022 compared to same period in 2019.a net charge to the Provision of $8.4 million for 2021. The decreaseincrease in the Provision was driven primarily by a reduction$5.9 million increase in both net charge-offs and outstanding balanceson RCS’s line-of-credit products.

Net charge-offs for RCS’s line-of-creditLOC I product increased to $7.0 million for 2022 from $3.5 million during 2021, with government stimulus programs generally driving down usage of this product during 2021.

Net charge-offs for RCS’s LOC II product were $3.2 million for 2022 compared to $840,000 of net charge-offs during 2021. The lower level of charge-offs for the LOC II product during 2021 were attributable to the relatively low level of originations during the year, as the Company reduced marketingproduct was launched during 2021 and remained in a pilot phase for RCS’s line-of-credit product in response tomuch of the COVID-19 pandemic. RCS began incrementally increasing its marketing for its line-of-credit product during the third quarter of 2020.year.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 7.94% and 12.45% at13.73% as of December 31, 20202022 and 2019.13.91% as of December 31, 2021. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses atas of December 31, 2020.2022.

The following table presents RCS Provision by product:

Table 47 — RCS Provision by Product

Percent Increase/(Decrease)

Percent Increase/(Decrease)

Years Ended December 31, (in thousands)

2020

2019

2018

2020/2019

2019/2018

2022

2021

2020

2022/2021

2021/2020

Product:

Line of credit

$

1,178

$

11,388

$

14,100

(90)

%

(19)

%

Credit card

2,728

(100)

Lines of credit

$

12,050

$

8,509

$

1,178

42

%

622

%

Hospital receivables

41

55

53

(25)

4

31

(65)

41

(148)

(259)

Total

$

1,219

$

11,443

$

16,881

(89)

(32)

$

12,081

$

8,444

$

1,219

43

593

57

Table of Contents

Noninterest Income

Table 58 — Analysis of Noninterest Income

Percent Increase/(Decrease)

 

��

Percent Increase/(Decrease)

 

Years Ended December 31, (dollars in thousands)

    

2020

    

2019

    

2018

    

2020/2019

    

2019/2018

 

    

2022

    

2021

    

2020

    

2022/2021

    

2021/2020

 

Service charges on deposit accounts

$

11,615

$

14,197

$

14,273

 

(18)

%  

(1)

%

$

13,426

$

12,553

$

11,615

 

7

%

8

%

Net refund transfer fees

 

20,297

 

21,158

 

20,029

 

(4)

6

 

17,080

 

20,248

 

20,297

 

(16)

Mortgage banking income

 

31,847

 

9,499

 

4,825

 

235

97

 

6,196

 

19,994

 

31,847

 

(69)

(37)

Interchange fee income

 

11,188

 

11,859

 

11,159

 

(6)

6

 

13,125

 

13,062

 

11,188

 

17

Program fees

 

7,095

 

4,712

 

6,225

 

51

(24)

 

16,172

 

14,237

 

7,095

 

14

101

Increase in cash surrender value of bank owned life insurance

 

1,585

 

1,550

 

1,527

 

2

2

 

2,526

 

2,242

 

1,585

 

13

41

Net gains (losses) on other real estate owned

 

(40)

 

540

 

729

 

(107)

(26)

Net gain on branch divestiture

7,829

(100)

NM

Death benefits in excess of cash surrender value of life insurance

979

(100)

NM

Net losses on other real estate owned

 

(211)

 

(160)

 

(40)

 

(32)

(300)

Contract termination fee

5,000

NM

NM

Legal settlement

13,000

Other

 

3,466

 

3,664

 

4,658

 

(5)

(21)

 

3,496

 

3,420

 

3,466

 

2

(1)

Total noninterest income

$

87,053

$

75,008

$

63,425

 

16

18

$

89,810

$

86,575

$

87,053

 

4

(1)

NM - Not meaningful

Total Company noninterest income increased $12.0$3.2 million or 16%, for 2020 compared to 2019. over 2021.

The following were the most significant components comprising the total Company’s noninterest income by reportable segment:

Traditional Banking segment

Traditional BankingBanking’s noninterest income decreased $11.1 million,increased $156,000, or 29%less than 1%, for 2020 compared to 2019. The most significant categories affecting the changeover 2021, driven primarily by a $882,000 increase in noninterest income for 2019 follow:Service Charges on Deposit Accounts offset by a $399,000 nonrecurring gain on sale of a former banking center recorded during 2021.

Traditional Bank noninterest income for 2019 includes a pre-tax $7.8 million net gain resulting from the final settlement of the Company’s branch divestiture during November 2020.

The Bank earns a substantial majority of its fee income related to its overdraft service. The total per item fees, net of refunds, included in service charges on deposits for 2022 and 2021 were $6.8 million and $5.6 million. The total daily overdraft charges, net of refunds, included in interest income for 2022 and 2021 were $1.3 million and $1.1 million. The year-over-year growth in these overdraft related fees were generally due to a full year of more normal economic activity during 2022 as opposed to 2021, which had less activity due to some continuing COVID restrictions.

Service charges on deposit accounts decreased $2.6 million and interchange income decreased $622,000 from 2019 to 2020. Both decreases largely reflect a change in client savings and spending patterns during the pandemic-driven economic restrictions. In general, in the second quarter of 2020, client spending decreased meaningfully from the same period in 2019, while client deposit balances increased, thus producing less overdraft activity and less interchange revenue for the Bank.

Mortgage Banking segment

A significant rise in long-term interest rates during 2022 led to a significant slowdown in the origination and subsequent sale of mortgage loans into the secondary market. As a result, Mortgage Banking income decreased from $20.0 million during 2021 to $6.2 million for 2022. For 2022, the Bank recorded proceeds of $238 million for its loans sold into the secondary market and achieved an average cash-gain-as-a-percent-of-loans-sold during the year of 3.01%. During 2021, however, long-term interest rates were closer to historical lows, driving secondary market loan sales higher with overall proceeds from sale of $718 million and comparable cash-gain-as-a-percent-of-loans-sold of 3.22%.

With the FOMC potentially moving forward with its quantitative tightening program during 2023, management believes it is likely that the Core Bank’s mortgage origination volume will continue to be negatively impacted by higher interest rates combined with a potential economic slow-down within the US economy.

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Client spending patterns did begin returning to more normalized levels during the third quarter of 2020, however, management is uncertain at this time if this pattern will continue given the on-going spread of COVID-19 nationally.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income increased $22.3 million, or 235%, during 2020 compared to 2019. Falling mortgage rates during 2020 drove strong growth in the Company’s consumer refinance activity, particularly within the Company’s relatively new Consumer Direct channel. Overall, the Company originated $783 million of secondary market mortgage loans during 2020 compared to $356 million for 2019.

In addition to the strong mortgage banking origination volume during 2020, the Company’s profit margin, measured as cash gains recognized as a percent of total loans sold, increased by approximately 150 basis points from 2.3% in 2019 to 3.8% in 2020. The stronger profit margin resulted from favorable market conditions on pricing during 2020. If, and when, consumer refinance volume begins to slow down in the future, management believes market conditions for pricing will become more competitive and return to a range of 2.0%-3.0%, which is more in-line with historical profit margins.

Mortgage banking income is greatly influenced by the overall mortgage market and the competitive environment. The Mortgage Bankers Association’s economic forecast released in January 2021 projected mortgage originations to decrease 24% across the United States from 2020 to 2021. If this economic forecast turns out to be substantially accurate, management believes that its mortgage banking income may also decrease. This predicted decrease in mortgage volume would likely increase the competitive environment and may negatively impact the Bank’s ability to maintain its existing origination volume and its existing profit margin on its loans sold.

Tax Refund Solutions segment

Within the TRS segment,TRS’s noninterest income increased $918,000,$14.7 million, or 4%62%, over 2021. Green Dot paid RB&T a total of $18 million in nonrecurring payments during 2020 compared2022 related to 2019. This increase reflectedthe now-cancelled TRS Purchase Agreement. These nonrecurring payments included the following:

A contract termination fee of $5.0 million in January 2022 after RB&T provided Green Dot a notice of termination of the May 2021 TRS Purchase Agreement for the sale of substantially all of RB&T’s TRS assets and operations to Green Dot.

A legal settlement of $13.0 million in June 2022 regarding RB&T’s lawsuit against Green Dot.

Regarding TRS’s RT product, net RT revenue decreased 16% from $20.2 million during 2021 to $17.1 million during 2022. The decrease was primarily driven by an 3% overall decrease in RT volume from the 2021 to the 2022 tax season, with a $1.6 million increase in prepaid card program fees as a resultsubstantial portion of that decrease driven by the loss of one of TRS’s tax providers following the announcement of the Company’snow-cancelled May 1, 2020 acquisition2021 Asset Purchase Agreement.

For factors affecting the comparison of approximately $250 million in prepaid card balances offset by a $861,000 decrease in net RT fees. RTs processed decreased 8% from 2019 to 2020.the TRS results of operations for 2022 and 2021, see section titled “OVERVIEW - Tax Refund Solutions.”

Republic Credit Solutions segment

Within the RCS segment,RCS’s noninterest income remained at $4.9increased $2.2 million, or 20%, with a $627,000 increase in program fees offset by a $659,000 decrease in other income resulting from a one-time gain recorded on discontinuationrepresenting the entirety of RCS’s credit card product during 2019.noninterest income. The increase in RCS program fees increased primarily from $1.7 million in feesreflected higher sales volume from RCS’s newline of credit and installment loan product launched in December 2019 partially offsetproducts as sales volume was negatively impacted during 2021 by federal government stimulus programs implemented to combat the economic impact of the COVID pandemic. RPG program fees resulting from the sale of RCS loan products totaled $13.3 million during 2022, a $1.3 million reduction in fees for RCS’s line-of-credit product. The Company reduced marketing for RCS’s installment loan and line-of-credit products during the first quarter of 2020 in response to the COVID-19 pandemic. RCS began incrementally increasing its marketing for its line-of-credit product during the third quarter of 2020.20% increase over 2021.

The following table presents RCS program fees by product:

Table 69 — RCS Program Fees by Product

Percent Increase/(Decrease)

Percent Increase/(Decrease)

Years Ended December 31, (in thousands)

2020

2019

2018

2020/2019

2019/2018

2022

2021

2020

2022/2021

2021/2020

Product:

Line of credit

$

3,119

$

4,392

$

4,486

(29)

%

(2)

%

Credit card

1,703

(100)

Lines of credit

$

6,406

$

5,049

$

3,119

27

%

62

%

Hospital receivables

102

232

144

(56)

61

178

268

102

(34)

163

Installment loans*

1,681

(349)

(403)

(582)

(13)

6,716

5,749

1,681

17

242

Total

$

4,902

$

4,275

$

5,930

15

(28)

$

13,300

$

11,066

$

4,902

20

126

*The Company has elected the fair value option for this product, with mark-to-market adjustments recorded as a component of program fees.

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Noninterest Expense

Table 710 — Analysis of Noninterest Expense

Percent Increase/(Decrease)

 

Percent Increase/(Decrease)

 

Years Ended December 31, (dollars in thousands)

    

2020

    

2019

    

2018

    

2020/2019

    

2019/2018

 

    

2022

    

2021

    

2020

    

2022/2021

    

2021/2020

 

Salaries and employee benefits

$

106,166

$

99,181

$

91,189

 

7

%  

9

%

$

111,240

$

110,088

$

106,166

 

1

%  

4

%

Occupancy and equipment, net

 

27,498

 

26,124

 

25,365

 

5

3

Communication and transportation

 

4,942

 

4,447

 

4,785

 

11

(7)

Technology, equipment, and communication

 

28,954

 

29,351

 

29,128

 

(1)

1

Occupancy

 

13,014

 

13,193

 

13,438

 

(1)

(2)

Marketing and development

 

4,031

 

5,023

 

4,432

 

(20)

13

 

6,875

 

4,390

 

4,031

 

57

9

FDIC insurance expense

 

1,010

 

743

 

1,494

 

36

(50)

 

1,668

 

1,591

 

1,010

 

5

58

Bank franchise tax expense

 

5,369

 

5,293

 

4,951

 

1

7

Data processing

 

12,066

 

9,189

 

9,613

 

31

(4)

State bank franchise tax expense

 

 

 

5,369

 

(100)

Interchange related expense

 

4,303

 

4,870

 

4,480

 

(12)

9

 

4,773

 

4,960

 

4,303

 

(4)

15

Supplies

 

1,717

 

1,693

 

1,444

 

1

17

Other real estate owned and other repossession expense

 

46

 

326

 

94

 

(86)

247

Legal and professional fees

 

4,244

 

3,357

 

3,459

 

26

(3)

 

4,024

 

4,924

 

4,244

 

(18)

16

FHLB advances early termination penalties

 

2,108

 

 

 

NM

NM

 

 

 

2,108

 

NM

NM

Other

 

11,957

 

11,937

 

12,546

 

(5)

 

16,760

 

14,568

 

15,660

 

15

(7)

Total noninterest expense

$

185,457

$

172,183

$

163,852

 

8

5

$

187,308

$

183,065

$

185,457

 

2

(1)

Total Company noninterest expense increased $13.3$4.2 million, or 8%2%, during 2020 compared to 2019. over 2021.

The following were the most significant components comprising the changeincrease in noninterest expense by reportable segment follow:segment:

Traditional Banking segment

For 2020 compared to 2019, Traditional Banking noninterest expense increased $5.4$4.3 million or 4%. over 2021. The following were the most significant categories affectingprimarily drove the change in noninterest expense:

Salaries and employee benefits expense increased $2.5 million, or 3%, driven primarily by annual merit increases.

Data ProcessingOther noninterest expense increased $2.5by $3.0 million, or 31%, driven by53%. Notable fluctuations within the Company’s increased investment in technology in 2020, with a substantial part of this investmentOther noninterest expense category were as follows:

oNet losses related to systemsclient disputes for unauthorized checks as well as unauthorized debit and credit card transactions increased $780,000 over 2021.

oMeals, Entertainment, and Travel expenses increased $860,000 with in-person community outreach and business-related travel increasing to facilitate processingnearer pre-pandemic levels in combination with inflationary pressures on these costs.

oFreight, postage and supplies expense increased $261,000 with these expenses negatively impacted by additional usage and inflation-related cost increases.

oProvision for PPP clients.losses on off-balance sheet commitments increased $135,000 driven primarily by an increase in the Bank’s committed but unused lines of credit during the previous 12 months.

oThe remaining increase was spread over several miscellaneous accounts, with these expenses rising back closer to pre-pandemic levels.

OccupancySalaries and Equipment costsBenefits expense increased a net $1.2 million, or 5%1%, over 2019 costs driven primarily by two new banking centersto $88.5 million for 2022. The most notable change within Salaries and anBenefits was estimated bonus expense, which increased $1.1 million from 2021 to 2022, as expected bonus payouts for 2022 are expected to increase in the Core Bank’s fleet of Interactive Teller Machines.from those paid out for 2021.

The Traditional Bank incurred $2.1 million in early termination penalties upon payoff of $60 million of FHLB term advances during the fourth quarter of 2020. These advances had a weighted average cost of 2.21%.

Mortgage Banking segment

Offsetting the above were decreases in Marketing and Development, Interchange, and Travel and Entertainment expenses, with each of these expenses driven downward as a direct result of pandemic-related influences.

Noninterest expense at the Mortgage Banking segment decreased $2.4 million, or 20%, from 2021, primarily due to a $3.3 million reduction in mortgage commissions partially offset by a $2.2 million reduction in credits to deferred salary expense. The decrease in mortgage commissions was directly attributable to the previously discussed significant decline in secondary market loan volume from 2021 to 2022.

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The Company records a credit offset to salary expense for each loan it originates and recognizes the cost of that credit as an adjustment to the loan’s yield over its estimated life. The amount of credit benefit to salary expense during a given year is determined by the overall loan origination volume during that year. With the dramatic decrease in mortgage origination volume during 2022, the overall credit benefit recognized by the Mortgage Banking segment during 2022 decreased substantially as compared to 2021 when mortgage origination volume was much higher.

In addition to the change in salary expenses noted in the previous paragraph, the Mortgage Banking segment also experienced a year-to-year decrease of $350,000 in marketing expenses as the rapid rise in interest rates made the fixed-rate secondary market product a less attractive alternative for clients seeking mortgage loans. The remaining decline in noninterest expense was related to a reduction in general overhead expenses allocated to the business segment as a result of the decrease in new loan origination volume.

Republic Credit Solutions segment

Noninterest expense at the RCS noninterest expensesegment increased $1.1$3.6 million, or 44%76%, during 2020 comparedover 2021, primarily due to 2019.increased marketing of RCS’s LOC II product. The fluctuation resulted from a $700,000 contingent legal reserve reversedLOC II product was first piloted during the fourthfirst quarter of 2019 due to a positive settlement of the matter.2021.

Income Tax Expense

The Company’s effective tax rate was approximately 19% in 2020 and 2019.

See additional detail regarding the Company’s Income Tax Expense under Footnote 19 “Income Taxes” of Part II Item 8 “Financial Statements and Supplemental Data.”

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FINANCIAL CONDITION

Cash and Cash Equivalents

Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Republic had $486 million in cash and cash equivalents at December 31, 2020 compared to $385 million at December 31, 2019. During 2019 and 2020, the Bank maintained a relatively high cash balance on its balance sheet for liquidity purposes.

For cash held at the FRB, the Bank earns a yield on amounts more thanexceeding required reserves. This cash earned a weighted-average yield decreased from 1.55% at January 1, 2020 to 0.10% atof 1.54% during 2022 with a spot balance yield of 4.40% on December 31, 2020.2022. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.

Republic had $314 million in cash and cash equivalents as of December 31, 2022 compared to $757 million as of December 31, 2021. Period-end cash balances did decrease from December 31, 2021 to December 31, 2022 due in part to cash utilized to fund $98 million of ERAs originated during December of 2022 and also due to a $301 million decline in customer deposit balances during the year.

While the Company deployed a portion of its excess cash into the purchase of long-term investment securities during the fourth quarter of 2021 and periodically throughout 2022, it maintained a general strategy of keeping a large amount of interest earning cash on balance sheet for interest rate risk protection. As a result, Republic’s average interest-earning cash and cash equivalent balances were $738 million during 2022 compared to $807 million for 2021. This strategy significantly benefitted the Traditional Bank’s net interest income during the year as the FOMC began raising the FFTR during 2022.

The Company’s Captive maintains cash reserves to cover insurable claims. Captive cash reserves totaled approximately $3$4 million and $3 million atas of December 31, 20202022 and 2019.2021.

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Investment Securities

Table 811 — Investment Securities Portfolio

December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

    

2022

    

2021

    

2020

 

Available-for-sale debt securities (fair value):

U.S. Treasury securities and U.S. Government agencies

$

246,909

$

134,640

$

216,873

$

307,592

$

294,544

$

411,141

$

237,459

$

246,909

Private label mortgage backed security

 

2,957

 

3,495

 

3,712

 

4,449

 

4,777

Mortgage backed securities - residential

 

211,202

 

255,847

 

169,209

 

106,374

 

73,004

Private label mortgage-backed security

 

2,127

 

2,731

 

2,957

Mortgage-backed securities - residential

 

171,873

 

210,749

 

211,202

Collateralized mortgage obligations

 

48,952

 

63,371

 

72,811

 

87,163

 

87,654

 

21,368

 

30,294

 

48,952

Corporate bonds

 

10,043

 

10,002

 

9,058

 

15,125

 

15,158

 

10,001

 

10,046

 

10,043

Trust preferred security

 

3,800

 

4,000

 

4,075

 

3,600

 

3,200

 

3,855

 

3,847

 

3,800

Total available-for-sale debt securities

 

523,863

 

471,355

 

475,738

 

524,303

 

478,337

 

620,365

 

495,126

 

523,863

Held-to-maturity debt securities (carrying value):

U.S. Treasury securities and U.S. Government agencies

 

 

 

 

 

506

 

75,000

 

 

Mortgage backed securities - residential

 

99

 

104

 

132

 

151

 

158

 

27

 

46

 

99

Collateralized mortgage obligations

 

13,061

 

16,970

 

19,544

 

23,437

 

27,142

 

7,270

 

9,080

 

13,061

Corporate bonds

39,808

44,995

45,088

40,175

 

25,058

4,964

34,928

39,808

Obligations of state and political subdivisions

 

356

 

462

 

463

 

464

 

 

125

 

245

 

356

Total held-to-maturity debt securities

 

53,324

 

62,531

 

65,227

 

64,227

 

52,864

 

87,386

 

44,299

 

53,324

Equity securities with a readily determinable fair value (fair value):

Freddie Mac preferred stock

 

560

 

714

 

410

 

473

 

483

 

111

 

170

 

560

Community Reinvestment Act mutual fund

 

2,523

 

2,474

 

2,396

 

2,455

 

2,455

 

 

2,450

 

2,523

Total equity securities with a readily determinable fair value

3,083

3,188

2,806

2,928

2,938

111

2,620

3,083

Total investment securities

$

580,270

$

537,074

$

543,771

$

591,458

$

534,139

$

707,862

$

542,045

$

580,270

AFS debt securities primarily consists of U.S. Treasury securities and U.S. Government agency obligations, including agency MBS and agency CMOs. The agency MBSs primarily consist of hybrid mortgage investment securities, as well as other adjustable rate mortgage investment securities, underwritten and guaranteed by the GNMA, the FHLMC and the FNMA. Agency CMOs held in the investment portfolio are substantially all floating rate securities that adjust monthly. The Bank uses a portion of the investment securities portfolio as collateral to Bank clients for SSUARs. The remaining eligible securities that are not pledged to secure client SSUARs may be pledged to the FHLB as collateral for the Bank’s borrowing line.

During 2020,2022, the Bank purchased $299$330 million in investment debt securities, allocated among $54$30 million in MBSs, $160 million in U.S. Treasuries, and $245$140 million in U.S. government agencies. Of the U.S. Treasuries that were purchased during the year, $75 million of these securities were designated as HTM at their time of purchase. The mortgage-backed securities that were purchased had an expected weighted-average yield of approximately 2.02%1.30% and a weighted averageweighted-average maturity at purchase of 9.0 years. The U.S. Treasuries had an expected weighted-average yield of approximately 2.03% and a weighted-average life at purchase of 4.01.6 years. The U.S. Government agencies purchased had an expected weighted averageweighted-average yield of approximately 0.68%4.70% and a weighted averageweighted-average life of 3.52.0 years.

From 2013 to 2019, the Bank purchased various floating-rate corporate bonds. These bonds were rated “investment grade” by accredited rating agencies as of their respective purchase dates. The total fair value of the Bank’s corporate bonds represented 10%

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and 10% of the Bank’s investment portfolio as of December 31, 2020 and 2019. During 2019, one of these bonds was downgraded to BBB+ (S&P/Fitch), driving a significant decrease in the bond’s market value. As of December 31, 2020, this bond had generally recovered its lost value and reflected an unrealized gain of $43,000.

Strategies for the investment securities portfolio are influenced by economic and market conditions, loan demand, deposit mix, and liquidity needs. For the past several years,Since early 2020, the Bank has continued to utilizeutilized a general investing strategy within the investment portfolio of purchasing securities with shorter-term durations.durations or maintaining a large amount cash at the Federal Reserve. The Bank has usedutilized this general strategy fordue to liquidity purposesreasons and as an interest rate risk management tool, in what has beenas management did not believe that extending the duration of a long periodsignificant amount of the Company’s cash into longer investment terms was worth the interest rate risk given the historically low interest rates. Management believes the Bank will likely continue with this general strategy into the foreseeable future as marketlevel of long-term interest rates are expectedat that time. This strategy could change in 2023 depending upon several factors including, but not limited to, continue to rise in 2021.the Company’s overall current and projected liquidity positions, its customers’ demand for its loans and deposit products, the Company’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.

Table 9 — Mortgage Backed SecuritiesDuring 2019, one of the Company’s floating rate corporate bonds with a current carrying amount of $10 million was downgraded to BBB+ (S&P/Fitch), driving a significant decrease in the bond’s market value at that time. As of December 31, 2022, this bond had recovered its lost value and reflected an unrealized gain of $1,000.

December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

Private label mortgage backed security

$

2,957

$

3,495

$

3,712

$

4,449

$

4,777

Mortgage backed securities - residential

 

211,306

 

255,957

 

169,349

 

106,535

 

73,174

Collateralized mortgage obligations

 

62,189

 

80,414

 

92,487

 

110,819

 

114,922

Total fair value of mortgage backed securities

$

276,452

$

339,866

$

265,548

$

221,803

$

192,873

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Table 1012 — Available-for-Sale Debt Securities

    

    

    

    

    

Weighted

 

    

    

    

    

Weighted

 

Weighted

Average

 

Weighted

Average

 

Amortized

Fair

Average

Maturity in

 

Amortized

Fair

Average

Maturity in

 

December 31, 2020 (dollars in thousands)

Cost

Value

Yield

Years

 

December 31, 2022 (dollars in thousands)

Cost

Value

Yield

Years

 

U.S. Treasury securities and U.S. Government agencies:

Due in one year or less

$

14,943

$

15,118

 

1.73

%  

0.72

$

31,789

$

31,432

 

1.10

%  

0.25

Due from one year to five years

 

230,261

 

231,791

 

0.77

3.02

 

404,544

 

379,709

 

1.81

2.29

Due from five years to 10 years

 

 

 

Total U.S. Treasury securities and U.S. Government agencies

 

245,204

 

246,909

 

0.82

2.88

 

436,333

 

411,141

 

1.75

2.14

Corporate bonds:

Due from one year to five years

 

10,000

 

10,043

 

2.88

2.29

Due in one year or less

 

10,000

 

10,001

 

5.08

0.29

Total Corporate bonds

 

10,000

 

10,043

 

2.88

2.29

 

10,000

 

10,001

 

5.08

0.29

Trust preferred security, due beyond ten years

3,631

3,800

5.48

16.43

3,741

3,855

5.48

14.43

Private label mortgage backed security

 

1,707

 

2,957

 

7.96

12.59

 

843

 

2,127

 

7.96

10.63

Total mortgage backed securities - residential

 

203,786

 

211,202

 

2.13

12.07

 

189,312

 

171,873

 

1.89

10.94

Total collateralized mortgage obligations

 

48,190

 

48,952

 

1.39

19.83

 

22,774

 

21,368

 

1.60

17.48

Total available-for-sale debt securities

$

512,518

$

523,863

 

1.50

8.25

$

663,003

$

620,365

 

1.89

5.24

Table 1113 — Held-to-Maturity Debt Securities

    

    

    

    

    

    

    

Weighted

 

    

    

    

    

Weighted

 

Weighted

Average

 

Weighted

Average

 

Carrying

Fair

Average

Maturity in

 

Carrying

Fair

Average

Maturity in

 

December 31, 2020 (dollars in thousands)

Value

Value

Yield

Years

 

December 31, 2022 (dollars in thousands)

Value

Value

Yield

Years

 

U.S. Treasury securities and U.S. Government agencies:

Due from one year or less

$

75,000

$

75,106

 

5.17

1.91

Total U.S. Treasury securities and U.S. Government agencies

 

75,000

 

75,106

 

5.17

1.91

Corporate bonds:

Due from one year to five years

$

35,031

$

35,455

1.83

%  

2.42

$

4,974

$

4,925

5.56

%  

3.10

Due from five years to ten years

 

4,955

 

5,030

 

1.17

5.10

Total corporate bonds

 

39,986

 

40,485

 

1.75

2.75

 

4,974

 

4,925

 

5.56

3.10

Obligations of state and political subdivisions:

Due from one year or less

110

111

1.88

0.58

125

124

1.90

0.58

Due from one year to five years

 

246

 

253

 

1.85

2.09

 

 

 

Total obligations of state and political subdivisions

 

356

 

364

 

1.81

1.62

 

125

 

124

 

1.90

0.58

Total mortgage backed securities - residential

 

99

 

104

 

3.76

14.06

 

27

 

26

 

4.37

11.59

Total collateralized mortgage obligations

 

13,061

 

13,237

 

0.87

18.89

 

7,270

 

7,176

 

1.29

17.09

Total held-to-maturity debt securities

$

53,502

$

54,190

 

1.54

6.71

$

87,396

$

87,357

 

4.86

3.24

See Footnote 2 “Investment Securities” of Part II Item 8 “Financial Statements and Supplementary Data” for further information regarding the Bank’s investment securities.

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Loan Portfolio

Table 1214 — Loan Portfolio Composition

December 31, (in thousands)

2020

    

2019

    

2018

    

2017

    

2016

 

Traditional Banking:

Residential real estate:

Owner occupied

$

879,800

$

949,568

$

1,001,832

$

1,038,357

$

1,149,176

Nonowner occupied

 

264,780

 

258,803

 

242,846

 

205,081

 

156,605

Commercial real estate

 

1,349,085

 

1,303,000

 

1,248,940

 

1,207,293

 

1,060,496

Construction & land development

 

98,674

 

159,702

 

175,178

 

150,065

 

119,650

Commercial & industrial

 

325,596

 

465,674

 

424,514

 

341,692

 

259,026

Paycheck Protection Program

 

392,319

 

 

 

 

Lease financing receivables

 

10,130

 

14,040

 

15,031

 

16,580

 

13,614

Aircraft

 

101,375

 

70,443

 

36,586

 

3,725

 

1,514

Home equity

 

240,640

 

293,186

 

332,548

 

347,655

 

341,285

Consumer:

Credit cards

14,196

17,836

19,095

16,078

13,414

Overdrafts

587

1,522

1,102

974

803

Automobile loans

30,300

52,923

63,475

65,650

52,579

Other consumer

8,167

9,234

15,897

16,776

18,230

Total Traditional Banking

3,715,649

3,595,931

3,577,044

3,409,926

3,186,392

Warehouse lines of credit*

 

962,796

 

717,458

 

468,695

 

525,572

 

585,439

Total Core Banking

4,678,445

4,313,389

4,045,739

3,935,498

3,771,831

Republic Processing Group*:

Tax Refund Solutions:

 

 

Easy Advances

 

 

 

 

 

Other TRS loans

23,765

14,365

13,744

11,648

6,695

Republic Credit Solutions

 

110,893

 

105,397

 

88,744

 

66,888

 

32,252

Total Republic Processing Group

 

134,658

 

119,762

 

102,488

 

78,536

 

38,947

 

 

Total loans**

 

4,813,103

 

4,433,151

 

4,148,227

 

4,014,034

 

3,810,778

Allowance for credit losses

 

(61,067)

 

(43,351)

 

(44,675)

 

(42,769)

 

(32,920)

Total loans, net

$

4,752,036

$

4,389,800

$

4,103,552

$

3,971,265

$

3,777,858

December 31, (in thousands)

    

2022

    

2021

    

2020

 

Traditional Banking:

Residential real estate:

Owner occupied

$

911,427

$

820,731

$

879,800

Nonowner occupied

 

321,358

 

306,323

 

264,780

Commercial real estate

 

1,599,510

 

1,456,009

 

1,349,085

Construction & land development

 

153,875

 

129,337

 

98,674

Commercial & industrial

 

408,407

 

340,363

 

325,596

Paycheck Protection Program

 

4,980

 

56,014

 

392,319

Lease financing receivables

 

10,505

 

8,637

 

10,130

Aircraft

 

179,785

 

142,894

 

101,375

Home equity

 

241,739

 

210,578

 

240,640

Consumer:

Credit cards

15,473

14,510

14,196

Overdrafts

726

683

587

Automobile loans

6,731

14,448

30,300

Other consumer

626

1,432

8,167

Total Traditional Banking

3,855,142

3,501,959

3,715,649

Warehouse lines of credit*

 

403,560

 

850,550

 

962,796

Total Core Banking

4,258,702

4,352,509

4,678,445

Republic Processing Group*:

Tax Refund Solutions:

 

 

 

Refund Advances

 

97,505

 

 

Other TRS commercial & industrial loans

51,767

50,987

23,765

Republic Credit Solutions

 

107,828

 

93,066

 

110,893

Total Republic Processing Group

 

257,100

 

144,053

 

134,658

 

 

 

Total loans**

 

4,515,802

 

4,496,562

 

4,813,103

Allowance for credit losses

 

(70,413)

 

(64,577)

 

(61,067)

Total loans, net

$

4,445,389

$

4,431,985

$

4,752,036

*     Identifies loans to borrowers located primarily outside of the Bank’s market footprint.

**  Total loans are presented inclusive of premiums, discounts and net loan origination fees and costs.

Gross loans increased by $380$19 million or 9%, during 20202022 to $4.8$4.5 billion atas of December 31, 2020.2022. The most significant components comprising the change in loans by reportable segment follow:

Traditional Banking segment

Period-end balances for Traditional Banking loans increased $120$353 million, or 3%10%, during 2020.from December 31, 2021 to December 31, 2022. The following primarily drove the change in loan balances during 2020:2022:

TheCRE loans grew $144 million, or 10%, and C&I loans grew $68 million, or 20%, during 2022, as the Traditional Bank originated $528 million of PPP loans during 2020. Approximately $401 million of these loans remained outstanding at December 31, 2020. These loans are reported in Table 11 above, net of $9 million in unaccreted origination fees.experienced strong loan demand within its Louisville-based CRE Lending, Private Banking and Commercial Banking business lines, as well as its Northern Kentucky/Cincinnati and Florida markets.

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AircraftWith mortgage refinance volume at all-time record levels during 2020 and 2021, balances of 1-4 family loans, grewincluding HELOCs, generally declined as the vast majority of the volume of refinancings was sold into the secondary market. This trend began to change in 2022, however, as a significant rise in long-term, fixed-rate mortgages caused portfolio level ARM loans to become generally more attractive than secondary market loans. As a result, residential real estate loans increased $106 million during 2022, while HELOCs increased $31 million during 2020. In mid-2020 the Bank increased its financing threshold for aircraft-secured loans to $2.0 millionsame period.

The C&I categoryOffsetting the growth above, during 2022, the Core Bank’s PPP portfolio decreased $140$51 million, during 2020. The Company’s strategicas this temporary government program continued to wind down of its auto dealer floor plan program drove approximately $30 million of this decrease. The remaining decrease reflected paydowns and payoffs of C&I loans during the period. C&I loan production to offset these paydowns has been negatively impacted by pandemic driven credit conditions.down.

The C&D category decreased $61 million, driven by paydowns and payoffs of C&D loans during the period. C&D loan production to offset these payoffs and paydowns was negatively impacted by pandemic driven conditions.

The owner-occupied residential real estate and home equity categories decreased $70 million and $53 million. These decreases largely reflect a sharp drop in long-term market interest rates during 2020 that drove an increase in refinance volume for residential mortgages, with much of the refinance activity going into fixed rate products sold on the secondary market.

Regarding the Company’s PPP loans, these loans have a stated maturity of two years, an annualized fixed coupon rate of 1.0% to the client, are 100% guaranteed by the SBA, and 100% forgivable to the client if certain program metrics are met. The Bank earns an origination fee of 1%, 3%, or 5% based on the size of the loan.

Republic carried approximately $9 million in unaccreted PPP loan fees as of December 31, 2020, which it expects to accrete into income over the remaining life of the loans. While no guarantee can be made as to the overall life of these loans, management believes the loans are likely to remain on the Company’s balance sheet less than one year, as it expects the substantial majority of its clients to request forgiveness for their loans from the SBA as soon as possible, presuming these clients achieve the required program metrics.

The Economic Aid Act was enacted in December 2020 in further response to the COVID-19 pandemic. Among other things, the Economic Aid Act provides relief to borrowers to access additional credit through the SBA's PPP program. The Bank began actively participating in the new program during the first quarter of 2021 and had funded approximately $100 million in additional PPP loans through February 19, 2021.

Warehouse Lending segment

Outstanding Warehouse loans increased $245period-end balances decreased $447 million from December 31, 20192021 to December 31, 2020.2022. Due to the volatility and seasonality of the mortgage market, it is difficult to project future outstanding balances of Warehouse lines of credit. As was the case in 2020, theThe growth of the Bank’s Warehouse Lending business greatly depends on the overall mortgage market and typically follows industry trends. Since its entrance into this business induring 2011, the Bank has experienced volatility in the Warehouse portfolio consistent with overall demand for mortgage products. Weighted averageWeighted-average quarterly usage rates on the Bank’s Warehouse lines have ranged from a low of 31% during the fourth quarter of 2013 to a high of 71% during the fourth quarter of 2019. On an annual basis, weighted average usage rates on the Bank’s Warehouse lines have ranged from a low of 40%39% during 20132022 to a high of 66% during 2020.

As previously discussed, additional increases overall market rates are generally believed by management to be unfavorable to Warehouse’s client demand, likely leading to a reduction in average outstanding balances as higher long-term interest rates generally drive lower demand for Warehouse borrowings.

Tax Refund Solutions segment

Outstanding TRS loans increased $99 million from December 31, 2021 to December 31, 2022 primarily reflecting the impact of $98 million of ERAs originated during the fourth quarter of 2022 through a new third party Tax Provider contract. Conversely, no ERAs were originated during the fourth quarter of 2021. In addition, other TRS loans increased $1 million from December 31, 2021 to December 31, 2022. Other TRS loans primarily represent commercial-related loans to Tax Providers. These loans are typically made in the fourth quarter of each year and fully repaid by June 30th of the following year.

Republic Credit Solutions segment

Outstanding RCS loans increased $5$15 million from December 31, 2019 to December 31, 2020 primarilyduring 2022 reflecting a $16$12 million increase in hospital receivables partially offset byand a $10$3 million decreaseincrease in outstanding balances for RCS’s line-of-credit product. As previously mentioned, the decreaseproducts. The increase in balances for RCS’s line-of-credit product was the direct result of a reduction inadditional marketing forof the product in response to the COVID-19 pandemic. RCS began incrementally increasing its marketing for its line-of-credit productproducts during the third quarter of 2020.2022.

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See additional detail regarding the impact of COVID-19 under:

Part I Item 1A “Risk Factors”

Part II Item 8 “Financial Statements and Supplementary Data”
oFootnote 2 “Investment Securities”
oFootnote 4 “Loans and Allowance for Credit Losses”
oFootnote 13 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

The table below illustrates the Bank’s fixed and variable rate loan maturities:

Table 1315 — Selected Loan Distribution

    

    

    

    

Over One

    

 

    

    

    

Over One

    

Over Five

    

 

One Year

Through

Over

 

One Year

Through

Through

Over

 

December 31, 2020 (in thousands)

Total

Or Less

Five Years

Five Years

 

December 31, 2022 (in thousands)

Total

Or Less

Five Years

15 Years

15 Years

 

Fixed rate loan maturities:

Residential real estate

$

562,769

$

28,163

$

15,413

$

519,193

$

618,577

$

19,402

$

32,740

$

252,817

$

313,618

Commercial real estate

 

519,063

 

23,188

 

82,210

 

413,665

 

717,325

 

13,739

 

169,697

 

533,067

 

822

Construction & land development

 

28,664

 

8,204

 

1,064

 

19,396

 

57,797

 

17,886

 

22,148

 

14,636

 

3,127

Commercial & industrial

 

161,709

 

20,657

 

102,170

 

38,882

 

245,217

 

62,804

 

113,290

 

69,123

 

Paycheck Protection Program

392,319

 

 

392,319

 

4,980

 

202

 

4,778

 

 

Lease financing receivables

 

10,130

 

1,184

 

8,946

 

 

10,505

 

316

 

10,189

 

 

Aircraft

101,375

 

 

 

101,375

179,785

 

 

1,528

 

36,949

 

141,308

Warehouse lines of credit

 

 

 

 

 

 

 

 

 

Home equity

 

921

 

863

 

 

58

 

1,070

 

 

1,025

 

45

 

Consumer

 

108,516

 

77,234

 

27,618

 

3,664

 

161,635

 

154,788

 

6,633

 

147

 

67

Total fixed rate loans

$

1,885,466

$

159,493

$

629,740

$

1,096,233

$

1,996,891

$

269,137

$

362,028

$

906,784

$

458,942

Variable rate loan maturities:

Residential real estate

$

581,811

$

1,855

$

15,644

$

564,312

$

614,208

$

2,000

$

26,194

$

174,741

$

411,273

Commercial real estate

 

830,022

 

45,509

 

153,159

 

631,354

 

882,185

 

31,878

 

141,711

 

689,862

 

18,734

Construction & land development

 

70,010

 

11,442

 

21,096

 

37,472

 

96,078

 

13,983

 

4,805

 

77,184

 

106

Commercial & industrial

 

187,652

 

49,383

 

87,761

 

50,508

 

214,957

 

77,484

 

96,738

 

20,735

 

20,000

Paycheck Protection Program

 

 

 

 

 

 

 

Lease financing receivables

 

 

 

 

 

 

 

 

 

Aircraft

 

 

 

 

 

 

 

Warehouse lines of credit

 

962,796

 

962,796

 

 

 

403,560

 

403,560

 

 

 

Home equity

 

239,719

 

19,491

 

44,841

 

175,387

 

240,669

 

14,894

 

61,444

 

164,331

 

Consumer

 

55,627

 

14,196

 

 

41,431

 

67,254

 

15,473

 

8

 

 

51,773

Total variable rate loans

$

2,927,637

$

1,104,672

$

322,501

$

1,500,464

$

2,518,911

$

559,272

$

330,900

$

1,126,853

$

501,886

Total:

Residential real estate

$

1,144,580

$

30,018

$

31,057

$

1,083,505

$

1,232,785

$

21,402

$

58,934

$

427,558

$

724,891

Commercial real estate

 

1,349,085

 

68,697

 

235,369

 

1,045,019

 

1,599,510

 

45,617

 

311,408

 

1,222,929

 

19,556

Construction & land development

 

98,674

 

19,646

 

22,160

 

56,868

 

153,875

 

31,869

 

26,953

 

91,820

 

3,233

Commercial & industrial

 

349,361

 

70,040

 

189,931

 

89,390

 

460,174

 

140,288

 

210,028

 

89,858

 

20,000

Paycheck Protection Program

392,319

 

 

392,319

 

4,980

 

202

 

4,778

 

 

Lease financing receivables

 

10,130

 

1,184

 

8,946

 

 

10,505

 

316

 

10,189

 

 

Aircraft

101,375

 

 

 

101,375

179,785

 

 

1,528

 

36,949

 

141,308

Warehouse lines of credit

 

962,796

 

962,796

 

 

 

403,560

 

403,560

 

 

 

Home equity

 

240,640

 

20,354

 

44,841

 

175,445

 

241,739

 

14,894

 

62,469

 

164,376

 

Consumer

 

164,143

 

91,430

 

27,618

 

45,095

 

228,889

 

170,261

 

6,641

 

147

 

51,840

Total loans

$

4,813,103

$

1,264,165

$

952,241

$

2,596,697

$

4,515,802

$

828,409

$

692,928

$

2,033,637

$

960,828

Loans at maturity interval to overall total loans

100

%

26

%

20

%

54

%

100

%

19

%

15

%

45

%

21

%

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Table of Contents

Allowance for Credit Losses

AtAs of December 31, 2020,2022, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. The Bank also maintained an ACLS and an ACLC for expected losses in its securities portfolio and its off-balance sheet credit exposures, respectively. Management evaluates the adequacy of the ACLL monthly, and the adequacy of the ACLS and ACLC quarterly. All ACLs are presented and discussed with the Audit Committee and the Board of Directors quarterly.

Effective January 1, 2020, the Company adopted ASC 326 Financial Instruments – Credit Losses, which replaces the pre-January 1, 2020 “probable-incurred” method for calculating the Company’s ACL with the CECL method. CECL is applicable to financial assets measured at amortized cost, including loan and lease receivables and held-to-maturity debt securities. CECL also applies to certain off-balance sheet credit exposures.

When measuring an ACL, CECL primarily differs from the probable-incurred method by: a) incorporating a lower “expected” threshold for loss recognition versus a higher “probable” threshold; b) requiring life-of-loan considerations; and c) requiring reasonable and supportable forecasts. The Company’s CECL method is a “static-pool” method that analyzes historical closed pools of loans over their expected lives to attain a loss rate, which is then adjusted for current conditions and reasonable and supportable forecasts prior to being applied to the current balance of the analyzed pools. Due to its reasonably strong correlation to the Company's historical net loan losses, the Company has chosen to use the U.S. national unemployment rate as its primary forecasting tool.

In accordance with the adoption of ASC 326 and CECL, the Company recorded on January 1, 2020 a $6.7 million, or 16%, increase in the ACLL for its loans, a $51,000 ACLS for its investment debt securities, and a $456,000 ACLC for its off-balance sheet credit exposures. Of the $6.7 million increase in ACLL, approximately $1.4 million was a gross-up reclassification of non-accretable discount on previously-PCI, now-PCD loans, and the remaining $5.3 million was a difference in ACL between CECL and the probable-incurred method. The Company also made a cumulative effect entry of $4.3 million to reduce its opening balance of retained earnings upon adoption of ASC 326, with no impact on 2020 earnings for these adoption entries. The adoption date increase in ACLL for the Company’s loans primarily reflects additional ACLL for longer duration loan portfolios, such as the Company's residential real estate and consumer loan portfolios. No additional segmentation of the Bank's loan portfolios was deemed necessary upon adoption.

See additional detail regarding the Company’s adoption of ASC 326 and the CECL method under Footnote 1 “Summary of Significant Accounting Policies” and Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements and Supplementary Data.”

The Company’s ACLL increased $18$5.8 million from $43$64.6 million atas of December 31, 20192021 to $61$70.4 million atas of December 31, 2020.2022. As a percent of total loans, the total Company’s ACLL increased to 1.27% at1.56% as of December 31, 20202022 compared to 0.98% at1.44% as of December 31, 2019.2021. An analysis of the ACL by reportable segment follows:

Traditional Banking segment

The Traditional Banking ACLL increased $21 million to $50 million at December 31, 2020, driven partially by the Company’s January 1, 2020 CECL adoption entry of approximately $7 million and partially by approximately $20 million of reserves for the expected impact of the COVID-19 pandemic, which primarily included the following considerations:

othe pandemic’s impact on national unemployment;
oan analysis of  loans to industries more directly harmed by the pandemic, such as the hospitality industry;
othe number and amount in loans receiving pandemic related accommodations from the  Bank; and,
oa forecasted rise in vacancy rates for CRE within the Traditional Bank’s market footprint.

Offsetting the increase in the ACLL due to the pandemic was a reduction in the ACLL of approximately $5 million driven by a $274 million decrease in non-PPP Traditional Bank period-end balances from January 1, 2020 to December 31, 2020.  The Traditional Bank ACLL to total Traditional Bank loans increased 56 basis points to 1.34% when comparing December 31, 2020 to December 31, 2019.

Following the Company’s $51,000 ASC 326 adoption entry on January 1, 2020 establishing an ACLS for its debt securities, the Company increased its ACLS $127,000 during 2020 to $178,000 based on higher PD and LGD expectations on its corporate bond portfolios. These higher PD and LGD expectations generally reflect economic concerns from the COVID-19 pandemic.

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Traditional Banking segment

Following the Company’s ASC 326 adoption entry on January 1, 2020 for an ACLC on its off-balance sheet credit exposures of $456,000, the CompanyThe Traditional Banking ACLL increased its ACLC $533,000 during 2020approximately $1.3 million to $989,000 at$50.7 million as of December 31, 2020. The higher ACLC at December 31, 2020 reflects higher assumed usage rates on outstanding lines and higher assumed loss rates on credit converted balances over their expected lives. The ACLC is recorded on2022 driven primarily by formula reserves tied to loan growth during 2022, partially offset by reserves released following the liability sidepayoff or upgrade of the balance sheet, with any provision for loss recorded within other noninterest expense.loans graded Substandard or Special Mention.  

Warehouse Lending segment

The Warehouse ACLL increaseddecreased to approximately $2.4$1.0 million, and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparing December 31, 20202022 to December 31, 2019.2021. As of December 31, 2020,2022, the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for 2020. Warehouse lines are generally short-term, sound quality facilities secured by marketable collateral; therefore, the Company made no adjustment2021. 

Tax Refund Solutions segment

The TRS ACLL increased to the Warehouse ACLL upon adoptionapproximately $3.9 million as of CECL.  Additionally, the Company made no ACLL adjustment for Warehouse lines for COVID-19 concerns at December 31, 2020,2022 compared to $944,000 as its Warehouse clientsof December 31, 2021. The increased ACLL was primarily driven by estimated loss reserves for $98 million of ERAs outstanding as of December 31, 2022. These ERAs were originated during the fourth quarter of 2022 through a new third party Tax Provider contract and are experiencing relatively high demand for refinance transactionsexpected to be repaid from tax refunds generated by tax returns filed during the first quarter 2023 filing season. In contrast there were no ERAs outstanding as borrowers take advantage of the low interest rate environment. December 31, 2021

Republic Credit Solutions segment

The RCS ACLL decreased $4increased $1.9 million to $9from $12.9 million atas of December 31, 2020 from $132021 to $14.8 million atas of December 31, 2019. The decrease in ACLL was driven by a $10 million decrease in outstanding balances for RCS’s line-of-credit product partially offset by a higher estimated loss rate on this product to account for COVID-19 economic concerns. As previously mentioned, the decrease in balances for RCS’s line-of-credit product was the direct result of a reduction in marketing for the product in response to the COVID-19 pandemic.2022.

RCS maintained an ACLL for two distinct credit products offered atas of December 31, 2020,2022, including its line-of-credit productproducts and its healthcare-receivables product. Atproducts. As of December 31, 2020,2022, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables productproducts to as high as 49%48.91% for its line-of-creditLOC I product and 54.85% for its LOC II product. The lower reserve percentage of 0.25% was provided for RCS’s healthcare receivables, as such receivables have recourse back to the third-party providers.

For additional discussion regarding Republic’s methodology for determining the adequacy of the ACLL, see the section titled “Critical Accounting Policies and Estimates” in this section of the filing.

See additional detail regarding Republic Credit Solution’s loan products under Item 1 “Business.”

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Table 16 — Summary of Loan and Lease Loss Experience

    

 

Years Ended December 31, (dollars in thousands)

    

2022

    

2021

    

2020

ACLL at beginning of period

$

64,577

$

61,067

$

43,351

Adoption of ASC 326

6,734

Charge-offs:

Traditional Banking:

Residential real estate

 

(21)

 

 

(169)

Commercial real estate

 

(9)

 

(428)

 

(795)

Commercial & industrial

 

 

(86)

 

(310)

Home equity

 

 

(51)

 

(14)

Consumer

(1,290)

(895)

(1,481)

Total Traditional Banking

(1,320)

(1,460)

(2,769)

Warehouse lines of credit

 

 

 

Total Core Banking

(1,320)

(1,460)

(2,769)

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

(11,505)

(10,256)

(19,575)

Other TRS loans

(154)

(51)

(234)

Republic Credit Solutions

(11,390)

(4,707)

(6,163)

Total Republic Processing Group

(23,049)

(15,014)

(25,972)

Total charge-offs

 

(24,369)

 

(16,474)

 

(28,741)

Recoveries:

Traditional Banking:

Residential real estate

104

396

182

Commercial real estate

 

287

 

82

 

472

Commercial & industrial

 

271

 

76

 

122

Home equity

 

121

 

46

 

115

Consumer

373

475

508

Total Traditional Banking

1,156

1,075

1,399

Warehouse lines of credit

 

 

 

Total Core Banking

1,156

1,075

1,399

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

4,831

3,533

6,542

Other TRS commercial & industrial loans

665

29

2

Republic Credit Solutions

1,168

408

629

Total Republic Processing Group

6,664

3,970

7,173

Total recoveries

 

7,820

 

5,045

 

8,572

Net loan recoveries (charge-offs)

 

(16,549)

 

(11,429)

 

(20,169)

Provision - Core Banking

 

349

 

(188)

 

16,743

Provision - RPG

 

22,036

 

15,127

 

14,408

Total Provision

 

22,385

 

14,939

 

31,151

ACLL at end of period

$

70,413

$

64,577

$

61,067

Credit Quality Ratios - Total Company:

ACLL to total loans

 

1.56

%  

 

1.44

%  

 

1.27

%  

ACLL to nonperforming loans

 

432

 

314

 

259

Net loan charge-offs (recoveries) to average loans

0.38

0.25

0.42

Credit Quality Ratios - Core Banking:

ACLL to total loans

 

1.21

%  

 

1.18

%  

 

1.11

%  

ACLL to nonperforming loans

 

332

 

251

 

221

Net loan charge-offs (recoveries) to average loans

0.00

0.01

0.03

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Table of Contents

Table 1417Summary ofNet Loan and Lease Loss ExperienceCharge-offs (Recoveries) to Average Loans by Loan Category

Net Loan Charge-Offs (Recoveries) to Average Loans

Years Ended December 31, (dollars in thousands)

2020

    

2019

    

2018

    

2017

    

2016

2022

2021

2020

ACLL at beginning of period

$

43,351

$

44,675

$

42,769

$

32,920

$

27,491

Adoption of ASC 326

6,734

Charge-offs:

Traditional Banking:

Residential real estate

 

(169)

 

(683)

 

(1,187)

 

(330)

 

(416)

Residential real estate:

Owner occupied

(0.01)

%  

(0.04)

%  

%  

Nonowner occupied

Commercial real estate

 

(795)

 

(1,407)

 

(7)

 

 

(514)

(0.02)

0.03

0.02

Construction & land development

 

 

 

 

 

(44)

Commercial & industrial

 

(310)

 

(1,505)

 

(200)

 

(189)

 

(330)

(0.07)

0.05

Paycheck Protection Program

Lease financing receivables

Aircraft

Home equity

 

(14)

 

(64)

 

(115)

 

(222)

 

(351)

(0.06)

(0.04)

Consumer

(1,481)

(2,054)

(2,099)

(2,042)

(1,727)

Consumer:

Credit cards

0.48

0.65

1.46

Overdrafts

104.04

51.69

93.94

Automobile loans

(0.14)

(0.10)

0.08

Other consumer

1.02

0.27

0.58

Total Traditional Banking

(2,769)

(5,713)

(3,608)

(2,783)

(3,382)

0.01

0.04

Warehouse lines of credit

 

 

 

 

 

Total Core Banking

(2,769)

(5,713)

(3,608)

(2,783)

(3,382)

0.01

0.03

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

(19,575)

(13,425)

(12,478)

(8,121)

(3,474)

Other TRS loans

(234)

(692)

(74)

Refund Advances*

26.78

26.58

33.55

Other TRS commercial & industrial loans

(3.18)

0.19

2.32

Republic Credit Solutions

(6,163)

(12,566)

(17,692)

(10,659)

(5,000)

10.73

3.93

5.35

Total Republic Processing Group

(25,972)

(26,683)

(30,244)

(18,780)

(8,474)

12.02

7.42

12.20

Total charge-offs

 

(28,741)

 

(32,396)

 

(33,852)

 

(21,563)

 

(11,856)

Recoveries:

Traditional Banking:

Residential real estate

182

414

285

272

429

Commercial real estate

 

472

 

4

 

131

 

139

 

152

Construction & land development

 

 

 

30

 

6

 

78

Commercial & industrial

 

122

 

9

 

51

 

34

 

127

Home equity

 

115

 

72

 

311

 

182

 

151

Consumer

508

628

604

596

636

Total Traditional Banking

1,399

1,127

1,412

1,229

1,573

Warehouse lines of credit

 

 

 

 

 

Total Core Banking

1,399

1,127

1,412

1,229

1,573

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

6,542

2,782

1,718

1,332

426

Other TRS loans

2

213

10

241

301

Republic Credit Solutions

629

1,192

1,250

906

492

Total Republic Processing Group

7,173

4,187

2,978

2,479

1,219

Total recoveries

 

8,572

 

5,314

 

4,390

 

3,708

 

2,792

Net loan recoveries (charge-offs)

 

(20,169)

 

(27,082)

 

(29,462)

 

(17,855)

 

(9,064)

Provision - Core Banking

 

16,743

 

3,066

 

3,568

 

3,773

 

3,945

Provision - RPG

 

14,408

 

22,692

 

27,800

 

23,931

 

10,548

Total Provision

 

31,151

 

25,758

 

31,368

 

27,704

 

14,493

ACLL at end of period

$

61,067

$

43,351

$

44,675

$

42,769

$

32,920

Credit Quality Ratios - Total Company:

ACLL to total loans

 

1.27

%  

 

0.98

%  

 

1.08

%  

 

1.07

%  

 

0.86

%  

ACLL to nonperforming loans

 

259

 

185

 

277

 

284

 

205

Net loan charge-offs (recoveries) to average loans

 

0.42

 

0.61

 

0.72

 

0.47

 

0.25

Credit Quality Ratios - Core Banking:

ACLL to total loans

 

1.11

%  

 

0.70

%  

 

0.78

%  

 

0.77

%  

 

0.74

%  

ACLL to nonperforming loans

 

221

 

129

 

197

 

213

 

175

Net loan charge-offs to average loans

0.03

0.11

0.06

0.04

0.05

Total

0.38

0.25

0.42

*     Refund advances are originated during the first two months of each year, and beginning in December 2022, ERAs for the upcoming first quarter tax season are originated during the fourth quarter of the year. All RAs, including ERAs, are charged-off by June 30th of each year.

The Company’s net charge-offs to average total Company loans increased from 0.25% during 2021 to 0.38% during 2022, with net charge-offs increasing $5.1 million and average total Company loans decreasing $180 million, or 4%. The increase in net charge-offs was primarily driven by a $5.3 million increase in net charge-offs within the Company’s RPG operations, which has historically conducted higher-risk lending activities than the Company’s Core Banking operations.

From 2021 to 2022, RPG experienced a $5.9 million increase in net charge-offs within its RCS segment. Net charge-offs for RCS’s LOC I product increased to $7.0 million for 2022 from $3.5 million for 2021, with government stimulus programs generally driving down usage of this product during 2021. Net charge-offs for RCS’s LOC II product were $3.2 million for 2022 compared to $840,000 of net charge-offs during 2021. The LOC II product was launched in January 2021 and remained in a pilot phase for much of 2021 leading to a lower level of originations during 2021, and as a result, a lower level of charge-offs for the year.

From 2021 to 2022, RPG experienced a $582,000 decrease in net charge-offs within its TRS segment, as TRS amended one of its existing Tax Provider contracts to place a ceiling on loan losses for RAs originated through this Tax Provider. For factors affecting the comparison of the TRS results of operations for 2022 and 2021, see section titled “OVERVIEW - Tax Refund Solutions.”

During 2022 and 2021, the Company’s Core Bank net charge-offs to average Core Bank loans remained near zero.

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Table of Contents

The following table sets forth management’s allocation of the ACLL by loan class. The ACLL allocation is based on management’s assessment of economic conditions, historical loss experience, loan volume, past dueforecasting for unemployment and nonaccrual loans,vacancy rates, and various other life-of-loan and forecast considerations, as well as, qualitative factors. Additionally, management began including life-of-loan and forecast considerations into its ACLL allocation upon adoption of the CECL method on January 1, 2020. Since these factors and management’s assumptions are subject to change, the allocation is not necessarily indicative of future loan portfolio performance or future ACLL allocation.

Table 1518 — Management’s Allocation of the Allowance for Credit Losses on Loans

2020

2019

2018

2017

2016

 

    

Percent of

    

    

Percent of

    

    

Percent of

    

    

Percent of

    

    

Percent of

  

Loans to

Loans to

Loans to

Loans to

Loans to

 

Total

Total

Total

Total

Total

 

December 31,  (in thousands)

  

ACLL

Loans*

  

ACLL

Loans*

  

ACLL

Loans*

  

ACLL

Loans*

  

ACLL

Loans*

 

  

Traditional Banking:

  

Residential real estate:

Owner occupied

  

$

9,715

 

19

%  

$

4,729

 

22

%  

$

6,035

 

26

%  

$

6,474

 

25

%  

$

7,531

 

31

%  

Nonowner occupied

  

 

2,466

 

6

 

1,737

 

6

 

1,662

 

6

 

1,396

 

5

 

1,139

 

4

Commercial real estate

  

 

23,606

 

28

 

10,486

 

29

 

10,030

 

30

 

9,043

 

30

 

8,078

 

28

Construction & land development

  

 

3,274

 

2

 

2,152

 

4

 

2,555

 

4

 

2,364

 

4

 

1,850

 

3

Commercial & industrial

2,797

7

2,882

11

2,873

10

2,198

9

1,511

7

Paycheck Protection Program

8

Lease financing receivables

106

147

158

174

136

Aircraft

253

2

176

1

91

9

4

Home equity

4,990

5

2,721

7

3,477

8

3,754

9

3,757

9

Consumer:

Credit cards

929

1,020

1,140

607

490

Overdrafts

587

1,169

1,102

974

675

Automobile loans

399

1

612

1

724

2

687

2

526

1

Other consumer

577

374

1

500

1

1,153

1

767

1

Total Traditional Banking

49,699

78

28,205

82

30,347

87

28,833

85

26,464

84

Warehouse lines of credit

2,407

20

1,794

16

1,172

11

1,314

13

1,464

15

Total Core Banking

52,106

98

29,999

98

31,519

98

30,147

98

27,928

99

Republic Processing Group:

Tax Refund Solutions:

  

 

 

Easy Advances

  

 

 

 

 

 

 

 

 

 

 

Other TRS loans

  

 

158

 

 

234

 

 

107

 

 

12

 

 

25

 

Republic Credit Solutions

  

8,803

2

13,118

2

13,049

2

12,610

2

4,967

1

Total Republic Processing Group

8,961

2

13,352

2

13,156

2

12,622

2

4,992

1

Total

  

$

61,067

 

100

$

43,351

 

100

$

44,675

 

100

$

42,769

 

100

$

32,920

 

100

2022

2021

2020

    

Percent of

    

Percent of

    

Percent of

    

Percent of

    

Percent of

    

Percent of

Loans to

ACLL to

Loans to

ACLL to

Loans to

ACLL to

Total

Total

Total

Total

Total

Total

December 31,  (in thousands)

  

ACLL

Loans*

Loan Class

  

ACLL

Loans*

Loan Class*

  

ACLL

Loans*

Loan Class*

  

Traditional Banking:

  

Residential real estate:

Owner occupied

  

$

8,909

 

21

%  

 

0.98

%  

$

8,647

 

19

%  

 

1.05

%  

$

9,715

 

19

%  

 

1.10

%  

Nonowner occupied

  

 

2,831

 

7

 

0.88

 

2,700

 

7

 

0.88

 

2,466

 

6

 

0.93

Commercial real estate

  

 

23,739

 

36

 

1.48

 

23,769

 

32

 

1.63

 

23,606

 

28

 

1.75

Construction & land development

  

 

4,123

 

3

 

2.68

 

4,128

 

3

 

3.19

 

3,274

 

2

 

3.32

Commercial & industrial

3,976

9

0.97

3,487

8

1.02

2,797

7

0.86

Paycheck Protection Program

1

8

Lease financing receivables

110

1.05

91

1.05

106

1.05

Aircraft

449

4

0.25

357

3

0.25

253

2

0.25

Home equity

4,628

5

1.91

4,111

5

1.95

4,990

5

2.07

Consumer:

Credit cards

996

6.44

934

6.44

929

6.54

Overdrafts

726

100.00

683

100.00

587

100.00

Automobile loans

87

1.29

186

1.29

399

1

1.32

Other consumer

135

21.57

314

21.93

577

7.07

Total Traditional Banking

50,709

85

1.32

49,407

78

1.41

49,699

78

1.34

Warehouse lines of credit

1,009

9

0.25

2,126

19

0.25

2,407

20

0.25

Total Core Banking

51,718

94

1.21

51,533

97

1.18

52,106

98

1.11

Republic Processing Group:

Tax Refund Solutions:

  

 

 

Refund Advances

  

 

3,797

 

2

 

4

 

 

 

 

 

 

Other TRS commercial & industrial loans

  

 

91

 

1

 

0.18

 

96

 

1

 

0.19

 

158

 

 

0.66

Republic Credit Solutions

  

14,807

3

13.73

12,948

2

13.91

8,803

2

7.94

Total Republic Processing Group

18,695

6

7.27

13,044

3

9.06

8,961

2

6.65

Total

  

$

70,413

 

100

 

1.56

$

64,577

 

100

 

1.44

$

61,067

 

100

 

1.27

*See Table 1214 in this section of the filing for loan portfolio balances. Values of less than 50 basis points are rounded down to zero.

Management believes, based on information presently available, that it has adequately provided for loan and lease credit losses atas of December 31, 2020.2022.

For additional discussion regarding Republic’s methodology for determining the adequacy of the ACLL, see the section titled “Critical Accounting Policies and Estimates” in this section of the filing.

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Table of Contents

Asset Quality

COVID-19 Loan Accommodations

The CARES Act provided several forms of economic relief designed to defray the impact of COVID-19. In April 2020, through its own independent relief efforts and CARES Act provisions, the Company began offering loan accommodations through deferrals and forbearances. These accommodations were generally under three-month terms for commercial clients, with residential and consumer accommodations in line with prevailing regulatory and legal parameters. Loans that received an accommodation were generally not considered troubled debt restructurings by the Company if such loans were not greater than 30 days past due as of December 31, 2019.

The following table presents loan balances under COVID-19 accommodations as of June 30, 2020 and a rollforward of accommodated balances through December 31, 2020. Borrowers needing additional accommodation typically receive an additional three-month deferral or forbearance period, but may receive other forms of accommodation based on facts and circumstances.

Table 16 — Rollforward of COVID-19 Loan Accommodations

Jun. 30, 2020

  

Six Months Ended Dec. 31, 2020

Dec. 31, 2020 COVID-19 Accommodations

    

     

COVID-19

Additional

(Payments) Draws Made

Out of Accommodation

Still under Accommodation

(in thousands)

 

Accm.*

Accm.

  

Net (Pay)/Draw

  

(Payoffs)

Current

  

Past Due**

  

Single Accm.

  

Multiple Accm.

Traditional Banking:

Residential real estate:

 

Owner occupied

 

$

51,570

$

9,147

$

(959)

$

(7,148)

$

47,471

$

89

$

2,358

$

2,692

Nonowner occupied

 

 

58,754

 

 

(1,391)

 

(4,543)

 

52,820

 

 

 

Commercial real estate

 

491,314

5,196

(12,504)

(27,871)

447,145

4,079

2,859

2,052

Commercial & industrial

 

 

141,720

 

 

(13,947)

 

(13,672)

 

114,089

 

12

 

 

Construction & land development

 

 

28,927

 

 

491

 

(9,214)

 

16,246

 

 

3,958

 

Lease financing receivables

2,443

(289)

2,154

Aircraft

3,215

(171)

3,044

Home equity

13,776

671

(553)

(3,392)

10,330

150

22

Consumer

 

1,463

58

(246)

(1,203)

38

34

Total Traditional Banking

$

793,182

$

15,072

$

(29,398)

$

(67,214)

$

693,299

$

4,218

$

9,359

$

4,766

*Accm.= Accommodation(s)

**Loans 30-days-or-more past due on their contractual payments following exit from their accommodation period.

While less than 1% of accommodated balances out of their accommodation period were contractually past due as of December 31, 2020, the ultimate impact of the above accommodated loan balances on the Company’s Classified, Special Mention, nonperforming, and delinquent loans is currently uncertain. When evaluating its borrowers for further accommodation, the Bank considers prudent options based on the borrower’s credit risk; applicable federal and state laws and regulations, including COVID-related accommodations provided by the CARES Act and states and localities; and the Bank’s ability to ease cash flow pressures on the affected borrowers while improving the Bank’s likelihood of collection on its loans. If enough borrowers were unable to meet their loan payment obligations at the end of their accommodation periods and were also unable to further extend their accommodation arrangements with the Bank, the Bank’s Classified, Special Mention, nonperforming, and delinquent loans would substantially increase and negatively impact the Company’s overall operating performance.

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Table of Contents

As of December 31, 2020, approximately 80% of the Traditional Banking segment’s loans granted COVID-19 accommodations during 2020 were either within the CRE or C&I categories. Table 17 below presents by industry CRE and C&I loans that received COVID-19 accommodations during 2020, with balances as of December 31, 2020:

Table 17 — Traditional Bank Commercial Real Estate and Commercial & Industrial Loans Granted COVID-19 Accommodations by Industry

  

   

December 31, 2020 (dollars in thousands)

 

Total CRE & C&I

% Concentration

Industry:

Lessors of Nonresidential Buildings (except Miniwarehouses)

 

$

167,142

29

%

Hotels (except Casino Hotels) and Motels

66,254

12

Lessors of Residential Buildings and Dwellings

50,960

9

Full-Service Restaurants

36,867

6

Offices of Physicians (except Mental Health Specialists)

36,558

6

Limited-Service Restaurants

34,663

6

Fitness and Recreational Sports Centers

28,281

5

Offices of Dentists

13,809

2

Sports Teams and Clubs

11,644

2

Car Washes

 

11,458

2

Religious Organizations

 

 

11,084

2

Golf Courses and Country Clubs

 

6,421

1

Public Relations Agencies

 

 

5,672

1

General Freight Trucking, Long-Distance, Truckload

 

 

5,614

1

Child Day Care Services

4,486

1

All other industries

79,323

15

Total CRE and C&I

$

570,236

100

%

Classified and Special Mention Loans

The Bank applies credit quality indicators, or “ratings,”ratings, to individual loans based on internal Bank policies. Such internal policies are informed by regulatory standards. Loans rated “Loss,” “Doubtful,” “Substandard,” and PCI/PCD-Substandard are considered “Classified.” Loans rated “Special Mention” or PCI/PCD-Special Mention are considered Special Mention. The Bank’s Classified and Special Mention loans increaseddecreased approximately $65$50 million during 2020. This increase was2022, driven primarily by $51 million of CREcommercial-purpose loans and $21 million of C&I loans primarily associated withwithin the hospitality and leisure industries that were downgradedindustry upgraded during the fourth quarter of 2020 due to pandemic-related economic concerns. In January 2021, the Bank downgraded an additional $15 million of CRE loans and $5 million of C&I loans to Special Mention, with these January 2021 downgrades primarily associated with hospitality and leisure industries.2022.

See Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements and Supplementary Data” for additional discussion regarding Classified and Special Mention loans.

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Table of Contents

Table 1819 — Classified and Special Mention Loans

December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

Loss

$

$

$

$

$

Doubtful

 

 

 

 

 

Substandard

 

30,193

 

33,297

 

19,860

 

21,202

 

21,412

PCI/PCD* - Substandard

 

1,887

 

1,289

 

1,559

 

1,771

 

2,366

Total Classified Loans

 

32,080

 

34,586

 

21,419

 

22,973

 

23,778

Special Mention

 

89,206

 

21,754

 

21,205

 

23,813

 

30,702

PCI/PCD* - Special Mention

 

895

 

797

 

1,121

 

1,833

 

7,908

Total Special Mention Loans

 

90,101

 

22,551

 

22,326

 

25,646

 

38,610

Total Classified and Special Mention Loans

$

122,181

$

57,137

$

43,745

$

48,619

$

62,388

*

The Bank’s PCI loans at December 31, 2019 were reclassified to PCD loans on January 1, 2020 in connection with the Company’s adoption of ASC 326.See Footnote 1 “Basis of Presentation and Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements” for additional discussion regarding the Company’s adoption of ASC 326.

December 31, (in thousands)

2022

    

2021

    

2020

Loss

$

$

$

Doubtful

 

 

 

Substandard

 

17,010

 

21,714

 

30,193

PCD - Substandard

 

1,498

 

1,692

 

1,887

Total Classified Loans

 

18,508

 

23,406

 

32,080

Special Mention

 

69,246

 

114,496

 

89,206

PCD - Special Mention

 

718

 

795

 

895

Total Special Mention Loans

 

69,964

 

115,291

 

90,101

Total Classified and Special Mention Loans

$

88,472

$

138,697

$

122,181

Nonperforming Loans

Nonperforming loans include loans on nonaccrual status and loans past due 90-days-or-more and still accruing. The nonperforming loan category included TDRs totaling approximately $7$2 million and $10$6 million atas of December 31, 20202022 and 2019.2021.

Nonperforming loans to total loans decreased to 0.49% at0.36% as of December 31, 20202022 from 0.53% at0.46% as of December 31, 2019,2021, as the total balance of nonperforming loans increaseddecreased by $106,000,$4 million, or 21%, while total loans increased $380$19 million during 2022. As presented in Tables 23 and 24 below, the decrease in nonperforming loans during 2022, including the nonaccrual loan component, was primarily driven by the pay off and pay down of $8 million of these loans during the year.

The ACLL to total nonperforming loans increased to 432% as of December 31, 2022 from 315% as of December 31, 2021, as the total ACLL increased $6 million, or 9%, during 2020. As previously mentioned,and the ultimate impactbalance of loans accommodated due to COVID-19 on the Company’s nonperforming loans is currently uncertain.decreased by $4 million, or 21%. The driver of the increase in ACLL was primarily growth in higher risk loans originated through the RCS segment, while the driver of the decrease in nonperforming loans was primarily the refinancing out of the Bank of a meaningful portion of these loans during 2022.

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Table 1920 — Nonperforming Loans and Nonperforming Assets Summary

December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

    

2022

    

2021

    

2020

    

Loans on nonaccrual status*

$

23,548

$

23,332

$

15,993

$

14,118

$

15,892

$

15,562

$

20,504

$

23,548

Loans past due 90-days-or-more and still on accrual**

 

47

 

157

 

145

 

956

 

167

 

756

 

48

 

47

Total nonperforming loans

 

23,595

 

23,489

 

16,138

 

15,074

 

16,059

 

16,318

 

20,552

 

23,595

Other real estate owned

 

2,499

 

113

 

160

 

115

 

1,391

 

1,581

 

1,792

 

2,499

Total nonperforming assets

$

26,094

$

23,602

$

16,298

$

15,189

$

17,450

$

17,899

$

22,344

$

26,094

Credit Quality Ratios - Total Company:

ACLL to total loans

1.56

%  

1.44

%  

1.27

%  

Nonaccrual loans to total loans

0.34

0.46

0.49

ACLL to nonaccrual loans

452

315

259

Nonperforming loans to total loans

 

0.49

%  

 

0.53

%  

 

0.39

%  

 

0.38

%  

 

0.42

%  

 

0.36

 

0.46

 

0.49

Nonperforming assets to total loans (including OREO)

 

0.54

 

0.53

 

0.39

 

0.38

 

0.46

 

0.40

 

0.50

 

0.54

Nonperforming assets to total assets

 

0.42

 

0.42

 

0.31

 

0.30

 

0.36

 

0.31

 

0.37

 

0.42

Credit Quality Ratios - Core Bank:

ACLL to total loans

 

1.21

%  

 

1.18

%  

 

1.11

%  

Nonaccrual loans to total loans

0.37

0.47

0.50

ACLL to nonaccrual loans

332

251

221

Nonperforming loans to total loans

 

0.50

%  

 

0.54

%  

 

0.40

%  

 

0.36

%  

 

0.42

%  

 

0.37

 

0.47

 

0.50

Nonperforming assets to total loans (including OREO)

 

0.56

 

0.54

 

0.40

 

0.36

 

0.46

 

0.40

 

0.51

 

0.56

Nonperforming assets to total assets

 

0.45

 

0.43

 

0.32

 

0.28

 

0.36

 

0.32

 

0.40

 

0.45

*Loans on nonaccrual status include impairedcollateral-dependent loans. See Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements and Supplementary Data” for the components within the nonaccrual loans to total loans and ACLL to nonaccrual loans ratios, as well as additional discussion regarding impairednonaccrual loans and collateral-dependent loans.

** Loans past due 90-days-or-more and still accruing consist of smaller-balance consumer loans.

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Table 20 — Nonperforming Loan Composition

2020

2019

2018

2017

2016

Percent of

Percent of

Percent of

Percent of

Percent of

   

Total

Total

Total

Total

Total

Years Ended December 31, (in thousands)

  

Balance

  

Loan Class

  

Balance

  

Loan Class

  

Balance

  

Loan Class

  

Balance

  

Loan Class

  

Balance

  

Loan Class

 

   

Traditional Banking:

Residential real estate:

   

Owner occupied

   

$

14,328

1.63

%  

  

$

12,220

1.29

%  

  

$

11,182

1.12

%  

  

$

9,230

0.89

%  

  

$

10,955

0.96

%  

Nonowner occupied

   

 

81

0.03

 

623

0.24

 

669

0.28

 

257

0.13

 

852

0.54

Commercial real estate

   

 

6,762

0.50

 

6,865

0.53

 

2,318

0.19

 

3,247

0.27

 

2,725

0.26

Construction & land development

   

 

 

143

0.09

 

 

67

0.04

 

77

0.06

Commercial & industrial

   

 

55

0.02

 

1,424

0.30

 

630

0.15

 

 

154

0.06

Paycheck Protection Program

Lease financing receivables

   

 

 

 

 

 

Aircraft

Home equity

   

 

2,141

0.89

  

 

1,865

0.64

  

 

1,095

0.33

  

 

1,217

0.35

  

 

1,069

0.31

Consumer:

   

Credit cards

5

0.04

Overdrafts

Automobile loans

170

0.56

179

0.34

75

0.12

68

0.10

Other consumer

11

0.13

13

0.02

37

0.08

51

0.25

145

0.73

Total Traditional Banking

23,553

0.63

23,332

0.65

16,006

0.45

14,137

0.41

15,977

0.50

Warehouse lines of credit

   

 

 

 

 

 

Total Core Banking

23,553

0.50

23,332

0.54

16,006

0.40

14,137

0.36

15,977

0.42

Republic Processing Group:

Tax Refund Solutions:

   

 

 

Easy Advances

   

 

 

 

 

 

Other TRS loans

53

0.37

4

0.03

 

 

Republic Credit Solutions

   

 

42

0.04

 

104

0.10

 

128

0.14

 

937

1.40

 

82

0.25

Total Republic Processing Group

   

 

42

0.03

 

157

0.13

 

132

0.13

 

937

1.19

 

82

0.21

   

Total nonperforming loans

   

$

23,595

0.49

$

23,489

0.53

$

16,138

0.39

$

15,074

0.38

$

16,059

0.42

   

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Table 21 — Nonperforming Loan Composition

2022

2021

2020

Percent of

Percent of

Percent of

   

Total

Total

Total

December 31, (in thousands)

   

Balance

Loan Class

Balance

Loan Class

Balance

Loan Class

   

Traditional Banking:

Residential real estate:

   

Owner occupied

   

$

13,388

1.47

%  

  

$

12,039

1.47

%  

  

$

14,328

1.63

%  

Nonowner occupied

   

 

117

0.04

 

95

0.03

 

81

0.03

Commercial real estate

   

 

1,001

0.06

 

6,557

0.45

 

6,762

0.50

Construction & land development

   

 

 

 

Commercial & industrial

   

 

 

13

0.00

 

55

0.02

Paycheck Protection Program

Lease financing receivables

   

 

 

 

Aircraft

Home equity

   

 

815

0.34

  

 

1,700

0.81

  

 

2,141

0.89

Consumer:

   

Credit cards

5

0.04

Overdrafts

1

0.15

Automobile loans

31

0.46

97

0.67

170

0.56

Other consumer

210

33.55

3

0.21

11

0.13

Total Traditional Banking

15,562

0.40

20,505

0.59

23,553

0.63

Warehouse lines of credit

   

 

 

 

Total Core Banking

15,562

0.37

20,505

0.47

23,553

0.50

Republic Processing Group:

Tax Refund Solutions:

   

 

 

Refund Advances

   

 

 

 

Other TRS commercial & industrial loans

Republic Credit Solutions

   

 

756

0.70

 

47

0.05

 

42

0.04

Total Republic Processing Group

   

 

756

0.29

 

47

0.03

 

42

0.03

   

Total nonperforming loans

   

$

16,318

0.36

$

20,552

0.46

$

23,595

0.49

   

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Table of Contents

Table 22 — Stratification of Nonperforming Loans

Number of Nonperforming Loans and Recorded Investment

 

Number of Nonperforming Loans and Recorded Investment

 

    

    

    

    

Balance

    

    

    

    

 

    

    

    

    

Balance

    

    

    

    

 

December 31, 2020

Balance

> $100 &

Balance 

Total

 

December 31, 2022

Balance

> $100 &

Balance 

Total

 

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

 

 

 

 

 

 

 

 

Traditional Banking:

Residential real estate:

Owner occupied

 

146

$

5,110

 

27

$

4,966

 

5

$

4,252

 

178

$

14,328

 

134

$

4,650

 

45

$

7,353

 

1

$

1,385

 

180

$

13,388

Nonowner occupied

 

3

 

81

 

 

 

 

 

3

 

81

 

4

 

117

 

 

 

 

 

4

 

117

Commercial real estate

 

2

 

45

 

3

 

925

 

3

 

5,792

 

8

 

6,762

 

 

 

1

 

232

 

1

 

769

 

2

 

1,001

Construction & land development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

2

 

55

 

 

 

 

 

2

 

55

 

 

 

 

 

 

 

 

Paycheck Protection Program

Lease financing receivables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aircraft

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

26

 

867

 

6

 

1,274

 

 

 

32

 

2,141

 

28

 

711

 

1

 

104

 

 

 

29

 

815

Consumer:

Credit cards

 

NM

 

5

 

 

 

 

 

NM

 

5

 

 

 

 

 

 

 

 

Overdrafts

 

 

 

 

 

 

 

NM

 

 

 

 

 

 

NM

 

Automobile loans

14

 

170

 

 

 

 

 

14

 

170

6

 

31

 

 

 

 

 

6

 

31

Other consumer

7

11

7

 

11

1

210

1

 

210

Total Traditional Banking

200

6,344

36

7,165

8

10,044

244

23,553

172

5,509

48

7,899

2

2,154

222

15,562

Warehouse lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Core Banking

200

6,344

36

7,165

8

10,044

244

23,553

172

5,509

48

7,899

2

2,154

222

15,562

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

Other TRS loans

NM

NM

 

Refund Advances

 

Other TRS commercial & industrial loans

 

Republic Credit Solutions

NM

42

NM

 

42

NM

756

NM

 

756

Total Republic Processing Group

NM

42

NM

42

NM

756

NM

756

Total

 

200

$

6,386

 

36

$

7,165

 

8

$

10,044

 

244

$

23,595

 

172

$

5,509

 

48

$

7,899

 

2

$

2,910

 

222

$

16,318

NM – Not meaningful. Loans from Republic Processing Group are generally small dollar homogenous consumer loans.

Number of Nonperforming Loans and Recorded Investment

 

Number of Nonperforming Loans and Recorded Investment

 

    

    

    

    

Balance

    

    

    

    

 

    

    

    

    

Balance

    

    

    

    

 

December 31, 2019

Balance

> $100 &

Balance 

Total

 

December 31, 2021

Balance

> $100 &

Balance 

Total

 

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

Traditional Banking:

Residential real estate:

Owner occupied

 

137

$

5,005

 

24

$

4,525

 

3

$

2,690

 

164

$

12,220

 

146

$

5,042

 

27

$

4,857

 

2

$

2,140

 

175

$

12,039

Nonowner occupied

 

3

 

84

 

 

 

1

 

539

 

4

 

623

 

3

 

95

 

 

 

 

 

3

 

95

Commercial real estate

 

2

 

45

 

2

 

609

 

4

 

6,211

 

8

 

6,865

 

 

 

4

 

872

 

3

 

5,685

 

7

 

6,557

Construction & land development

 

 

 

1

 

143

 

 

 

1

 

143

 

 

 

 

 

 

 

 

Commercial & industrial

 

 

 

2

 

397

 

1

 

1,027

 

3

 

1,424

 

1

 

13

 

 

 

 

 

1

 

13

Paycheck Protection Program

 

Lease financing receivables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aircraft

 

 

 

 

Home equity

 

23

 

795

 

5

 

1,070

 

 

 

28

 

1,865

 

25

 

695

 

5

 

1,005

 

 

 

30

 

1,700

Consumer:

Credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overdrafts

 

 

 

 

 

 

 

NM

 

1

 

 

 

 

 

NM

 

1

Automobile loans

13

 

179

 

 

 

 

 

13

 

179

13

 

97

 

 

 

 

 

13

 

97

Other consumer

7

13

7

 

13

4

3

4

 

3

Total Traditional Banking

185

6,121

34

6,744

9

10,467

228

23,332

192

5,946

36

6,734

5

7,825

233

20,505

Warehouse lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Core Banking

185

6,121

34

6,744

9

10,467

228

23,332

192

5,946

36

6,734

5

7,825

233

20,505

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

Other TRS loans

NM

53

NM

 

53

Refund Advances

 

Other TRS commercial & industrial loans

 

Republic Credit Solutions

NM

104

NM

 

104

NM

47

NM

 

47

Total Republic Processing Group

NM

157

NM

157

NM

47

NM

47

Total

 

185

$

6,278

 

34

$

6,744

 

9

$

10,467

 

228

$

23,489

 

192

$

5,993

 

36

$

6,734

 

5

$

7,825

 

233

$

20,552

NM – Not meaningful. Loans from Republic Processing Group are generally small dollar homogenous consumer loans.

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Table of Contents

Interest income that would have been recorded if nonaccrual loans were on a current basis in accordance with their original terms was $1.0 million, $1.3 million $1.5and 1.3 million in 2022, 2021, and $852,000 in 2020, 2019, and 2018.2020.

Based on the Bank’s review as of December 31, 2020,2022, management believes that its reserves are adequate to absorb expected losses on all nonperforming credits.

Table 22 — Rollforward of Nonperforming Loan

    

 

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

Nonperforming loans at the beginning of the period

$

23,489

$

16,138

$

15,074

$

16,059

$

21,936

Loans added to nonperforming status during the period that remained nonperforming at the end of the period

 

8,993

 

13,806

 

8,129

 

7,204

 

3,784

Loans removed from nonperforming status during the period that were nonperforming at the beginning of the period (see table below)

 

(7,959)

 

(4,242)

 

(5,079)

 

(8,196)

 

(8,086)

Principal balance paydowns of loans nonperforming at both period ends

(817)

(2,225)

(1,175)

(782)

(1,742)

Net change in principal balance of other loans nonperforming at both period ends*

 

(111)

 

12

 

(811)

 

789

 

167

Nonperforming loans at the end of the period

$

23,595

$

23,489

$

16,138

$

15,074

$

16,059

*Includes relatively small consumer portfolios, e.g., RCS loans.credits

Table 23 — Rollforward of Nonperforming Loans

 

Years Ended December 31, (in thousands)

    

2022

    

2021

    

2020

 

Nonperforming loans at the beginning of the period

$

20,552

$

23,595

$

23,489

Loans added to nonperforming status during the period that remained nonperforming at the end of the period

 

7,076

 

3,627

 

8,993

Loans removed from nonperforming status during the period that were nonperforming at the beginning of the period (see table below)

 

(10,934)

 

(5,221)

 

(7,959)

Principal balance paydowns of loans nonperforming at both period ends

(1,084)

(1,450)

(817)

Net change in principal balance of other loans nonperforming at both period ends*

 

708

 

1

 

(111)

Nonperforming loans at the end of the period

$

16,318

$

20,552

$

23,595

Table 24 — Detail of Loans Removed from Nonperforming Status

Years Ended December 31, (in thousands)

  

2020

    

2019

    

2018

    

2017

    

2016

 

    

2022

    

2021

    

2020

 

Loans charged off

$

(1,142)

$

(339)

$

(46)

$

(287)

$

(329)

$

$

(57)

$

(1,142)

Loans transferred to OREO

 

(2,254)

 

(1,174)

 

(569)

 

(574)

 

(2,986)

 

 

 

(2,254)

Loans refinanced at other institutions

 

(4,420)

 

(2,610)

 

(4,043)

 

(3,841)

 

(4,771)

Loan payoffs and paydowns

 

(8,385)

 

(4,884)

 

(4,420)

Loans returned to accrual status

 

(143)

 

(119)

 

(421)

 

(3,494)

 

 

(2,549)

 

(280)

 

(143)

Total loans removed from nonperforming status during the period that were nonperforming at the beginning of the period

$

(7,959)

$

(4,242)

$

(5,079)

$

(8,196)

$

(8,086)

$

(10,934)

$

(5,221)

$

(7,959)

Delinquent Loans

Delinquent loans to total loans decreasedincreased to 0.41% at0.34% as of December 31, 2020,2022, from 0.47% at0.30% as of December 31, 2019,2021, primarily due to an $857,000, or 4%,a $3 million increase in delinquent RPG loans, partially offset by a $1 million decrease in delinquent loans and a $380 million, or 9%, increase in total loans during 2020.Core Bank loans.

Core Bank delinquent loans to total Core Bank loans decreased to 0.21% at0.14% as of December 31, 20202022 from 0.30% at0.17% as of December 31, 2019.2021. With the exception of small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of December 31, 20202022 and December 31, 20192021 were on nonaccrual status. As previously mentioned, the ultimate impact of loans accommodated due to COVID-19 on the Company’s delinquent loans is currently uncertain.

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Table 2425 — Delinquent Loan Composition*

2020

2019

2018

2017

2016

2022

2021

2020

Percent of

Percent of

Percent of

Percent of

Percent of

Percent of

Percent of

Percent of

Total

Total

Total

Total

Total

Total

Total

Total

December 31, (dollars in thousands)

    

Balance

  

Loan Class

  

Balance

  

Loan Class

Balance

  

Loan Class

  

Balance

  

Loan Class

  

Balance

  

Loan Class

    

Balance

Loan Class

Balance

Loan Class

Balance

Loan Class

  

Traditional Banking:

Residential real estate:

Owner occupied

$

3,260

0.37

%  

   

$

4,434

0.47

%  

$

5,525

0.61

%  

$

4,782

0.46

%  

$

4,554

0.40

%  

   

$

4,834

0.53

%  

   

$

1,599

0.19

%  

   

$

3,260

0.37

%  

Nonowner occupied

 

   

 

539

0.21

 

1,008

0.42

 

146

0.07

 

46

0.03

   

 

   

 

   

 

Commercial real estate

 

5,457

0.40

   

 

3,300

0.25

 

1,099

0.09

 

1,727

0.14

 

425

0.04

   

 

604

0.04

   

 

5,292

0.36

   

 

5,457

0.40

Construction & land development

 

   

 

 

 

67

0.04

 

   

 

   

 

   

 

Commercial & industrial

 

12

0.00

   

 

1,355

0.28

 

25

0.01

 

15

0.00

 

342

0.13

   

 

177

0.04

   

 

21

0.01

   

 

12

0.00

Paycheck Protection Program

��

Lease financing receivables

Aircraft

Home equity

702

0.29

2,918

1.00

784

0.24

1,221

0.35

970

0.28

175

0.07

314

0.15

702

0.29

Consumer:

Credit cards

73

0.51

155

0.87

129

0.68

74

0.46

18

0.13

55

0.36

30

0.21

73

0.51

Overdrafts

147

25.04

283

18.59

230

20.87

233

23.92

161

20.05

160

22.04

164

24.01

147

25.04

Automobile loans

56

0.18

49

0.09

28

0.04

60

0.09

11

0.16

9

0.06

56

0.18

Other consumer

6

0.07

9

0.01

47

0.10

135

0.66

305

1.54

44

7.03

1

0.07

6

0.07

Total Traditional Banking

9,713

0.26

13,042

0.36

8,875

0.25

8,460

0.25

6,821

0.21

6,060

0.16

7,430

0.21

9,713

0.26

Warehouse lines of credit

Total Core Banking

9,713

0.21

13,042

0.30

8,875

0.22

8,460

0.21

6,821

0.18

6,060

0.14

7,430

0.17

9,713

0.21

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

 

 

 

 

Other TRS loans

 

 

119

0.83

 

10

0.07

 

 

Refund Advances

   

 

   

 

   

 

Other TRS commercial & industrial loans

   

 

   

 

   

 

Republic Credit Solutions

 

10,234

9.23

 

7,643

7.25

 

7,077

7.97

 

5,641

8.43

 

2,137

6.63

   

 

9,200

8.53

   

 

6,035

6.48

   

 

10,234

9.23

Total Republic Processing Group

 

10,234

7.60

 

7,762

6.48

 

7,087

6.91

 

5,641

7.18

 

2,137

5.49

   

 

9,200

3.58

   

 

6,035

4.19

   

 

10,234

7.60

   

   

   

Total delinquent loans

$

19,947

0.41

$

20,804

0.47

$

15,962

0.38

$

14,101

0.35

$

8,958

0.24

   

$

15,260

0.34

   

$

13,465

0.30

   

$

19,947

0.41

*Represents total loans 30-days-or-more past due. Delinquent status may be determined by either the number of days past due or number of payments past due.

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Table 2526 — Rollforward of Delinquent Loans

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

    

2022

    

2021

    

2020

Delinquent loans at the beginning of the period

$

20,804

$

15,962

$

14,101

$

8,958

$

11,731

$

13,465

$

19,947

$

20,804

Loans added to delinquency status during the period and remained in delinquency status at the end of the period

 

6,681

 

9,947

 

7,092

 

7,015

 

5,399

 

5,507

 

1,459

 

6,681

Loans removed from delinquency status during the period that were in delinquency status at the beginning of the period (see table below)

 

(8,617)

 

(6,747)

 

(6,332)

 

(5,181)

 

(10,205)

 

(6,847)

 

(3,559)

 

(8,617)

Principal balance paydowns of loans delinquent at both period ends

(146)

(120)

(334)

(170)

(94)

(50)

(158)

(146)

Net change in principal balance of other loans delinquent at both period ends*

 

1,225

 

1,762

 

1,435

 

3,479

 

2,127

 

3,185

 

(4,224)

 

1,225

Delinquent loans at the end of period

$

19,947

$

20,804

$

15,962

$

14,101

$

8,958

$

15,260

$

13,465

$

19,947

*Includes relatively small consumer portfolios, e.g., RCS loans.

Table 2627 — Detail of Loans Removed from Delinquent Status

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

    

2022

    

2021

    

2020

Loans charged off

$

(115)

$

(453)

$

(50)

$

(114)

$

(150)

$

(1)

$

(58)

$

(115)

Refund Advances paid off or charged off

Loans transferred to OREO

 

(2,254)

 

(1,370)

 

(502)

 

(526)

 

(2,805)

 

 

 

(2,254)

Loans refinanced at other institutions

 

(4,052)

 

(1,988)

 

(3,523)

 

(2,529)

 

(3,926)

Loan payoffs and paydowns

 

(6,243)

 

(2,016)

 

(4,052)

Loans paid current

 

(2,196)

 

(2,936)

 

(2,257)

 

(2,012)

 

(3,324)

 

(603)

 

(1,485)

 

(2,196)

Total loans removed from delinquency status during the period that were in delinquency status at the beginning of the period

$

(8,617)

$

(6,747)

$

(6,332)

$

(5,181)

$

(10,205)

$

(6,847)

$

(3,559)

$

(8,617)

ImpairedCollateral-Dependent Loans and Troubled Debt Restructurings

When management determines that a loan is collateral dependent and foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date and adjusted for selling costs if appropriate. The Bank’s policy is to charge-off all or that portion of its recorded investment in collateral-dependent loans upon a determination that it expects the full amount of contractual principal and interest will not be collected.

A TDR is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. The majority of the Bank’s TDRs involve a restructuring of loan terms such as a temporary reduction in the payment amount to require only interest and escrow (if required), reducing the loan’s interest rate and/or extending the maturity date of the debt. Nonaccrual loans modified as TDRs remain on nonaccrual status and continue to be reported as nonperforming loans. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt.

Table 2728 — Collateral Dependent Loan Composition

December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

Cashflow-dependent TDRs

$

10,938

$

14,348

$

19,043

$

21,840

$

27,924

Collateral-dependent TDRs

9,840

16,433

13,820

12,797

13,662

Total TDRs

20,778

30,781

32,863

34,637

41,586

Collateral dependent loans (which are not TDRs)

 

20,806

 

19,569

 

8,572

 

10,979

 

11,098

Total recorded investment in TDRs and collateral-dependent loans

$

41,584

$

50,350

$

41,435

$

45,616

$

52,684

Years Ended December 31, (in thousands)

2022

    

2021

    

2020

 

Cashflow-dependent TDRs

$

5,761

$

5,960

$

10,938

Collateral-dependent TDRs

6,265

9,426

9,840

Total TDRs

12,026

15,386

20,778

Collateral-dependent loans (which are not TDRs)

 

14,186

 

14,645

 

20,806

Total recorded investment in TDRs and collateral-dependent loans

$

26,212

$

30,031

$

41,584

See Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements and Supplementary Data” for additional discussion regarding impairedcollateral-dependent loans and TDRs.

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Other Real Estate Owned

Table 2829 — Rollforward of Other Real Estate Owned Activity

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

    

2017

    

2016

 

2022

    

2021

    

2020

 

OREO at beginning of period

$

113

$

160

$

115

$

1,391

$

1,220

$

1,792

$

2,499

$

113

Transfer from loans to OREO

 

2,750

 

1,527

 

662

 

841

 

4,778

 

 

64

 

2,750

Proceeds from sale*

 

(324)

 

(2,114)

 

(1,346)

 

(2,793)

 

(4,851)

 

 

(611)

 

(324)

Net gain on sale

 

65

 

540

 

729

 

831

 

514

 

 

51

 

65

Writedowns

 

(105)

 

 

 

(155)

 

(270)

 

(211)

 

(211)

 

(105)

OREO at end of period

$

2,499

$

113

$

160

$

115

$

1,391

$

1,581

$

1,792

$

2,499

*Inclusive of non-cash proceeds where the Bank financed the sale of the property.

The fair value of OREO represents the estimated value that management expects to receive when the property is sold, net of related costs to sell. These estimates are based on the most recently available real estate appraisals, with certain adjustments made based on the type of property, age of appraisal, current status of the property and other relevant factors to estimate the current value of the property.

Bank Owned Life Insurance

BOLI offers tax advantaged noninterest income to help the Bank offset employee benefits expenses. The Company carried $68$102 million and $66$99 million of BOLI on its consolidated balance sheet atas of December 31, 20202022 and 2019.2021.

Table 30 — Rollforward of Bank Owned Life Insurance

Years ended December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

    

2022

    

2021

    

2020

 

BOLI at beginning of period

$

66,433

$

64,883

$

63,356

$

61,794

$

52,817

$

99,161

$

68,018

$

66,433

BOLI acquired

 

 

 

 

 

7,461

 

 

30,000

 

Death benefits paid

(1,099)

Increase in cash surrender value

 

1,585

 

1,550

 

1,527

 

1,562

 

1,516

 

2,526

 

2,242

 

1,585

BOLI at end of period

$

68,018

$

66,433

$

64,883

$

63,356

$

61,794

$

101,687

$

99,161

$

68,018

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Deposits

Table 30—31 — Deposit Composition

December 31, (in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

2022

    

2021

    

2020

Core Bank:

Demand

$

1,217,263

$

922,972

$

937,402

$

944,812

$

872,709

$

1,336,082

$

1,381,522

$

1,217,263

Money market accounts

 

712,824

 

793,950

 

717,954

 

546,998

 

541,622

 

707,272

 

789,876

 

712,824

Savings

 

236,335

 

175,588

 

187,868

 

182,800

 

164,410

 

323,015

 

311,624

 

236,335

Reciprocal money market

 

28,635

 

60,685

 

246,257

Individual retirement accounts (1)

 

47,889

 

51,548

 

53,524

 

47,982

 

42,642

 

38,640

 

43,724

 

47,889

Time deposits, $250 and over (1)

 

83,448

 

104,412

 

84,104

 

77,891

 

37,200

 

54,855

 

81,050

 

83,448

Other certificates of deposit (1)

 

199,214

 

248,161

 

239,324

 

189,661

 

140,894

 

129,324

 

154,174

 

199,214

Reciprocal money market and time deposits (1)

 

314,109

 

189,774

 

217,153

 

346,613

 

221,113

Reciprocal time deposits (1)

7,405

17,265

67,852

Brokered deposits (1)

 

25,010

 

200,072

 

9,394

 

72,718

 

168,150

 

 

 

25,010

Total Core Bank interest-bearing deposits

2,836,092

2,686,477

2,446,723

2,409,475

2,188,740

2,625,228

2,839,920

2,836,092

Total Core Bank noninterest-bearing deposits

 

1,503,662

 

981,164

 

971,422

 

988,537

 

943,329

 

1,464,493

 

1,579,171

 

1,503,662

Total Core Bank deposits

 

4,339,754

 

3,667,641

 

3,418,145

 

3,398,012

 

3,132,069

 

4,089,721

 

4,419,091

 

4,339,754

Republic Processing Group:

Money market accounts

6,673

66,152

5,453

1,641

3,849

9,717

6,673

Total RPG interest-bearing deposits

6,673

66,152

5,453

1,641

3,849

9,717

6,673

Brokered prepaid card deposits

257,856

9,128

4,350

1,509

145

328,655

320,907

257,856

Other noninterest-bearing deposits

128,898

43,087

28,197

31,996

28,478

115,620

89,601

128,898

Total RPG noninterest-bearing deposits

386,754

52,215

32,547

33,505

28,623

444,275

410,508

386,754

Total RPG deposits

393,427

118,367

38,000

35,146

28,623

448,124

420,225

393,427

Total deposits

$

4,733,181

$

3,786,008

$

3,456,145

$

3,433,158

$

3,160,692

$

4,537,845

$

4,839,316

$

4,733,181

(1)IncludesRepresents time deposits.

Total CompanyBank deposits increased $947decreased $301 million or 25%, from December 31, 20192021 to $4.7$4.5 billion atas of December 31, 2020.2022. Total Core Bank deposits decreased by $329 million with a $215 million decrease in interest-bearing deposits and a $115 million decrease in noninterest-bearing deposits.

Total Company noninterest-bearingManagement believes the net decrease in Core Bank interest-bearing deposits increased $857 million, or 83%, withwas generally due to clients’ responses to the following primarily driving growth:low deposit beta the Bank maintained throughout 2022. A deposit beta measures the change in the interest rates the Bank pays for its interest-bearing deposit accounts versus the change in the federal funds target rate, which is a public index the Bank generally uses to price its non-maturity, interest-bearing deposits. A low deposit beta would indicate that the Bank has not changed the interest rates it pays on deposit accounts to the same magnitude as the FOMC has changed the FFTR.

Management believes much of the growth in noninterest-bearing deposits at the Traditional Bank was a flight to safety brought about by the COVID-19 pandemic. At this time, management is unable to predict how long these funds might remain at the Bank due to the uncertain economic environment for many of the depositors, including the depositors’ short-term and long-term cash needs.

RPG noninterest-bearing deposits increased $335 million during 2020, with growth driven by the Company’s May 1, 2020 assumption of approximately $250 million of prepaid card balances from another financial institution. The prepaid card deposit balances acquired in May 2020 and associated deposits, have ranged from a low of $220 million to a high of $325 million since their assumption, with an average of $272 million since May 1, 2020.

Total CompanyThe Bank implemented a general strategy to maintain a low deposit beta during the year as part of its strategy to increase its overall net interest margin and net interest income. In general, the Bank maintained a low deposit beta during 2022 by not applying across-the-board increases in rates to all its interest-bearing accounts as a result of increases to the FFTR. Instead, the Bank applied a nominal amount of the FFTR’s increases to products on an across-the-board basis and selectively applied larger rate increases for more price-sensitive commercial accounts. This strategy played a significant part in expanding the Core Bank’s net interest margin throughout 2022 as the Bank’s yield on its interest earning assets generally outpaced the cost of its interest-bearing liabilities as the FFTR increased during the year. As a result of this strategy, however, the Bank did experience a decline in both personal and business account balances as some clients moved their funds to more attractive offerings outside of the Bank. The Bank currently expects to continue its low beta strategy for deposits increased approximately $90 millionin 2023, but this strategy is subject to change depending upon several factors including, but not limited to, the Bank’s overall current and projected liquidity positions, its clients’ demand for 2020, withits loans and deposit products, the following primarily driving growth:Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.

Similar to growth in noninterest-bearing deposits, management believes much of the remaining growth in interest-bearing deposits at the Traditional Bank was a flight to safety brought about by the COVID-19 pandemic.

Offsetting the positive drivers above was a $73 million decline in MemoryBank’s online money market accounts to rate-sensitive clients, as the Bank significantly lowered its pricing during the period due to correspond with the overall decline in market interest rates.

In addition to the decline in MemoryBank balances, the Bank also had a $37 million deposit outflow from one money-market client. At this time, management does not anticipate this large deposit will be replaced by this particular client in the foreseeable future.

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RPG interest-bearing deposits decreased $59 million due to the exit of short-term seasonal funding used by the TRS segment during the first quarter of 2020.

In addition to the above, the Core Bank also experienced a $115 million decrease in Core Bank noninterest-bearing deposits. Management believes two factors generally drove this overall decrease in noninterest-bearing deposits. The first is a general decline in liquidity among both businesses and consumers as the excess liquidity created during the COVID pandemic continued to wane throughout the year. Second, Management believes that the substantial increase in market interest rates caused the difference between what a client can earn for an interest-bearing deposit versus the client’s lack of a financial return for a noninterest-bearing deposit to become large enough to cause some clients to pursue other opportunities for their cash outside the Bank.

As a result of all the factors noted above, Management believes the Company is more likely to experience slower overall growth and possibly a continued decline in its deposits over the foreseeable future.

Table 3132 — Average Deposits

2020

2019

2018

2017

2016

 

2022

2021

2020

    

Average

    

Average

    

Average

    

Average

    

Average

    

Average

    

Average

    

Average

    

Average

    

Average

 

    

Average

    

Average

    

Average

    

Average

    

Average

    

Average

    

Years ended December 31, (dollars in thousands)

Balance

Rate

Balance

Rate

Balance

Rate

Balance

Rate

Balance

Rate

 

Balance

Rate

Balance

Rate

Balance

Rate

 

Transaction accounts

$

1,291,980

 

0.09

%  

$

1,141,084

 

0.49

%  

$

1,120,633

 

0.39

%  

$

1,095,276

 

0.22

%  

$

962,473

 

0.10

%  

$

1,696,809

 

0.12

%  

$

1,580,570

 

0.02

%  

$

1,291,980

 

0.09

%  

Money market accounts

 

739,524

 

0.26

 

772,854

 

0.97

 

639,560

 

0.63

 

554,336

 

0.29

 

546,360

 

0.20

 

779,457

 

0.26

 

784,777

 

0.05

 

739,524

 

0.26

Time deposits

 

400,704

 

1.96

 

409,301

 

2.02

 

348,670

 

1.63

 

266,332

 

1.19

 

221,634

 

1.00

 

240,701

 

1.10

 

300,784

 

1.21

 

400,704

 

1.96

Brokered and reciprocal money market

 

281,684

 

0.39

 

215,913

 

1.49

 

289,441

 

0.78

 

314,788

 

0.68

 

289,612

 

0.43

Brokered and reciprocal certificates of deposit

 

199,594

 

1.50

 

216,794

 

2.11

 

47,081

 

1.50

 

36,931

 

1.25

 

38,513

 

1.45

Reciprocal money market accounts

 

44,152

 

0.22

 

185,922

 

0.18

 

202,112

 

0.28

Reciprocal time deposits

10,890

0.48

40,581

0.75

72,613

1.66

Brokered money market accounts

30,863

0.08

104,460

0.50

Brokered time deposits

 

 

 

 

 

102,093

 

1.75

Total average interest-bearing deposits

 

2,913,486

 

0.52

 

2,755,946

 

1.06

 

2,445,385

 

0.70

 

2,267,663

 

0.43

 

2,058,592

 

0.29

 

2,772,009

 

0.24

 

2,923,497

 

0.17

 

2,913,486

 

0.52

Total average noninterest-bearing deposits

 

1,672,442

 

 

1,120,608

 

 

1,147,432

 

 

1,073,181

 

 

894,049

 

 

2,148,848

 

 

2,129,222

 

 

1,672,442

 

Total average deposits

$

4,585,928

 

0.33

$

3,876,554

 

0.75

$

3,592,817

 

0.47

$

3,340,844

 

0.29

$

2,952,641

 

0.21

$

4,920,857

 

0.14

$

5,052,719

 

0.10

$

4,585,928

 

0.33

Table 3233MaturitiesMaturity Schedule of Time Deposits Greater than $100,000 atin Excess of the FDIC Limit and Estimated Time Deposits that are Otherwise Uninsured as of December 31, 20202022

Weighted

Individual Instruments

Estimated

Average

that Meet or Exceed the

Otherwise Uninsured

Maturity (dollars in thousands)

    

Principal

 

Rate

    

FDIC Insurance Limit

Time Deposits

Total

  

  

Three months or less

$

47,399

1.64

%

$

2,996

$

972

$

3,968

Over three months through six months

 

22,259

1.50

 

5,176

 

658

 

5,834

Over six months through 12 months

 

55,024

0.69

 

40,030

 

1,886

 

41,916

Over 12 months

 

63,044

2.24

 

6,653

 

1,438

 

8,091

Total

$

187,726

1.55

$

54,855

$

4,954

$

59,809

The Bank held total estimated uninsured deposits of $1.77 billion as of December 31, 2022.

Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings

SSUARs are collateralized by securities and 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 the Bank’s control.

SSUARs totaled $211decreased $74 million, and $168or 25%, during 2022 to $217 million atas of December 31, 20202022. SSUARs generally represent large customer relationships deposited into the Bank that require security collateral above the $250,000 FDIC insurance limit of the Bank. Due to the size of the underlying relationships, large fluctuations in the underlying account balances from period to period are common.

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As it did with interest-bearing deposits, the Bank generally maintained a low beta strategy with its SSUARs. As a result of this strategy, the Bank experienced a decline in SSUAR balances as some clients moved their funds to more attractive offerings outside of the Bank. One client, in particular, reduced its SSUAR balances by $45 million from December 31, 2021 to December 31, 2022 as it moved these funds into an outside brokerage account. As was noted with deposits, the Bank currently expects to continue its low beta strategy for SSUARS in 2023, but this strategy is subject to change depending upon several factors including, but not limited to, the Bank’s overall current and 2019. The substantial majority of SSUARs are indexed to immediately repricing indices suchprojected liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the FFTR.projected interest rate environment for the near term and the long term.

Table 3334 — Securities Sold Under Agreements to Repurchase

As of and for the Years Ended December 31, (dollars in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

    

2022

    

2021

    

2020

    

Outstanding balance at end of period

$

211,026

$

167,617

$

182,990

$

204,021

$

173,473

$

216,956

$

290,967

$

211,026

Weighted average interest rate at period end

 

0.04

%  

 

0.32

%  

 

0.83

%  

 

0.31

%  

 

0.05

%

 

0.41

%  

 

0.04

%  

 

0.04

%  

Average outstanding balance during the period

$

204,797

$

236,883

$

225,145

$

219,515

$

280,296

$

265,188

$

231,430

$

204,797

Average interest rate during the period

 

0.09

%  

 

0.51

%  

 

0.50

%  

 

0.23

%  

 

0.02

%

 

0.15

%  

 

0.03

%  

 

0.09

%  

Maximum outstanding at any month end

$

295,698

$

276,927

$

260,147

$

293,944

$

367,373

$

303,315

$

432,047

$

295,698

Federal Reserve Paycheck Protection Program Lending Facility

Under the PPPLF program, the Bank can fully fund its PPP loans on a dollar-for-dollar basis at a borrowing rate of 0.35%, with the Bank’s PPP loans serving as collateral for its PPPLF borrowings. PPPLF borrowings mature as the underlying PPP loans mature, generally within two to five years. The Bank began participating in the Federal Reserve’s PPPLF on April 24, 2020, with $169 million of funds initially borrowed. The Bank paid these borrowings down to $0 during the third quarter of 2020 due to its excess liquidity position and its ability to borrow funds from the FHLB at a lower cost, if needed.

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Federal Home Loan Bank Advances

As the overall increase in deposits outpaced the overall increase in interest-earning assets for 2020,The Bank’s total FHLB term advances declined by $540were $95 million fromas of December 31, 20192022 compared to $25 million as of December 31, 2020.2021. Approximately $75 million of these borrowings were overnight in nature as of December 31, 2022 compared to $25 million as of December 31, 2021. During 2022, the Bank extended the term on $25 million of its FHLB advances in anticipation of increasing long-term interest rates. As of December 31, 2020,2022, the Bank held one term advanceCompany’s $95 million of $10 million atFHLB advances had a rateweighted-average maturity of 1.89%. This advance matured in January 2021. This compares to term advances outstanding as of December 31, 2019 of $550 million with a weighted average remaining life of 0.471.06 years and a weighted average rateweighted-average cost of 1.87%3.84%. During the fourth quarter of 2020, the Bank chose to pay-off $60 million of these term advances prior to their maturity incurring an early-termination fee of $2.1million. The Bank made this decision due to its excess liquidity driven by the substantial deposit growth it achieved during 2020 combined with the near-term outlook for low interest rates. The Bank believes it will substantially “earn back” the early termination penalty through lower interest expense to the Bank over the next two years if short-term interest rates remain at December 31, 2020 levels.

The Bank held $225 million in overnight advances at a rate of 0.16% at December 31, 2020, compared to $200 million in overnight advances at a rate of 1.63% at December 31, 2019. The usage of overnight FHLB advances is expected to continue to fluctuate based on the overall usage rates for the Bank’s warehouse lines of credit, which are also tied to short-term repricing indices, as well as current favorable deposit gathering trends.

Overall use of FHLB advances during a given year is dependent upon many factors including asset growth, deposit growth, current earnings, and expectations of future interest rates, among others.

Table 3435 — Federal Home Loan Bank Advances

As of and for the Years Ended December 31, (dollars in thousands)

    

2020

    

2019

    

2018

    

2017

    

2016

 

    

2022

    

2021

    

2020

    

Outstanding balance at end of period

$

235,000

$

750,000

$

810,000

$

737,500

$

802,500

$

95,000

$

25,000

$

235,000

Weighted average interest rate at period end

 

0.23

%  

 

1.73

%  

 

2.26

%  

 

1.61

%

 

1.35

%

 

3.84

%  

 

0.14

%  

 

0.23

%  

Average outstanding balance during the period

$

211,776

$

595,613

$

557,090

$

563,552

$

583,591

$

21,233

$

29,479

$

211,776

Average interest rate during the period

 

1.66

%  

 

2.15

%  

 

1.88

%  

 

1.57

%

 

1.87

%

 

1.60

%  

 

0.19

%  

 

1.66

%  

Maximum outstanding at any month end

$

590,000

$

1,170,000

$

967,500

$

1,002,500

$

987,500

$

95,000

$

25,000

$

590,000

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Interest Rate Swaps

Interest Rate Swaps Used as Cash Flow Hedges

The Bank entered into two interest rate swap agreements during 2013 as part of its interest rate risk management strategy. The Bank designated the swaps as cash flow hedges intended to reduce the variability in cash flows attributable to either FHLB advances tied to the 3-month LIBOR or the overall changes in cash flows on certain money market deposit accounts tied to 1-month LIBOR. The counterparty for both swaps met the Bank’s credit standards and the Bank believes that the credit risk inherent in the swap contracts is not significant. Both swaps terminated in December 2020.

Non-hedge Interest Rate Swaps

During 2015, theThe Bank began enteringenters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments, the Bank enters into offsetting positions in order to minimize the Bank’s interest rate risk. These swaps are derivatives, but are not designated as hedging instruments, and therefore changes in fair value are reported in current year earnings.

A summary of the Bank’s interest rate swaps related to clients as of December 31, 2022 and 2021 is included in the following table:

    

 

2022

2021

 

Notional

Notional

December 31, (in thousands)

    

Bank Position

 

Amount

    

Fair Value

    

Amount

    

Fair Value

Interest rate swaps with Bank clients - Assets

 

Pay variable/receive fixed

 

$

40,032

 

$

1,386

 

$

107,502

 

$

5,786

Interest rate swaps with Bank clients - Liabilities

 

Pay variable/receive fixed

 

91,636

(6,742)

16,423

(298)

Interest rate swaps with Bank clients - Total

 

Pay variable/receive fixed

 

$

131,668

 

$

(5,356)

$

123,925

 

$

5,488

Offsetting interest rate swaps with institutional swap dealer - Assets

Pay fixed/receive variable

91,636

6,742

16,423

298

Offsetting interest rate swaps with institutional swap dealer - Liabilities

Pay fixed/receive variable

40,032

(1,386)

107,502

(5,786)

Offsetting interest rate swaps with institutional swap dealer - Total

Pay fixed/receive variable

$

131,668

 

$

5,356

$

123,925

 

$

(5,488)

Total

 

$

263,336

 

$

 

$

247,850

 

$

See Footnote 8 “Interest Rate Swaps” of Part II Item 8 “Financial Statements and Supplementary Data” for further information regarding the Bank’s interest rate swaps.

Liquidity

The Bank had a loan to deposit ratio (excluding brokered deposits) of 108% at December 31, 2020 and 126% at December 31, 2019. At December 31, 2020 and December 31, 2019, the Company had cash and cash equivalents on-hand of $486 million and $385

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million. The Bank also had available borrowing capacity of $683 million and $259 million from the FHLB at December 31, 2020 and December 31, 2019. In addition, the Bank’s liquidity resources included unencumbered debt securities of $274 million and $304 million as of December 31, 2020 and December 31, 2019 and unsecured lines of credit of $125 million available through various other financial institutions as of the same period-ends.

The Bank maintains sufficient liquidity to fund routine loan demand and routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets, primarily in the form of cash, cash equivalents, and unincumbered investment securities. Funding and cash flows can also be realized bythrough deposit product promotions, the sale of AFS debt securities, principal paydowns on loans and mortgage backedmortgage-backed securities, and proceeds realized from loans held for sale.

Table 37 — Liquid Assets and Borrowing Capacity

The Bank’s liquidity is impacted by its abilityCompany’s liquid assets and borrowing capacity included the following:

December 31, (in thousands)

    

2022

    

2021

    

2020

Cash and cash equivalents

$

313,689

$

756,971

$

485,587

Unincumbered debt securities

 

438,052

 

219,775

 

273,652

Total liquid assets

751,741

976,746

759,239

Available borrowing capacity with the FHLB

 

899,362

 

900,424

 

682,992

Available borrowing capacity through unsecured credit lines

 

125,000

 

125,000

 

125,000

Total available borrowing capacity

1,024,362

1,025,424

807,992

Total liquid assets and available borrowing capacity

$

1,776,103

$

2,002,170

$

1,567,231

The Bank had a loan to sell certain investment securities, which is limited due to the leveldeposit ratio (excluding brokered deposits) of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings, and for other purposes,107% as required by law. Atof December 31, 20202022 and 99% as of December 31, 2019, these pledged investment securities had a fair value of $304 million and $230 million.2021. Republic’s banking centers and its websites,website, www.republicbank.com, and www.mymemorybank.com, provide access to retail deposit markets. These retail deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were canceled,cancelled, or if the Bank cannot obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.

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As noted in the sections above titled “Deposits” and “Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings”, the Bank implemented a general strategy during 2022 to maintain a low beta for its client-related interest-bearing liabilities as part of its overall strategy to increase its net interest margin and net interest income. As a result of this strategy, however, the Bank did experience a decline in both personal and business deposit balances and SSUAR balances as some clients moved their funds to more attractive offerings outside of the Bank. The Bank currently expects to continue its low beta strategy for deposits and SSUARS in 2023, but this strategy is subject to change depending upon several factors including, but not limited to, the Bank’s overall current and projected liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.

As of December 31, 2020,2022, the Bank had approximately $1.6 billion$879 million in deposits from 231185 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded $2 million. The 20 largest non-sweep deposit relationships represented approximately $759$304 million, or 16%7%, of the Company’s total deposit balances atas of December 31, 2020.2022. These accounts do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances were moved from the Bank, the Bank would likely utilize overnight borrowing lines in the short-term to replace the balances. On a longer-term basis, the Bank would likely utilize wholesale-brokered deposits to replace withdrawn balances, or alternatively, higher-cost internet-sourced deposits. Based on past experience utilizing brokered deposits and internet-sourced deposits, the Bank believes it can quickly obtain these types of deposits if needed. The overall cost of gathering these types of deposits, however, could be substantially higher than the Traditional Bank deposits they replace, potentially decreasing the Bank’s earnings.

DueThe Bank’s liquidity is also impacted by its ability to its historical successsell certain investment securities, which could be limited due to the level of growing loansinvestment securities that are needed to secure public deposits, SSUARs, FHLB borrowings, and its overall usefor other purposes, as required by law. As of non-core funding sources, the Bank has approachedDecember 31, 2022 and periodically during each quarter, has fallen shortDecember 31, 2021, these pledged investment securities had a fair value of its Board-approved minimum internal policy limits for liquidity management. Most recently, the Bank has experienced a significant increase in its outstanding Warehouse line-of-credit balances. Because management deems this increase in Warehouse balances to not be long-term in nature$218 million and the Bank is asset sensitive for its interest rate risk position, it has elected to utilize overnight sources in order to fund these outstanding balances.$320 million.

In addition to its typical operations which impacts liquidity, the COVID-19 pandemic could create both substantially positive and negative impacts to the Bank’s liquidity over the short-term and long-term. The overall impact to Bank’s liquidity over the long-term will likely depend heavily on the length and breadth of the COVID-19 effect on the economy.

A near-term positive to the Bank’s liquidity is the apparent flight to safety by its clients and the increase in the Bank’s deposit balances. Management is uncertain as to how long these deposit balances might stay in the Bank, however, a protracted negative impact to the economy could put a financial strain on the Banks’ clients requiring them to drawdown their deposit funds in order to meet their own liquidity demands.

See additional detail regarding the impact of COVID-19 under:

Part I Item 1A “Risk Factors”

Part II Item 8 “Financial Statements and Supplementary Data”
oFootnote 2 “Investment Securities”
oFootnote 4 “Loans and Allowance for Credit Losses”
oFootnote 13 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

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Capital

Table 3538 — Capital

Information pertaining to the Company’s capital balances and ratios follows:

As of and for the Years Ended December 31, (dollars in thousands, except per share data)

    

2020

    

2019

    

2018

    

2017

    

2016

 

    

2022

    

2021

    

2020

    

Stockholders’ equity

$

823,323

$

764,244

$

689,934

$

632,424

$

604,406

$

856,613

$

835,054

$

823,323

Book value per share at December 31,

 

39.40

 

36.49

 

33.03

 

30.33

 

28.97

 

43.38

 

41.79

 

39.40

Tangible book value per share at December 31,*

 

38.27

 

35.41

 

31.98

 

29.27

 

27.89

 

42.11

 

40.52

 

38.27

Dividends declared per share - Class A Common Stock

 

1.144

 

1.056

 

0.968

 

0.869

 

0.825

 

1.364

 

1.232

 

1.144

Dividends declared per share - Class B Common Stock

 

1.040

 

0.960

 

0.880

 

0.790

 

0.750

 

1.240

 

1.120

 

1.040

Average stockholders’ equity to average total assets

 

13.35

%  

 

13.16

%  

 

13.00

%  

 

13.02

%

 

13.32

%  

 

13.82

%  

 

13.41

%  

 

13.35

%  

Total risk-based capital

 

18.52

 

17.01

 

16.80

16.04

 

16.37

 

17.92

 

17.48

 

18.52

Common equity tier 1 capital

16.61

15.29

14.92

14.15

14.59

16.70

16.39

16.61

Tier 1 risk-based capital

 

17.43

 

16.11

 

15.81

15.06

 

15.55

 

16.70

 

16.39

 

17.43

Tier 1 leverage capital

 

13.70

 

13.93

 

14.11

13.21

 

13.54

 

14.81

 

13.36

 

13.70

Dividend payout ratio

 

29

 

24

 

26

39

 

37

 

30

 

29

 

29

Dividend yield

 

3.17

 

2.26

 

2.50

2.29

 

2.09

 

3.33

 

2.42

 

3.17

*SeeFor additional detail, see Footnote 2 of Part II, Item 6 “Selected Financial Data” for additional detail.in this section of the filing.

Total stockholders’ equity increased from $764$835 million atas of December 31, 20192021 to $823$857 million atas of December 31, 2020.2022. The increase in stockholders’ equity was primarily attributable to net income earned during 20202022 reduced by cash dividends declared and common stock repurchases.

On January 27, 2021, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase shares of its Class A Common Stock to 1,000,000 shares.

See Part II, Item 5. “Unregistered Sales of Equity Securities and Use of Proceeds” for additional detail regarding stock repurchases and stock buyback programs.

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.

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Class B Common shares may be converted, at the option of the holder, to Class A Common shares on a share for share basis. The Class A Common shares are not convertible into any other class of Republic’s capital stock.

Dividend Restrictions — The Parent Company’s principal source of funds for dividend payments are dividends received from the Bank. 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, 2020,As of January 1, 2023, the Bank could, without prior approval, declare dividends of approximately $183$92 million. Any payment of dividends in the future will depend, in large part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors.

Regulatory Capital Requirements — The Company and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. 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 regarding components, risk weightings and other factors.

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Banking regulators have categorized the Bank as well-capitalized. For prompt corrective action, the regulations in accordance with Basel III define “well capitalized” as a 10.0% Total Risk-Based Capital ratio, a 6.5% Common Equity Tier 1 Risk-Based Capital ratio, an 8.0% Tier 1 Risk-Based Capital ratio, and a 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, the Company and Bank must hold a capital conservation buffer of 2.5% composed of Common Equity Tier 1 Risk-Based Capital above their minimum risk-based capital requirements.

Republic continues to exceed the regulatory requirements for Total Risk Based Capital, Common Equity Tier I Risk Based Capital, Tier I Risk Based Capital and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer. Republic’s average stockholders’ equity to average assets ratio was 13.35% at December 31, 2020 compared to 13.16% at December 31, 2019. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.

In 2005, RBCT, an unconsolidated trust subsidiary of Republic, was formedContractual Obligations and issued $40 million in TPS. The sole asset of RBCT represents the proceeds of the offering loaned to Republic in exchange for a subordinated note with similar terms to the TPS. The RBCT TPS are treated as part of Republic’s Tier I Capital.Commitments

The subordinated noteCompany or the Bank has required future payments under various contractual obligations and related interest expense are included in Republic’s consolidated financial statements. The subordinated note paid a fixed interest rate of 6.015% through September 30, 2015 and adjusted to 3-month LIBOR plus 1.42% on a quarterly basis thereafter. The subordinated note matures on December 31, 2035 and is redeemable at the Company’s option on a quarterly basis. The Company chose not to redeem the subordinated note on January 1, 2021 and is currently carrying the note at a cost of LIBOR plus 1.42%.other commitments.

Off Balance Sheet ItemsSee the following footnotes within Part II Item 8 “Financial Statements and Supplementary Data” for additional detail regarding contractual obligations and other commitments of the Company or Bank:

Footnote 6 “Right-of-Use Assets and Operating Lease Liabilities”

Summarized credit-related financial instruments, including both commitments to extend credit and letters of credit follows:

Footnote 9 “Deposits”

Footnote 10 “Securities Sold Under Agreements to Repurchase”

Footnote 13 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

Footnote 18 “Benefit Plans”

Table 36 — Off Balance Sheet Items

Maturity by Period

 

    

    

    

Greater

    

Greater

    

    

    

    

 

than one

than three

Greater

 

Less than

year to

years to

than five

 

December 31, 2020 (in thousands)

one year

three years

five years

years

Total

 

Unused warehouse lines of credit

$

456,004

$

$

$

$

456,004

Unused home equity lines of credit

 

22,254

 

37,645

 

57,808

 

235,615

 

353,322

Unused loan commitments - other

 

680,689

 

47,424

 

8,997

 

38,018

 

775,128

Standby letters of credit

 

10,236

 

609

 

104

 

 

10,949

FHLB letter of credit

 

643

 

 

 

 

643

Total off balance sheet items

$

1,169,826

$

85,678

$

66,909

$

273,633

$

1,596,046

A portion of the unused commitments above are expected to expire or may not be fully used; therefore the total amount of commitments above does not necessarily indicate future cash requirements.

Standby letters of credit are conditional commitments issued byIn addition, the Bank to guarantee the performance of a client to a third party.maintains contractual obligations for its technological needs, including its enterprise risk management application, customer relationship management application, internet banking platform, and its core accounting application. 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 $11 million and $11 million at December 31, 2020 and 2019. In addition to credit risk, the Bank also has liquidity risk associated with standby letters of credit because fundingtotal contractual commitment for these obligations could be required immediately. The Bank does not deem this risk to be material.

applications is approximately $13 million through May 2025.

At December 31, 2020, the Bank had a $643,000 letter of credit from the FHLB issued on behalf of a Bank client. This letter of credit was used as credit enhancements for client bond offerings and reduced the Bank’s available borrowing line at the FHLB. The Bank uses a blanket pledge of eligible real estate loans to secure these letters of credit.

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Commitments to extend credit generally consist of unfunded lines of credit. These commitments generally have variable rates of interest.

Aggregate Contractual Obligations

In addition to owned banking facilities, the Bank has entered into long-term leasing arrangements to support the ongoing activities of the Company. The Bank also has required future payments for long-term and short-term debt as well as the maturity of time deposits. The required payments under such commitments follow:

Table 37 — Aggregate Contractual Obligations

Maturity by Period

 

    

    

    

Greater

    

Greater

    

    

    

    

 

than one

than three

Greater

 

Less than

year to

years to

than five

 

December 31, 2020 (in thousands)

one year

three years

five years

years

Total

 

Deposits without a stated maturity*

$

4,334,784

$

$

$

$

4,334,784

Time deposits (including brokered CDs)*

272,418

110,971

15,219

60

398,668

Federal Home Loan Bank advances*

 

235,070

 

 

 

 

235,070

Subordinated note*

 

 

 

 

41,240

 

41,240

Securities sold under agreements to repurchase*

 

211,026

 

 

 

 

211,026

Lease commitments

 

7,060

 

13,691

 

11,244

 

18,507

 

50,502

Other commitments**

13,948

9,089

1,229

1,403

25,669

Total contractual obligations

$

5,074,306

$

133,751

$

27,692

$

61,210

$

5,296,959

*Includes accrued interest.

**Primarily includes dividends declared on common stock, the Bank’s SERP, and the Bank’s significant long-term vendor contracts.

See Footnote 9 “Deposits” of Part II Item 8 “Financial Statements and Supplementary Data” for further information regarding the Bank’s deposits.

See Footnote 11 “Federal Home Loan Bank Advances” of Part II Item 8 “Financial Statements and Supplementary Data” for further information regarding the Bank’s FHLB advances.

See Footnote 12 “Subordinated Note” of Part II Item 8 “Financial Statements and Supplementary Data” for further information regarding the Bank’s 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.

See Footnote 6 “Right-of-Use Assets and Operating Lease Liabilities” of Part II Item 8 “Financial Statements and Supplementary Data” for further information regarding the Bank’s lease commitments.

See Footnote 18 “Benefit Plans” of Part II Item 8 “Financial Statements and Supplementary Data” for further information regarding the Bank’s SERP commitments.

Asset/Liability Management and Market Risk

Asset/liability management is designed to ensure safety and soundness, maintain liquidity, meet regulatory capital standards, and achieve acceptable net interest income based on the Bank’s risk tolerance. Interest rate risk is the exposure to adverse changes in net

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interest income as a result of market fluctuations in interest rates. The Bank, 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 a significant risk to the Bank’s overall earnings and balance sheet.

The interest sensitivity profile of the Bank at any point in time will be impacted 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 changes in market interest rates, deposit and loan balances, and other factors.

The Bank utilizes earnings simulation models as tools to measure interest rate sensitivity, including both a static and dynamic earnings simulation model. A static simulation model is based on current exposures and assumes a constant balance sheet. In contrast, a dynamic simulation model relies on detailed assumptions regarding changes in existing business lines, new business, and changes in management and customer behavior. While the Bank runs the static simulation model as one measure of interest rate risk, historically, the Bank has utilized its dynamic earnings simulation model as its primary interest rate risk tool to measure the potential changes in market interest rates and their subsequent effects on net interest income for a one-year time period. This dynamic model projects a “Base” case net interest income over the next 12 months and the effect on net interest income of instantaneous movements in interest rates between various basis point increments equally across all points on the yield curve. Many assumptions based on growth expectations and on the historical behavior of the Bank’s deposit and loan rates and their related balances in relation to changes in interest rates are incorporated into this dynamic model. These assumptions are inherently uncertain and, as a result, the dynamic 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 the actual timing, magnitude and frequency of interest rate changes, the actual timing and magnitude of changes in loan and deposit balances, as well as the actual changes in market conditions and the application and timing of various management strategies as compared to those projected in the various simulated models. Additionally, actual results could differ materially from the model if interest rates do not move equally across all points on the yield curve.

As of December 31, 2020, a dynamic simulation model was run for interest rate changes from “Down 100” basis points to “Up 400” basis points. The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning January 1, 20212023 and ending December 31, 20212023 based on instantaneous movements in interest rates from Down 100200 to Up 400300 basis points equally across all points on the yield curve. The Bank’s dynamic earnings simulation model includes secondary market loan fees and excludes Traditional Bank loan fees.

Table 3839 — Bank Interest Rate Sensitivity atas of December 31, 20202022 and 20192021

Change in Rates

Change in Rates

-100

    

+100

    

+200

    

+300

    

+400

    

-200

    

-100

    

+100

    

+200

    

+300

    

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

% Change from base net interest income at December 31, 2020

 

0.4

%  

 

(4.5)

%  

 

(7.0)

%  

 

(5.7)

%  

 

(4.2)

%

% Change from base net interest income at December 31, 2019

 

(4.3)

%  

 

0.9

%  

 

1.6

%  

 

1.9

%

 

2.5

%

% Change from base net interest income as of December 31, 2022

(2.8)

%  

(0.6)

%  

1.8

%  

3.7

%  

5.7

%

% Change from base net interest income as of December 31, 2021

(2.9)

%  

1.3

%  

(0.6)

%  

0.7

%  

4.7

%

The Bank’s dynamicFor the Down-100 scenario, the December 2022 simulation model runreflected a more negative outcome than the December 2021 simulation.  For the Up-100, Up-200, and Up-300 scenarios, the December 31, 2022 simulation reflected a more positive outcome for December 2020 projected a decrease in the Bank’s net interest income plus secondary market loan fees for all Up-rate scenarios. than the comparable December 31, 2021 simulation. 

The projections as of December 2019 reflected a decreaseperiod-to-period decline in the Down-100 scenario and an increase in all Up-rate scenarios.was generally tied to interest rate floors for the Bank’s floating rate loans. As compared toof December 2019,31, 2021, market interest rates were significantly lower than market interest rates as of December 31, 2022. As a result, many of the deteriorationBank’s floating rate loans were priced at their contractual interest rate floors as of December 31, 2021. The Bank’s interest rate simulation model for December 31, 2021, assumed that interest rates for most of these loans would remain at their contractual interest rate floors, even as market rates declined in the Up-rate scenarios for December 2020 was generally due to the impact of an expected reduction in secondarysimulation. With market loan fees as interest rates rise fromsignificantly higher as of December 31, 2022, the current rates for a substantial amount of the Bank’s floating rate loans are above their current historic lows. The improvement in the Down-100 scenario is primarily related to the number of loans that have reached or are expected to reach theircontractual interest rate floors, and therefore, not subjectcan reprice lower, down to furthertheir contractual interest rate reductions. Additionally, the improvement in the Down-100 scenario was due to an estimated rise in secondary market loan feesfloors, in a fallingdeclining market rate environment.

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As compared to the December 2021 simulation, the improvement for the December 2022 simulation outcomes for the Up-rate scenarios was generally tied to contractual interest rate floors, as well. As previously noted, market interest rates were significantly lower as of December 31, 2021 than market interest rates as of December 31, 2022, and many of the Bank’s loans were already priced at their contractual interest rate floors as of December 31, 2021. By formula, the interest rates for many of the Bank’s floating rate loans would have been much lower at December 31, 2021 had their contractual interest rate floors not existed. As a result, the formula interest rate for each floating rate loan had to increase substantially, in many cases, before the formula interest rate surpassed the contractual interest rate floor and the loan starting repricing higher. With most of the Bank’s floating rate loans now above their contractual interest rate floors as of December 31, 2022, the Bank would generally experience an earlier benefit from an increase in interest rates, based on each loan’s floating rate formula, in a rising interest rate environment.

LIBOR Exposure

In July 2017, the Financial Conduct Authority (“FCA”), the authority regulating LIBOR, along with various other regulatory bodies, announced that LIBOR would likely be discontinued at the end of 2021. Subsequent to that announcement, in November 2020, the FCA announced that many tenors of LIBOR would continue to be published through June 2023. In compliance with regulatory guidance, the Bank discontinued referencing LIBOR for new financial instruments during 2021 and chose SOFR to be its primary alternative reference rate for most transaction types upon the discontinuance or unavailability of LIBOR.

Regarding its legacy assets that reference LIBOR, the Bank has previously disclosed that the underlying contracts for these assets may not include adequate “fallback” language to use alternative indexes and margins when LIBOR ceases. However, on March 15, 2022, President Biden signed into law the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Law”), which is designed to accomplish the following:

Establish a clear and uniform process, on a nationwide basis, for replacing LIBOR in existing contracts, the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate, without affecting the ability of parties to use any appropriate benchmark rate in new contracts;
Preclude litigation related to existing contracts, the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate;
Allow existing contracts that reference LIBOR but provide for the use of a clearly defined and practicable replacement rate to operate according to their terms; and
Address LIBOR references in federal law.

With limited exception, the LIBOR Law generally covers legacy LIBOR contracts with no or inadequate fallback provisions. Additionally, under the LIBOR Law, the Board of Governors of the Federal Reserve System (the “FRB Board”) issued final regulations in December 2022 that included the selection of a FRB Board-Selected Benchmark Replacement based on SOFR and incorporates an applicable tenor spread adjustment and identification of any related conforming changes.

As of December 31, 2022, the Company had approximately $410 million of legacy assets that reference LIBOR, with short-term Warehouse loans representing $10 million of these assets, investment securities representing $60 million, and commercial and mortgage loans primarily making up the remainder. As of December 31, 2022, of the Bank’s legacy assets that reference LIBOR, approximately $351 million of those assets were scheduled to mature after June 30, 2023. These amounts exclude derivative assets and liabilities on the Company’s consolidated balance sheet. As of December31, 2022, the notional amount of the Company’s LIBOR-referenced interest rate derivative contracts was approximately $183 million, with $183 million of such notional amount scheduled to mature after June 30, 2023.

For additional discussion regarding the Bank’s net interest income, see the sections titled “Net Interest Income” in this section of the filing under “RESULTS OF OPERATIONS (Discussion of 2021 vs. 2020).”

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

See the section titled “Asset/Liability Management and Market Risk” included under Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Item 8. Financial Statements and Supplementary Data.

The following are included in this section:

Management’s Report on Internal Control Over Financial Reporting

89

Report of Independent Registered Public Accounting Firm (PCAOB ID 173)

9088

Consolidated balance sheets — December 31, 20202022 and 20192021

9392

Consolidated statements of income and comprehensive income — years ended December 31, 2020, 20192022, 2021, and 20182020

9493

Consolidated statements of stockholders’ equity — years ended December 31, 2020, 20192022, 2021, and 20182020

9695

Consolidated statements of cash flows — years ended December 31, 2020, 20192022, 2021, and 20182020

9796

Footnotes to consolidated financial statements

9897

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Graphic

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 the Company’s 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. 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, internal control can vary with changes in circumstances.

Management has made its own assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, in relation to the criteria described in the report, Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on its assessment, Management believes that as of December 31, 2020, the Company’s internal control was effective in achieving the objectives stated above. Crowe LLP has provided its report on the audited 2020 and 2019 consolidated financial statements and on the effectiveness of the Company’s internal control in their report dated February 26, 2021.

Steve Trager sig

Steven E. Trager

Chairman and Chief Executive Officer

Kevin Sipes

Kevin Sipes

Chief Financial Officer and Chief Accounting Officer

February 26, 2021

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GraphicGraphic

Crowe LLP

Independent Member Crowe Global

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMFIRM

Stockholders and the Board of Directors

of Republic Bancorp, Inc.

Louisville, Kentucky

OpinionsOpinion on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Republic Bancorp, Inc. (the "Company") as of December 31, 20202022 and 2019,2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the three-year period ended December 31, 2020,2022, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the three-year period ended December 31, 20202022, in conformity with accounting principles generally accepted in the United States of America.  Also

We also have audited, in our opinion,accordance with the standards of the Public Company maintained, in all material respects, effectiveAccounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.the Committee of Sponsoring Organizations of the Treadway Commission (COSO)” and our report dated March 3, 2023, expressed an adverse opinion.

Change in Accounting PrincipleBasis for Opinion

As discussed in Note 1 to the consolidated

These financial statements are the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (ASC 326).  The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.  The adoptionresponsibility of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.Company's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

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fraud. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.opinion.

Definition and Limitations of Internal Control Over Financial Reporting

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 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.  

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.  The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Allowance for Credit Losses on Loans – Current Expected CreditAdjustments to the Historical Loss Adoption and Qualitative ComponentRate

The Company adopted ASC 326, Financial Instruments – Credit Losses as of January 1, 2020, using the modified retrospective method asAs described in Note 1 and referred to in the change in accounting principle explanatory paragraph above.  In doing so, the Company recorded a decrease to retained earnings of $4.3 million for the cumulative effect of adopting ASC 326, as noted in the Consolidated Statements of Changes in Shareholders’ Equity.  As of December 31, 2020,Note 4, the allowance for credit losses on loans was $61.1 million.  The Company has disclosed the impact of adoption in Note 1 to the Consolidated Financial Statements and the allowance for credit losses on loans as of December 31, 2020 is disclosed in Note 4.(“ACLL”) under ASC 326 requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost at the reporting date. The measurement is based on historical loss rates, qualitative factors, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimatingforecasts. The allowance for credit losses on loans,was $70.4 million as well as the credit quality and underwriting standards of the loan portfolio.December 31, 2022.

Management employs a process and methodology to estimate the allowance for credit losses on loans  (“ACLL”)ACLL that evaluates both quantitative and qualitative metrics. The methodology for evaluating quantitative loss rates consists of two basic components. The first component involves pooling loans into portfolio segments for loans that share similar risk characteristics.  These loans are referred to as pooled loans and the methodology to estimate the ACLL is discussed below. The second component involves individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments.

For pooled loans, the Company utilizes a “static-pool” method to estimate credit losses over the expected life of the loan. The “static-pool” methodology analyzes historical closed pools of similar loans over their expected lives to attain a historical loss rate.  This

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Adjustments are made to the historical loss rate when appliedfor current conditions including underwriting standards, portfolio mix or term, delinquency level as well as for changes in environmental conditions, such as changes in property value or other relevant factors.  One-year forecast adjustments to the loan pool is referred to as the general component of the ACLL. The general component is then adjusted for the qualitative component, which is comprised of reasonable and supportable forecasts and qualitative factors.  , Reasonable and supportable forecasts, which include one-year forecast adjustments,historical loss rate are based on a forecast of the U.S. national unemployment rate and vacancy rates for CRE in the Company’s footprint.commercial real estate values. Subsequent to the one-year forecast, loss rates are assumed to immediately revert back to thelong-term historical loss rate. averages.Qualitative factors are also applied to the general component for differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, such as changes in property values or other relevant credit metrics. Management’s determination of the qualitative component comprising reasonable and supportable forecasts and qualitative factors relies on a qualitative assessment of risks to determine the impact on the ACLL.

We identified management’s implementation and quarterly application of the allowance for credit losses on loans, specifically the qualitative component,adjustments to the historical loss rate, as a critical audit matter due to the degree of judgment applied to these adjustments.  This critical audit matter requires the performance of audit procedures to evaluate the implementation and subsequent application of ASC 326 for loans and involved especially subjective auditor judgment and required significant audit effort, including the need to involve more experienced audit personnel. Management’s analysis of the adjustments to the historical loss rates during the reasonable and supportable forecasts and qualitative factors to determine the qualitative component offorecast period within the allowance for credit losses on loans requires a high degree of subjectivity and judgment and requires the Company to make significant estimates of the risks present for each portfolio segment.  Changes in these assumptions could have a material effect on the Company’s financial results.

The primary procedures we performed to address this critical audit matter included:

Testing the design and operating effectiveness of controls over the adoption of and evaluation of the qualitative component of the ACLL, on loans, including controls addressing:

The selectionRelevance and applicationreliability of new accounting policies, specifically the qualitative component.
Dataunderlying data inputs, judgments, and calculations used to determine the forecasts and qualitative factors.adjustments to historical loss rates.
Management’s review of the reasonableness of forecasts and qualitative factors.
Management’s review of the qualitative component and the reasonableness of the ACLL on loans.adjustments to historical loss rates.

Substantively testing management’s process, including evaluating their judgments and assumptions, for developing and ongoing assessment ofto assess the estimate of the qualitative component included:ACLL including:

We evaluated the appropriateness of the Company’s accounting policies, assumptions and elections involved in adoption of ASC 326 for loans, specifically the qualitative component.
We tested the accuracy of inputs and mathematical accuracy of the qualitative component of the allowance for credit losses on loans calculation.
Evaluation of the reasonableness and completeness and accuracy of management’s judgments related to forecasted unemployment and commercial vacancy rates for commercial real estate in the Company’s footprint. Our evaluation considered the weight of evidence from internal and external sources
Evaluation ofEvaluating the reasonableness of management’s significant assumptions, judgments, and conclusions related to qualitative factorsthe reasonable and supportable forecasts and adjustments to determine if they are calculated to conform with management’s policies and were consistently applied.historical loss rates.  Our evaluation considered the weight of evidence from internal and external sources and loan portfolio performance.
Testing the relevance and reliability of data inputs and mathematical accuracy of the forecasts and adjustments to historical loss rates within the ACLL calculation.

Graphic/S/ Crowe LLP

We have served as the Company’s auditor since 1996.

Louisville, Kentucky

February 26, 2021March 3, 2023

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Graphic

Crowe LLP

Independent Member Crowe Global

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and the Board of Directors of Republic Bancorp, Inc.

Louisville, Kentucky

Opinion on Internal Control over Financial Reporting

We have audited Republic Bancorp, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effects of the material weaknesses discussed in the following paragraph, the Company has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.  The following material weaknesses have been identified and included in management's report.  

1)the Company did not maintain effective controls over the initial implementation of new products offered through third parties within RPG. Specifically, Management identified that an RCS product’s contractual terms were not sufficiently communicated internally, and the controls were not designed to identify and test all relevant transactional data posting to the Company’s financial statements for the product;

2)the Company did not maintain effective controls over the information and communication as it relates to the reconciliation function. Specifically, the controls were not precisely designed to identify, communicate, resolve, and timely escalate reconciliation issues to the appropriate levels within the organization; and

3)the Company did not design and maintain effective controls over the financial analysis of RCS products’ yields.  Specifically, the Company reviewed the weighted average yield of all RCS products on a segment basis rather than an individual product basis.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements")and our report dated March 3, 2023 expressed an unqualified opinion. We considered the material weaknesses identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the 2022 consolidated financial statements, and this report on Internal Control over Financial Reporting does not affect such report on the financial statements.

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Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.  We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

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 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.  

/s/ Crowe LLP

We have served as the Company's auditor since 1996.

Louisville, Kentucky

March 3, 2023

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CONSOLIDATED BALANCE SHEETS

DECEMBER 31, (in thousands, except share data)

    

2020

    

2019

 

ASSETS

Cash and cash equivalents

$

485,587

$

385,303

Available-for-sale debt securities, at fair value (amortized cost of $512,518 in 2020 and $467,122 in 2019, allowance for credit losses of $0 in 2020 and $0 in 2019)

 

523,863

 

471,355

Held-to-maturity debt securities (fair value of $54,190 in 2020 and $63,156 in 2019, allowance for credit losses of $178 in 2020 and $0 in 2019)

 

53,324

 

62,531

Equity securities with readily determinable fair value

3,083

3,188

Mortgage loans held for sale, at fair value

 

46,867

 

19,224

Consumer loans held for sale, at fair value

3,298

598

Consumer loans held for sale, at the lower of cost or fair value

1,478

11,646

Loans (loans carried at fair value of $497 in 2020 and $998 in 2019)

 

4,813,103

 

4,433,151

Allowance for credit losses

 

(61,067)

 

(43,351)

Loans, net

 

4,752,036

 

4,389,800

Federal Home Loan Bank stock, at cost

 

17,397

 

30,831

Premises and equipment, net

 

39,512

 

46,196

Right-of-use assets

43,345

35,206

Goodwill

 

16,300

 

16,300

Other real estate owned

 

2,499

 

113

Bank owned life insurance

 

68,018

 

66,433

Other assets and accrued interest receivable

 

111,718

 

81,595

TOTAL ASSETS

$

6,168,325

$

5,620,319

LIABILITIES

Deposits:

Noninterest-bearing

$

1,890,416

$

1,033,379

Interest-bearing

 

2,842,765

 

2,752,629

Total deposits

 

4,733,181

 

3,786,008

Securities sold under agreements to repurchase and other short-term borrowings

 

211,026

 

167,617

Operating lease liabilities

44,340

36,530

Federal Home Loan Bank advances

 

235,000

 

750,000

Subordinated note

 

41,240

 

41,240

Other liabilities and accrued interest payable

 

80,215

 

74,680

Total liabilities

 

5,345,002

 

4,856,075

Commitments and contingent liabilities (Footnote 13)

 

 

STOCKHOLDERS’ EQUITY

Preferred stock, 0 par value

 

 

Class A Common Stock, 0 par value, 30,000,000 shares authorized, 18,696,607 shares (2020) and 18,736,445 shares (2019) issued and outstanding; Class B Common Stock, 0 par value, 5,000,000 shares authorized, 2,199,455 shares (2020) and 2,206,412 shares (2019) issued and outstanding

 

4,899

 

4,907

Additional paid in capital

 

143,637

 

142,068

Retained earnings

 

666,278

 

614,171

Accumulated other comprehensive income

 

8,509

 

3,098

Total stockholders’ equity

 

823,323

 

764,244

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

6,168,325

$

5,620,319

2022

    

2021

 

ASSETS

Cash and cash equivalents

$

313,689

$

756,971

Available-for-sale debt securities, at fair value (amortized cost of $663,003 in 2022 and $492,626 in 2021, allowance for credit losses of $0 in 2022 and 2021)

 

620,365

 

495,126

Held-to-maturity debt securities (fair value of $87,357 in 2022 and $44,764 in 2021, allowance for credit losses of $10 in 2022 and $47 in 2021)

 

87,386

 

44,299

Equity securities with readily determinable fair value

111

2,620

Mortgage loans held for sale, at fair value

 

1,302

 

29,393

Consumer loans held for sale, at fair value

4,706

19,747

Consumer loans held for sale, at the lower of cost or fair value

13,169

2,937

Loans (loans carried at fair value of $2 in 2022 and $170 in 2021)

 

4,515,802

 

4,496,562

Allowance for credit losses

 

(70,413)

 

(64,577)

Loans, net

 

4,445,389

 

4,431,985

Federal Home Loan Bank stock, at cost

 

9,146

 

10,311

Premises and equipment, net

 

31,978

 

36,073

Right-of-use assets

37,017

38,825

Goodwill

 

16,300

 

16,300

Other real estate owned

 

1,581

 

1,792

Bank owned life insurance

 

101,687

 

99,161

Low-income housing tax credit investments

75,324

50,619

Other assets and accrued interest receivable

 

76,393

 

57,473

TOTAL ASSETS

$

5,835,543

$

6,093,632

LIABILITIES

Deposits:

Noninterest-bearing

$

1,908,768

$

1,989,679

Interest-bearing

 

2,629,077

 

2,849,637

Total deposits

 

4,537,845

 

4,839,316

Securities sold under agreements to repurchase and other short-term borrowings

 

216,956

 

290,967

Operating lease liabilities

37,809

39,672

Federal Home Loan Bank advances

 

95,000

 

25,000

Low-income housing tax credit obligations

43,609

23,383

Other liabilities and accrued interest payable

 

47,711

 

40,240

Total liabilities

 

4,978,930

 

5,258,578

Commitments and contingent liabilities (Footnote 13)

 

 

STOCKHOLDERS’ EQUITY

Preferred stock, no par value

 

 

Class A Common Stock, no par value, 30,000,000 shares authorized, 17,584,928 shares (2022) and 17,816,083 shares (2021) issued and outstanding; Class B Common Stock, no par value, 5,000,000 shares authorized, 2,159,495 shares (2022) and 2,164,903 shares (2021) issued and outstanding

 

4,648

 

4,702

Additional paid in capital

 

141,694

 

139,956

Retained earnings

 

742,250

 

688,522

Accumulated other comprehensive (loss) income

 

(31,979)

 

1,874

Total stockholders’ equity

 

856,613

 

835,054

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

5,835,543

$

6,093,632

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, (in thousands, except per share data)

2020

    

2019

    

2018

INTEREST INCOME:

Loans, including fees

$

241,044

$

260,064

$

237,621

Taxable investment securities

 

9,798

 

13,546

 

11,830

Federal Home Loan Bank stock and other

 

1,416

 

7,273

 

6,730

Total interest income

 

252,258

 

280,883

 

256,181

INTEREST EXPENSE:

Deposits

 

15,089

 

29,135

 

17,017

Securities sold under agreements to repurchase and other short-term borrowings

 

177

 

1,211

 

1,125

Federal Reserve Payment Protection Plan Liquidity Facility

153

Federal Home Loan Bank advances

 

3,524

 

12,791

 

10,473

Subordinated note

1,000

1,620

1,508

Total interest expense

19,943

44,757

30,123

NET INTEREST INCOME

232,315

236,126

226,058

Provision for expected credit loss expense

31,278

25,758

31,368

NET INTEREST INCOME AFTER PROVISION

201,037

210,368

194,690

NONINTEREST INCOME:

Service charges on deposit accounts

 

11,615

 

14,197

 

14,273

Net refund transfer fees

 

20,297

 

21,158

 

20,029

Mortgage banking income

 

31,847

 

9,499

 

4,825

Interchange fee income

 

11,188

 

11,859

 

11,159

Program fees

 

7,095

 

4,712

 

6,225

Increase in cash surrender value of bank owned life insurance

 

1,585

 

1,550

 

1,527

Net gains (losses) on other real estate owned

 

(40)

 

540

 

729

Net gain on branch divestiture

7,829

Other

 

3,466

 

3,664

 

4,658

Total noninterest income

 

87,053

 

75,008

 

63,425

NONINTEREST EXPENSE:

Salaries and employee benefits

 

106,166

 

99,181

 

91,189

Occupancy and equipment, net

 

27,498

 

26,124

 

25,365

Communication and transportation

 

4,942

 

4,447

 

4,785

Marketing and development

 

4,031

 

5,023

 

4,432

FDIC insurance expense

 

1,010

 

743

 

1,494

Bank franchise tax expense

 

5,369

 

5,293

 

4,951

Data processing

 

12,066

 

9,189

 

9,613

Interchange related expense

 

4,303

 

4,870

 

4,480

Supplies

 

1,717

 

1,693

 

1,444

Other real estate owned and other repossession expense

 

46

 

326

 

94

Legal and professional fees

4,244

3,357

3,459

FHLB advances early termination penalties

2,108

Other

 

11,957

 

11,937

 

12,546

Total noninterest expense

 

185,457

 

172,183

 

163,852

INCOME BEFORE INCOME TAX EXPENSE

 

102,633

 

113,193

 

94,263

INCOME TAX EXPENSE

 

19,387

 

21,494

 

16,411

NET INCOME

$

83,246

$

91,699

$

77,852

BASIC EARNINGS PER SHARE:

Class A Common Stock

$

4.00

$

4.41

$

3.76

Class B Common Stock

3.64

4.01

3.41

DILUTED EARNINGS PER SHARE:

Class A Common Stock

$

3.99

$

4.39

$

3.74

Class B Common Stock

3.63

3.99

3.40

2022

    

2021

    

2020

INTEREST INCOME:

Loans, including fees

$

221,075

$

219,592

$

241,044

Taxable investment securities

 

11,384

 

7,450

 

9,798

Federal Home Loan Bank stock and other

 

11,725

 

1,364

 

1,416

Total interest income

 

244,184

 

228,406

 

252,258

INTEREST EXPENSE:

Deposits

 

6,757

 

5,039

 

15,089

Securities sold under agreements to repurchase and other short-term borrowings

 

397

 

63

 

177

Federal Reserve Payment Protection Plan Liquidity Facility

153

Federal Home Loan Bank advances

 

339

 

57

 

3,524

Subordinated note

507

1,000

Total interest expense

7,493

5,666

19,943

NET INTEREST INCOME

236,691

222,740

232,315

Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities)

22,348

14,808

31,278

NET INTEREST INCOME AFTER PROVISION

214,343

207,932

201,037

NONINTEREST INCOME:

Service charges on deposit accounts

 

13,426

 

12,553

 

11,615

Net refund transfer fees

 

17,080

 

20,248

 

20,297

Mortgage banking income

 

6,196

 

19,994

 

31,847

Interchange fee income

 

13,125

 

13,062

 

11,188

Program fees

 

16,172

 

14,237

 

7,095

Increase in cash surrender value of bank owned life insurance

 

2,526

 

2,242

 

1,585

Net losses on other real estate owned

 

(211)

 

(160)

 

(40)

Contract termination fee

5,000

Legal settlement

13,000

Other

 

3,496

 

4,399

 

3,466

Total noninterest income

 

89,810

 

86,575

 

87,053

NONINTEREST EXPENSE:

Salaries and employee benefits

 

111,240

 

110,088

 

106,166

Technology, equipment, and communication

 

28,954

 

29,351

 

29,128

Occupancy

 

13,014

 

13,193

 

13,438

Marketing and development

 

6,875

 

4,390

 

4,031

FDIC insurance expense

 

1,668

 

1,591

 

1,010

State and local bank franchise tax expense

 

 

 

5,369

Interchange related expense

 

4,773

 

4,960

 

4,303

Legal and professional fees

4,024

4,924

4,244

FHLB advances early termination penalties

2,108

Other

 

16,760

 

14,568

 

15,660

Total noninterest expense

 

187,308

 

183,065

 

185,457

INCOME BEFORE INCOME TAX EXPENSE

 

116,845

 

111,442

 

102,633

INCOME TAX EXPENSE

 

25,739

 

23,831

 

19,387

NET INCOME

$

91,106

$

87,611

$

83,246

BASIC EARNINGS PER SHARE:

Class A Common Stock

$

4.60

$

4.29

$

4.00

Class B Common Stock

4.19

3.90

3.64

DILUTED EARNINGS PER SHARE:

Class A Common Stock

$

4.59

$

4.28

$

3.99

Class B Common Stock

4.17

3.89

3.63

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, (in thousands)

2020

    

2019

    

2018

 

Net income

$

83,246

$

91,699

$

77,852

OTHER COMPREHENSIVE INCOME (LOSS)

Change in fair value of derivatives used for cash flow hedges

 

(177)

 

(199)

 

178

Reclassification amount for net derivative losses (gains) realized in income

 

281

 

(20)

 

28

Change in unrealized gain on AFS debt securities

 

7,147

 

5,689

 

(1,548)

Adjustment for accounting standard update

(428)

Change in unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings

 

(35)

 

(79)

 

(20)

Total other comprehensive income (loss) before income tax

 

7,216

 

5,391

 

(1,790)

Tax effect

 

(1,805)

 

(1,296)

 

377

Total other comprehensive income (loss), net of tax

 

5,411

 

4,095

 

(1,413)

COMPREHENSIVE INCOME

$

88,657

$

95,794

$

76,439

    

2022

    

2021

    

2020

 

Net income

$

91,106

$

87,611

$

83,246

OTHER COMPREHENSIVE INCOME (LOSS)

Change in fair value of derivatives used for cash flow hedges

 

 

 

(177)

Reclassification amount for net derivative losses realized in income

 

 

 

281

Unrealized losses on AFS debt securities

 

(45,109)

 

(8,908)

 

7,147

Unrealized (loss) gain on AFS debt security for which a portion of OTTI has been recognized in earnings

 

(29)

 

63

 

(35)

Total other comprehensive loss before income tax

 

(45,138)

 

(8,845)

 

7,216

Tax effect

 

11,285

 

2,210

 

(1,805)

Total other comprehensive loss, net of tax

 

(33,853)

 

(6,635)

 

5,411

COMPREHENSIVE INCOME

$

57,253

$

80,976

$

88,657

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBERDecember 31, 2020, 2019,2022, 2021, and 20182020

Common Stock

Accumulated

 

    

Class A

    

Class B

    

    

    

Additional

    

    

    

Other

    

Total

 

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

 

(in thousands, except per share data)

Outstanding

Outstanding

Amount

Capital

Earnings

Income (Loss)

Equity

 

Balance, January 1, 2018

 

18,607

 

2,243

$

4,902

$

139,406

$

487,700

$

416

$

632,424

Adjustment for adoption of ASU 2016-01

(35)

(338)

(373)

Net income

 

 

 

 

 

77,852

 

 

77,852

Net change in accumulated other comprehensive income (loss)

 

 

 

 

 

 

(1,075)

 

(1,075)

Dividends declared on Common Stock:

Class A Shares ($0.968 per share)

 

 

 

 

 

(18,076)

 

 

(18,076)

Class B Shares ($0.88 per share)

 

 

 

 

 

(1,955)

 

 

(1,955)

Stock options exercised, net of shares withheld

 

3

83

83

Conversion of Class B to Class A Common Shares

 

30

 

(30)

 

 

 

 

Repurchase of Class A Common Stock

 

(14)

(5)

(349)

(473)

 

(827)

Net change in notes receivable on Class A Common Stock

 

5

 

5

Deferred compensation - Class A Common Stock:

 

Directors

 

5

 

 

1

 

214

 

 

 

215

Designated key employees

430

 

430

Employee stock purchase plan - Class A Common Stock

6

2

228

 

230

Stock-based awards - Class A Common Stock:

 

Performance stock units, net of shares tendered back

 

 

 

 

106

 

 

106

Restricted stock, net of shares tendered back

 

38

 

 

 

630

 

 

 

630

Stock options

 

 

 

 

265

 

 

 

265

Balance, December 31, 2018

 

18,675

 

2,213

$

4,900

$

141,018

$

545,013

$

(997)

$

689,934

Adjustment for adoption of ASU 2016-02

126

126

Net income

 

 

 

 

 

91,699

 

 

91,699

Net change in accumulated other comprehensive income (loss)

 

 

 

 

 

 

4,095

 

4,095

Dividends declared on Common Stock:

Class A Shares ($1.056 per share)

 

 

 

 

 

(19,771)

 

(19,771)

Class B Shares ($0.96 per share)

 

 

 

 

 

(2,121)

 

(2,121)

Stock options exercised, net of shares withheld

 

44

11

(202)

(191)

Conversion of Class B to Class A Common Shares

 

7

 

(7)

 

 

 

 

 

Repurchase of Class A Common Stock

 

(32)

(6)

(637)

(775)

(1,418)

Net change in notes receivable on Class A Common Stock

 

(222)

(222)

Deferred compensation - Class A Common Stock:

Directors

 

6

 

 

 

213

 

 

 

213

Designated key employees

371

371

Employee stock purchase plan - Class A Common Stock

11

2

492

494

Stock-based awards - Class A Common Stock:

Performance stock units, net of shares tendered back

 

23

 

 

 

(57)

 

 

 

(57)

Restricted stock, net of shares tendered back

 

3

 

 

 

728

 

 

 

728

Stock options

 

 

 

 

364

 

 

 

364

Balance, December 31, 2019

 

18,737

 

2,206

$

4,907

$

142,068

$

614,171

$

3,098

$

764,244

Adjustment for adoption of ASU 2016-13

(4,291)

(4,291)

Net income

 

 

 

 

 

83,246

 

 

83,246

Net change in accumulated other comprehensive income (loss)

 

 

 

 

 

 

5,411

 

5,411

Dividends declared on Common Stock:

Class A Shares ($1.144 per share)

 

 

 

 

 

(21,433)

 

 

(21,433)

Class B Shares ($1.04 per share)

 

 

 

 

 

(2,288)

 

 

(2,288)

Stock options exercised, net of shares withheld

 

25

13

197

210

Conversion of Class B to Class A Common Shares

 

7

 

(7)

 

 

 

 

 

Repurchase of Class A Common Stock

 

(115)

(26)

(782)

(3,127)

(3,935)

Net change in notes receivable on Class A Common Stock

 

(35)

(35)

Deferred compensation - Class A Common Stock:

Directors

 

4

 

 

 

352

 

 

 

352

Designated key employees

566

566

Employee stock purchase plan - Class A Common Stock

20

4

623

627

Stock-based awards - Class A Common Stock:

Performance stock units, net of shares tendered back

 

18

 

 

 

(200)

 

 

 

(200)

Restricted stock, net of shares tendered back

 

1

 

 

1

 

385

 

 

 

386

Stock options

 

 

 

 

463

 

 

 

463

Balance, December 31, 2020

 

18,697

2,199

$

4,899

$

143,637

$

666,278

$

8,509

$

823,323

Common Stock

Accumulated

 

    

Class A

    

Class B

    

    

    

Additional

    

    

    

Other

    

Total

 

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

 

(in thousands, except per share data)

Outstanding

Outstanding

Amount

Capital

Earnings

Income

Equity

 

Balance, January 1, 2020

 

18,737

 

2,206

$

4,907

$

142,068

$

614,171

$

3,098

$

764,244

Adjustment for adoption of ASU 2016-13

(4,291)

(4,291)

Net income

 

 

 

 

 

83,246

 

 

83,246

Net change in accumulated other comprehensive income (loss)

 

 

 

 

 

 

5,411

 

5,411

Dividends declared on Common Stock:

Class A Shares ($1.144 per share)

 

 

 

 

 

(21,433)

 

 

(21,433)

Class B Shares ($1.04 per share)

 

 

 

 

 

(2,288)

 

 

(2,288)

Stock options exercised, net of shares withheld

 

25

13

197

 

210

Conversion of Class B to Class A Common Shares

 

7

 

(7)

 

 

 

 

 

Repurchase of Class A Common Stock

 

(115)

(26)

(782)

(3,127)

 

(3,935)

Net change in notes receivable on Class A Common Stock

 

(35)

 

(35)

Deferred compensation - Class A Common Stock:

Directors

 

4

 

 

 

352

 

 

 

352

Designated key employees

566

566

Employee stock purchase plan - Class A Common Stock

20

4

623

 

627

Stock-based awards - Class A Common Stock:

Performance stock units, net of shares tendered back

 

18

 

 

 

(200)

 

 

 

(200)

Restricted stock, net of shares tendered back

 

1

 

 

1

 

385

 

 

 

386

Stock options

 

 

 

 

463

 

 

 

463

Balance, December 31, 2020

 

18,697

 

2,199

$

4,899

$

143,637

$

666,278

$

8,509

$

823,323

Net income

 

 

 

 

 

87,611

 

 

87,611

Net change in accumulated other comprehensive income (loss)

 

 

 

 

 

 

(6,635)

 

(6,635)

Dividends declared on Common Stock:

Class A Shares ($1.232 per share)

 

 

 

 

 

(22,451)

 

 

(22,451)

Class B Shares ($1.12 per share)

 

 

 

 

 

(2,435)

 

 

(2,435)

Stock options exercised, net of shares withheld

 

28

 

 

13

 

(155)

 

 

(142)

Conversion of Class B to Class A Common Shares

 

34

 

(34)

 

 

 

 

 

Repurchase of Class A Common Stock

 

(980)

 

 

(216)

 

(6,831)

 

(40,481)

 

(47,528)

Net change in notes receivable on Class A Common Stock

 

151

 

151

Deferred compensation - Class A Common Stock:

Directors

 

4

 

 

 

417

 

 

 

417

Designated key employees

 

 

 

607

607

Employee stock purchase plan - Class A Common Stock

15

 

 

4

 

691

 

695

Stock-based awards - Class A Common Stock:

Performance stock units, net of shares tendered back

 

 

 

 

129

 

 

 

129

Restricted stock, net of shares tendered back

 

18

 

 

2

 

736

 

 

 

738

Stock options

 

 

 

 

574

 

 

 

574

Balance, December 31, 2021

 

17,816

 

2,165

$

4,702

$

139,956

$

688,522

$

1,874

$

835,054

Net income

 

 

 

 

 

91,106

 

 

91,106

Net change in accumulated other comprehensive income (loss)

 

 

 

 

 

 

(33,853)

 

(33,853)

Dividends declared on Common Stock:

Class A Shares ($1.364 per share)

 

 

 

 

 

(24,122)

 

 

(24,122)

Class B Shares ($1.24 per share)

 

 

 

 

 

(2,679)

 

 

(2,679)

Stock options exercised, net of shares withheld

 

3

 

 

2

50

 

 

 

52

Conversion of Class B to Class A Common Shares

 

5

 

(5)

 

 

 

 

 

Repurchase of Class A Common Stock

 

(273)

 

 

(60)

 

(1,940)

 

(10,577)

 

 

(12,577)

Net change in notes receivable on Class A Common Stock

 

 

 

 

61

 

 

 

61

Deferred compensation - Class A Common Stock:

Directors

 

6

 

 

 

503

 

 

 

503

Designated key employees

725

725

Employee stock purchase plan - Class A Common Stock

16

 

 

4

 

690

 

 

 

694

Stock-based awards - Class A Common Stock:

Performance stock units, net of shares tendered back

 

 

 

 

152

 

 

 

152

Restricted stock, net of shares tendered back

 

12

 

 

 

937

 

 

 

937

Stock options

 

 

 

 

560

 

 

 

560

Balance, December 31, 2022

 

17,585

 

2,160

$

4,648

$

141,694

$

742,250

$

(31,979)

$

856,613

See accompanying footnotes to consolidated financial statements.

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Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, (in thousands)

2020

    

2019

    

2018

 

OPERATING ACTIVITIES:

Net income

$

83,246

$

91,699

$

77,852

Adjustments to reconcile net income to net cash provided by operating activities:

Net (accretion) amortization on investment securities

 

1,572

 

(120)

 

97

Net accretion on loans and amortization of core deposit intangible and operating lease components

 

(13,084)

 

(3,655)

 

(3,540)

Unrealized (gains) losses on equity securities with readily determinable fair value

105

(382)

122

Depreciation of premises and equipment

 

9,725

 

9,230

 

9,347

Amortization of mortgage servicing rights

 

3,756

 

1,823

 

1,432

Impairment of mortgage servicing rights

500

Provision for on-balance sheet exposures

 

31,278

 

25,758

 

31,368

Provision for off-balance sheet exposures

533

Net gain on sale of mortgage loans held for sale

 

(33,179)

 

(8,816)

 

(3,839)

Origination of mortgage loans held for sale

 

(782,939)

 

(356,097)

 

(176,916)

Proceeds from sale of mortgage loans held for sale

 

788,475

 

354,660

 

177,545

Net gain on sale of consumer loans held for sale

(4,980)

(5,102)

(5,930)

Origination of consumer loans held for sale

(518,873)

(710,640)

(778,476)

Proceeds from sale of consumer loans held for sale

531,321

716,336

781,951

Net gain realized on sale of other real estate owned

 

(65)

 

(540)

 

(729)

Writedowns of other real estate owned

 

105

 

 

Impairment of premises held for sale

256

482

Deferred compensation expense - Class A Common Stock

 

918

 

584

 

645

Stock-based awards and ESPP expense- Class A Common Stock

 

953

 

1,035

 

1,001

Net gain on branch divestiture

 

 

(7,829)

 

Net gain on sale of bank premises and equipment

 

(353)

 

(339)

 

14

Increase in cash surrender value of bank owned life insurance

 

(1,585)

 

(1,550)

 

(1,527)

FHLB advances early termination penalties

2,108

Net change in other assets and liabilities:

Accrued interest receivable

 

(14)

 

1,031

 

(1,860)

Accrued interest payable

 

(2,460)

 

1,718

 

(16)

Other assets

 

(17,759)

 

(8,677)

 

2,822

Other liabilities

 

(10,870)

 

(3,138)

 

7,368

Net cash provided by operating activities

 

68,434

 

97,245

 

119,213

INVESTING ACTIVITIES:

Net cash provided from branch divestiture

 

 

6,071

 

Purchases of available-for-sale debt securities

 

(298,878)

 

(445,681)

 

(173,875)

Purchases of held-to-maturity debt securities

 

 

 

(4,934)

Proceeds from calls, maturities and paydowns of available-for-sale debt securities

 

251,930

 

455,823

 

220,798

Proceeds from calls, maturities and paydowns of held-to-maturity debt securities

 

9,009

 

2,667

 

3,911

Net change in outstanding warehouse lines of credit

 

(245,338)

 

(248,763)

 

56,877

Net change in other loans

 

(142,811)

 

(188,708)

 

(216,600)

Proceeds from redemption of Federal Home Loan Bank stock

 

22,434

 

3,513

 

Purchase of Federal Home Loan Bank stock

(9,000)

(2,277)

Proceeds from sales of other real estate owned

 

324

 

2,063

 

1,346

Proceeds from sale of bank premises and equipment

894

909

764

Net purchases of premises and equipment

 

(3,582)

 

(12,883)

 

(9,822)

Net cash used in investing activities

 

(415,018)

 

(427,266)

 

(121,535)

FINANCING ACTIVITIES:

Net change in deposits

 

947,173

 

461,715

 

22,987

Net change in securities sold under agreements to repurchase and other short-term borrowings

 

43,409

 

(15,373)

 

(21,031)

Payments of Federal Home Loan Bank advances

 

(1,105,000)

 

(820,000)

 

(457,500)

Proceeds from Federal Home Loan Bank advances

 

590,000

 

760,000

 

530,000

FHLB advances early termination penalties

(2,108)

Repurchase of Class A Common Stock

 

(3,935)

 

(1,418)

 

(827)

Net proceeds from Class A Common Stock purchased through employee stock purchase plan

533

494

230

Net proceeds from option exercises and equity awards vested - Class A Common Stock

 

 

(191)

 

83

Cash dividends paid

 

(23,204)

 

(21,377)

 

(19,497)

Net cash provided by financing activities

 

446,868

 

363,850

 

54,445

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

100,284

 

33,829

 

52,123

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

385,303

 

351,474

 

299,351

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

485,587

$

385,303

$

351,474

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:

Cash paid during the period for:

Interest

$

22,403

$

43,039

$

30,139

Income taxes

 

24,926

 

17,383

 

11,119

SUPPLEMENTAL NONCASH DISCLOSURES:

Transfers from loans to real estate acquired in settlement of loans

$

2,750

$

1,527

$

662

Transfers from loans held for sale to held for investment

2,237

Loans provided for sales of other real estate owned

 

 

51

 

Transfers from loans held for investment to held for sale

131,881

1,392

Unfunded commitments in low-income-housing investments

10,000

18,800

14,029

Right-of-use assets recorded

14,144

41,726

Allowance for credit losses recorded upon adoption of ASC 326

7,241

2022

    

2021

    

2020

 

OPERATING ACTIVITIES:

Net income

$

91,106

$

87,611

$

83,246

Adjustments to reconcile net income to net cash provided by operating activities:

Net amortization on investment securities and low-income housing investments

 

4,798

 

4,414

 

3,204

Net accretion and amortization on loans

 

(3,760)

 

(13,973)

 

(13,084)

Unrealized and realized losses on equity securities with readily determinable fair value

263

463

105

Depreciation of premises and equipment

 

7,598

 

8,986

 

9,725

Amortization of mortgage servicing rights

 

2,264

 

3,453

 

3,756

(Recovery) loss of mortgage servicing rights

(500)

500

Provision for on-balance sheet exposures

 

22,348

 

14,808

 

31,278

Provision for off-balance sheet exposures

198

63

533

Net gain on sale of mortgage loans held for sale

 

(4,942)

 

(19,659)

 

(33,179)

Origination of mortgage loans held for sale

 

(205,365)

 

(680,714)

 

(782,939)

Proceeds from sale of mortgage loans held for sale

 

238,398

 

717,847

 

788,475

Net gain on sale of consumer loans held for sale

(13,277)

(11,298)

(4,980)

Origination of consumer loans held for sale

(1,045,715)

(882,180)

(518,873)

Proceeds from sale of consumer loans held for sale

1,063,801

875,570

531,321

Net gain realized on sale of other real estate owned

 

 

(51)

 

(65)

Writedowns of other real estate owned

 

211

 

211

 

105

Deferred compensation expense - Class A Common Stock

 

1,228

 

1,024

 

918

Stock-based awards and ESPP expense - Class A Common Stock

 

1,753

 

1,545

 

953

Net gain on sale of bank premises and equipment

 

 

(399)

 

(353)

Increase in cash surrender value of bank owned life insurance

 

(2,526)

 

(2,242)

 

(1,585)

Death benefits in excess of cash surrender value of life insurance

(979)

FHLB advances early termination penalties

2,108

Net change in other assets and liabilities:

Accrued interest receivable

 

(3,695)

 

3,048

 

(14)

Accrued interest payable

 

80

 

(183)

 

(2,460)

Other assets

 

(3,896)

 

(940)

 

(19,391)

Other liabilities

 

3,919

 

(5,672)

 

(3,872)

Net cash provided by operating activities

 

154,789

 

100,253

 

75,432

INVESTING ACTIVITIES:

Purchases of available-for-sale debt securities

 

(329,820)

 

(211,545)

 

(298,878)

Purchases of held-to-maturity debt securities

 

(75,000)

 

 

Proceeds from calls, maturities and paydowns of equity and available-for-sale debt securities

 

161,561

 

230,457

 

251,930

Proceeds from calls, maturities and paydowns of held-to-maturity debt securities

 

31,945

 

9,139

 

9,009

Net change in outstanding warehouse lines of credit

 

446,990

 

112,246

 

(245,338)

Net change in other loans

 

(478,958)

 

207,115

 

(142,811)

Proceeds from redemption of Federal Home Loan Bank stock

 

1,165

 

7,086

 

22,434

Purchase of Federal Home Loan Bank stock

(9,000)

Proceeds from sales of other real estate owned

 

 

611

 

324

Proceeds from sale of bank premises and equipment

637

894

Purchase of bank owned life insurance, net of death benefits paid

(28,901)

Investments in low-income housing tax partnerships

(8,889)

(14,507)

(6,998)

Net purchases of premises and equipment

 

(3,503)

 

(5,785)

 

(3,582)

Net cash (used in) provided by investing activities

 

(254,509)

 

306,553

 

(422,016)

FINANCING ACTIVITIES:

Net change in deposits

 

(301,471)

 

106,415

 

947,173

Net change in securities sold under agreements to repurchase and other short-term borrowings

 

(74,011)

 

79,941

 

43,409

Payments of Federal Home Loan Bank advances

 

(25,000)

 

(235,000)

 

(1,105,000)

Proceeds from Federal Home Loan Bank advances

 

95,000

 

25,000

 

590,000

FHLB advances early termination penalties

(2,108)

Payoff of subordinated note, net of common security interest

(40,000)

Repurchase of Class A Common Stock

 

(12,577)

 

(47,528)

 

(3,935)

Net proceeds from Class A Common Stock purchased through employee stock purchase plan

590

591

533

Net proceeds from option exercises and equity awards vested - Class A Common Stock

 

52

 

(142)

 

Cash dividends paid

 

(26,145)

 

(24,699)

 

(23,204)

Net cash (used in) provided by financing activities

 

(343,562)

 

(135,422)

 

446,868

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(443,282)

 

271,384

 

100,284

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

756,971

 

485,587

 

385,303

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

313,689

$

756,971

$

485,587

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:

Cash paid during the period for:

Interest

$

7,413

$

5,849

$

22,403

Income taxes

 

21,637

 

20,069

 

24,926

SUPPLEMENTAL NONCASH DISCLOSURES:

Mortgage servicing rights capitalized

$

1,838

$

5,054

$

5,463

Transfers from loans to real estate acquired in settlement of loans

64

2,750

New unfunded obligations in low-income-housing investments

29,115

10,000

10,000

Right-of-use assets recorded

6,360

1,354

14,144

Allowance for credit losses recorded upon adoption of ASC 326

7,241

See accompanying footnotes to consolidated financial statements.

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FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation The consolidated financial statements include the accounts of Republic Bancorp, Inc. (the “Parent Company”) and its wholly-ownedwholly owned subsidiaries, Republic Bank & Trust Company and Republic Insurance Services, Inc. As used in this filing, 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. The term “Bank” refers to the Company’s subsidiary bank: Republic Bank & Trust Company. The term “Captive” refers to the Company’s insurance subsidiary: Republic Insurance Services, Inc. All significant intercompany balances and transactions are eliminated in consolidation.

Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-member financial institution that provides both traditional and non-traditional banking products through 5five reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly-ownedwholly owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives for which insurance may not be available or economically feasible.

In 2005, Republic Bancorp Capital Trust, is a Delaware statutory businessan unconsolidated trust that is a wholly-owned unconsolidated finance subsidiary of Republic, Bancorp, Inc.was formed and issued $40 million in TPS. The sole asset of RBCT represented the proceeds of the offering loaned to Republic in exchange for a subordinated note with similar terms to the TPS. On September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic repaid the subordinated note and redeemed the TPS at par without penalty.

As of December 31, 2020,2022, the Company was divided into 5five reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first 3three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last 2two segments collectively constitute RPG operations. MemoryBank®, the Company’s national branchless banking platform, is part of the Traditional Banking segment.

The Company’s financial condition at December 31, 2020 and results

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Table of operations for 2020 were impacted by the COVID-19 pandemic and the public’s response to it.Contents

For additional discussion regarding the COVID-19 pandemic and its impact to the Company, see the following Footnotes in this section of the filing:

Footnote 2 “Investment Securities”
Footnote 4 “Loans and Allowance for Credit Losses”
Footnote 13 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

Core Bank

Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of December 31, 2020,2022, Republic had 42 full-service banking centers with locations as follows:

Kentucky — 28

Metropolitan Louisville — 18

Central Kentucky — 7

Georgetown — 1

Lexington — 5

Shelbyville — 1

Northern Kentucky — 3

Covington — 1

Crestview Hills — 1

Florence — 1

Southern Indiana — 3

Floyds Knobs — 1

Jeffersonville — 1

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New Albany — 1

·Metropolitan Tampa, Florida — 7

·Metropolitan Cincinnati, Ohio — 2

·

Metropolitan Tampa, Florida — 7

Metropolitan Cincinnati, Ohio — 2

Metropolitan Nashville, Tennessee — 2

Republic’s headquarters are in Louisville, which is the largest city in Kentucky based on population.

Traditional Banking results of operations are primarily 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 Traditional Banking assets represent investment securities and commercial and consumer loans primarily secured by real estate and/or personal property. Interest-bearing liabilities primarily consist of interest-bearing deposit accounts, securities sold under agreements to repurchase, as well as short-term and long-term borrowing sources. FHLB advances have traditionally been a significant borrowing source for the Bank.

Other sources of Traditional Banking income include service charges on deposit accounts, debit and credit card interchange fee income, title insurance commissions, and increases in the cash surrender value of BOLI.

Traditional Banking operating expenses consist primarily ofof: salaries and employee benefits, occupancybenefits; technology, equipment, and equipment expenses, communication and transportation costs, data processing,communication; occupancy; interchange related expenses,expense; marketing and development expenses,development; FDIC insurance expense, franchise tax expense, and various other general and administrative costs. Traditional Banking results of operations are significantly impacted by general economic and competitive conditions, particularly changes in market interest rates, government laws and policies, and actions of regulatory agencies.

Warehouse Lending segment — The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the U.S.United States through mortgage warehouse lines of credit. These credit facilities are primarily secured by single-family, first-lien residential real estate loans. The credit facility enables the mortgage banking clients to close single-family, first-lien residential real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank. Individual loans are expected to remain on the warehouse line for an average of 15 to 30 days. Reverse mortgage loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each individual loan during the time the loan remains on the warehouse line and collected when the loan is sold. The Core Bank receives the sale proceeds of each loan directly from the investor and applies the funds to pay off the warehouse advance and related accrued interest and fees. The remaining proceeds are credited to the mortgage-banking client.

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Mortgage Banking segment — Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term single-family, first-lien residential real estate loans that are originated and sold into the secondary market, primarily to the FHLMC and the FNMA. The Bank typically retains servicing on loans sold into the secondary market.market for loans generated in states within its footprint and generally sells servicing for loans generated in states outside of its footprint. Administration of loans with servicing retained by the Bank includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors. The Bank receives fees for performing these standard servicing functions.

Republic Processing Group

Tax Refund Solutions segment — Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). SubstantiallyThe majority of all of the business generated by the TRS segmentbusiness occurs induring the first half of theeach year. The TRS segment traditionally operates at a loss duringDuring the second half of theeach year, during which time the segmentTRS generates limited revenue and incurs costs preparing for the upcomingnext year’s tax season.

RTs are fee-based products whereby a tax refund is issued to the taxpayer after the Bank has received the refund from the federal or state government. There is 0no credit risk or borrowing cost associated with these products because they are only delivered to the taxpayer upon receipt of the tax refund directly from the governmental paying authority. Fees earned by the Company on RTs, net of revenue share, are reported as noninterest income under the line item “Net refund transfer fees.”

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The EA taxRA credit product is a loan thatmade in conjunction with the filing of a taxpayer’s final federal tax return, which allows athe taxpayer to borrow funds as an advance of a portion of their tax refund. The EARA product had the following features during 2020the first quarters of 2022 and 2019:2021:

Offered only during the first two months of each year;
The taxpayer was given the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $6,250;
NaNNo requirement that the taxpayer pays for another bank product, such as an RT;
Multiple funds disbursement methods were available with most Tax Providers, including direct deposit, prepaid card, check, or Walmart Direct2Cash®,check, based on the taxpayer-customer’s election;
Repayment of the EARA to the Bank is deducted from the taxpayer’s tax refund proceeds; and
If an insufficient refund to repay the EARA occurs:
othere is no recourse to the taxpayer, 
ono negative credit reporting on the taxpayer, and
ono collection efforts against the taxpayer.

The ERA credit product is similar to the RA, with the distinction of the timing of when the ERA is originated and the documentation available to underwrite the credit. The ERA is originated prior to the taxpayer receiving their fiscal year taxable income documentation, e.g., W-2 and the filing of the taxpayer’s final federal tax return. The repayment of the ERA is incumbent upon the taxpayer client returning to the Bank’s Tax Provider for the filing of their final federal tax return in order for the tax refund to potentially be received by the Bank from the federal government to pay off the advance. The ERA product related to the first quarter 2023 tax filing season had the following features:

Offered only during December 2022 and January 2023;
The taxpayer had the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $1,000;
No requirement that the taxpayer pays for another bank product, such as an RT;
Multiple disbursement methods were available with most Tax Providers, including direct deposit or prepaid card, based on the taxpayer-customer’s election;
Repayment of the ERA to the Bank is deducted from the taxpayer’s tax refund proceeds; and
If an insufficient refund to repay the ERA occurs:
othere is no recourse to the taxpayer, 
ono negative credit reporting on the taxpayer, and
ono collection efforts against the taxpayer.

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The Company reports fees paid for the EA productRAs, including ERAs, as interest income on loans. EAs are generallyRAs originated related to the first quarter 2022 tax season were repaid, on average, within 3532 days after the taxpayer’s tax return iswas submitted to the applicable taxing authority. EAsRAs and ERAs do not have a contractual due date but the Company considersconsidered an EARA, related to the first quarter 2022 tax season, delinquent if it remainsremained unpaid 35 days after the taxpayer’s tax return iswas submitted to the applicable taxing authority. ProvisionThe number of days for delinquency eligibility is based on EAs ismanagement’s annual analysis of tax return processing times. Provisions on RAs are estimated when advances are made, with Provision for all expected EA losses made inmade. Unpaid RAs, including ERAs, related to the first quarter tax season of each year. Unpaid EAsa given year are charged offcharged-off by June 30th of eachthat year, with EAsRAs collected during the second half of eachthat year recorded as recoveries of previously charged-off loans.

Related to the overall credit losses on EAs,RAs and ERAs, the Bank’s ability to control losses is highly dependent upon its ability to predict the taxpayer’s likelihood to receive the tax refund as claimed on the taxpayer’s tax return. Each year, the Bank’s EARA and ERA approval model is based primarily on the prior-year’s tax refund payment patterns. Because the substantial majority of the EARA and ERA volume occurs each year before that year’s tax refund payment patterns can be analyzed and subsequent underwriting changes made, credit losses during a current year could be higher than management’s predictions if tax refund payment patterns change materially between years.

In responseSettlement of Lawsuit Against Green Dot On June 3, 2022, the Bank and Green Dot entered into the Settlement Agreement to changesfully resolve the Lawsuit that the Bank filed against Green Dot in the legal, regulatory and competitive environment, management annually reviews and revises the EAs product parameters. Further changes in EA product parameters do not ensure positive results and could have an overall material negative impactDelaware Court of Chancery on the performance of the EA product offering and therefore on the Company’s financial condition and results of operations.October 5, 2021.

Republic Payment Solutions — RPS is managed and operated withinAs previously disclosed in the Company’s prior SEC filings, the Lawsuit arose from Green Dot’s inability to consummate the Sale

Transaction contemplated in the TRS segment. The RPS division is an issuing bank offering general-purpose reloadable prepaid cardsPurchase Agreement through third-party service providers. For the projected near-term, as the prepaid card program matures, the operating resultswhich Green Dot would purchase all of the RPS division are expected to be immaterialassets and operations of the Bank’s Tax Refund Solutions business.

In accordance with the Settlement Agreement, on June 6, 2022, Green Dot paid $13 million to the Company’s overall resultsBank, which was in addition to a $5 million termination fee that Green Dot paid to the Bank during the first quarter of operations and will be reported as part2022 under the terms of the TRS segment. The RPS division will not be consideredPurchase Agreement. On June 6, 2022, the Bank and Green Dot filed a separate reportable segment until such time, if any, that it meets quantitative reporting thresholds.

The Company reports fees relatedstipulation of dismissal of the Lawsuit with the Delaware Court of Chancery, which was effective to RPS programs under Program fees. Additionally,dismiss the Company’s portion of interchange revenue generated by prepaid card transactions is reported as noninterest income under “Interchange fee income.”Lawsuit when filed.

Republic Credit Solutions segment — Through the RCS segment, the Bank offers consumer credit products. In general, the credit products are unsecured, small dollar consumer loans andthat are dependent on various factors. RCS loans typically earn a higher yield but also have higher credit risk compared to loans originated through the Traditional Banking segment, with a significant portion of RCS clients considered subprime or near-prime borrowers. The Bank uses third-party service providers for certain services such as marketing and loan servicing of RCS loans. Additional information regarding consumer loan products offered through RCS follows:

RCS line-of-credit productproductsTheUsing separate third-party service providers, the Bank originates atwo line-of-credit productproducts to generally subprime borrowers in multiple states. The first of these two products (the “LOC I”) has been originated by the Bank since 2014. The second (the “LOC II”) was introduced in January 2021.

oRCS’s LOC I represented the substantial majority of RCS activity during 2021 and 2022. Elastic Marketing, LLC and Elevate Credit, Inc., aDecision Sciences, LLC, are third-party service providerproviders for the product and are subject to the Bank’s oversight and supervision, providessupervision. Together, these companies provide the Bank with certain marketing, servicing, technology, and support services, for the RCS line-of-credit program, while a separate third party also provides customer support, servicing, and other services for the RCS line-of-credit product on the Bank’s behalf. The Bank is the lender for the RCS line-of-creditthis product and is marketed as such. Further, the Bank controls the loan

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terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of the RCS line-of-credit product. 

The Bank sells participation interests in the RCS line-of-creditthis product. These participation interests are a 90% interest in advances made to borrowers under the borrower’s line-of-credit account, and the participation interests are generally sold three business days following the Bank’s funding of the associated advances. Although the Bank retains a 10% participation interest in each advance, it maintains 100% ownership of the underlying RCS line-of-creditLOC I account with each borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.

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oIn January 2021, RCS began originating balances through its LOC II. One of RCS’s existing third-party service providers, subject to the Bank’s oversight and supervision, provides the Bank with marketing services and loan servicing for the LOC II product. The Bank is the lender for this product and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this product. 

The RCSBank sells participation interests in this product. These participation interests are a 95% interest in advances made to borrowers under the borrower’s line-of-credit product representsaccount, and the substantial majorityparticipation interests are generally sold three business days following the Bank’s funding of RCS activity.the associated advances. Although the Bank retains a 5% participation interest in each advance, it maintains 100% ownership of the underlying LOC II account with each borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.

RCS installment loan product – In December 2019, throughThrough RCS, the Bank began offeringoffers installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. AThe same third-party service provider for RCS’s LOC II is the third-party provider for the installment loans. This third-party provider is subject to the Bank’s oversight and supervision and provides the Bank with marketing services and loan servicing for these RCS installment loans. The Bank is the lender for these RCS installment loans and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this RCS installment loan product. Currently, all loan balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intention to sell these loans to itsa third-party, who is an affiliate of the Bank’s third-party service provider, generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through 2three different third-party service providers. In one program,

oFor two of the programs, the Bank retains 100% of the receivables, originated. Inwith recourse in the otherevent of default.

oFor the remaining program, in some instances the Bank retains 100% of the receivables originated, with recourse in some instances,the event of default, and in other instances, the Bank sells 100% of the receivables within one month of origination. Loan balances held for sale through this program are carried at the lower of cost or fair value.

The Company reports interest income and loan origination fees earned on RCS loans under “Loans, including fees,” while any gains or losses on sale and mark-to-market adjustments of RCS loans are reported as noninterest income under “Program fees.”

Use of Estimates — To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates affect the amounts reported in the financial statements and the disclosures provided. Actual amounts could differ from these estimates. The resulting change in estimates could be material to the financial statements.

Concentration of Credit Risk — With limited exception, the Company’s Traditional Banking business activity is with clients located in Kentucky, Indiana, Florida, and Tennessee. The Company’s Traditional Banking exposure to credit risk is significantly affected by changes in the economy in these specific areas.

The Bank’s warehouse lines of credit are secured by single family, first lien residential real estate loans originated by the Bank’s mortgage clients across the United States. As of December 31, 2020, 36%2022, 28% of collateral securing warehouse lines werewas located in California.

Earnings Concentration — For 2022, 2021, and 2020, 2019,approximately 31%, 24% and 2018, approximately 23%, 25% and 27% of total Company net revenues (net interest income plus noninterest income) were derived from the RPG operations. Within RPG, the TRS segment accounted for 14%18%, 14%13% and 14%, while the RCS segment accounting for 9%13%, 11% and 13%9% of total Company net revenues.

For 2022, 2021, and 2020, 2019,approximately 4%, 8% and 2018, approximately 8%, 5% and 5% of total Company net revenues (net interest income plus noninterest income) were derived from the Company’s Warehouse segment.

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Cash Flows — Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days and federal funds sold. Net cash flows are reported for client loan and deposit transactions, interest-bearing deposits in other financial institutions, repurchase agreements and income taxes.

Interest-Bearing Deposits in Other Financial Institutions — Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.

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Debt Securities — Debt securities are classified as AFS when they might be sold before maturity. AFS debt securities are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Debt securities are classified as HTM and carried at amortized cost less any applicable ACLS when management has the positive intent and ability to hold them to maturity.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable securities are amortized to the earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.

Equity Securities — Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without a readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.

Allowance for Credit Losses on Available-for-Sale Securities For the Company’s AFS corporate bond, the Company uses third-party PD and LGD data to estimate an ACLS, which is limited by the amount that the bond’s fair value is less than its amortized cost basis.

For all other AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written-downwritten down to fair value through income. For other AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACLS is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACLS is recognized in other comprehensive income.

Changes in ACLS are recorded as a charge or credit to the Provision. Losses are charged against the ACLS when management believes the lack of collectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest on AFS debt securities totaled $1$2 million atand $1 million as of December 31, 20202022 and 2021 and is excluded from the ACLS. Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet.

Allowance for Credit Losses on Held-to-Maturity Securities The Company measures expected credit losses on HTM debt securities on a collective basis by major security type. Accrued interest receivable on HTM debt securities totaled $110,00092,000 and $89,000 atas of December 31, 20202022 and 2021 and is excluded from the ACLS. Accrued interest on HTM debt securities is presented as a component of other assets on the Company’s balance sheet.

The estimate of ACLS on HTM debt securities considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

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The Company classifies its HTM portfolio into the following major security types: MBS, corporate bonds, and municipal bonds. MBS securities include CMOs. Nearly all of the MBS portfolio is issued by U.S. government entities or government sponsored entities. These securities are highly rated by major rating agencies and have a long history of no credit losses. The MBS portfolio also carries ratings no lower than investment grade. The Company uses PD and LGD estimates provided by a third-party to estimate an ACLS for its corporate and municipal bond portfolios. These PD and LGD estimates are updated at least quarterly by the Company, with these estimates incorporating the most recent market expectations and forecasted information.

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Loans Held for Sale - In the ordinary course of business, the Bank originates for sale mortgage loans and consumer loans. Mortgage loans originated for sale are primarily originated and sold into the secondary market through the Bank’s Mortgage Banking segment, while consumer loans originated for sale are originated and sold through the RCS segment.

Mortgage Banking Activities — Mortgage loans originated and intended for sale in the secondary market are carried at fair value, as determined by outstanding commitments from investors. Net gains on mortgage loans held for sale are recorded as a component of Mortgage Banking income and represent the difference between the selling price and the carrying value of the loans sold. Substantially all of the gains or losses on the sale of loans are reported in earnings when the interest rates on loans are locked.

Commitments to fund mortgage loans (“interest rate lock commitments”) to be sold into the secondary market and non-exchange traded mandatory forward sales contracts (“forward contracts”) for the future delivery of these mortgage loans or the purchase of TBA securities are accounted for as free-standing derivatives. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the Bank enters into the derivative. Generally, the Bank enters into forward contracts for the future delivery of mortgage loans or the purchase of TBA securities when interest rate lock commitments are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans. Changes in the fair values of these mortgage derivatives are included in net gains on sales of loans, which is a component of Mortgage Banking income on the income statement.

Mortgage loans held for sale are generally sold with the MSRs retained. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded as a component of Mortgage Banking income. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method, which requires servicing rights to be amortized into Mortgage Banking income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Amortization of MSRs are initially set at seven years and subsequently adjusted on a quarterly basis based on the weighted average remaining life of the underlying loans.

MSRs are evaluated for impairment quarterly based upon the fair value of the MSRs as compared to carrying amount. Impairment is determined by stratifying MSRs into groupings based on predominant risk characteristics, such as interest rate, loan type, loan terms and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Bank later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the valuation allowance is recorded as an increase to income. Changes in valuation allowances are reported within Mortgage Banking income on the income statement. The fair value of the MSR portfolios is subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates.

A primary factor influencing the fair value is the estimated life of the underlying serviced loans. The estimated life of the serviced loans 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 higher 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.

See Footnote 16 “Mortgage Banking Activities” in this section of the filing for management’s determination of MSR impairment.

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Loan servicing income is reported on the income statement as a component of Mortgage Banking income. Loan servicing income is recorded as loan payments are collected and includes servicing fees from investors and certain charges collected from borrowers. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan and are recorded as income when earned. Loan servicing income totaled $2.9$3.5 million, $2.5$3.3 million and $2.4$2.9 million for the years ended December 31, 2020, 20192022, 2021, and 2018.2020. Late fees and ancillary fees related to loan servicing are considered nominal.

Consumer Loans Held for Sale, at Fair ValueIn December 2019, theThe Bank began offeringoffers RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

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Consumer Loans Held for Sale, at Lower of Cost or Fair Value — RCS originates for sale 90% or 95% of the balances from its line-of-credit productproducts and a portion of its healthcare receivables product. Ordinary gains or losses on the sale of these RCS products are reported as a component of “Program fees.”

LoansThe Bank’s financing receivables consist primarily of loans and lease financing receivables (together referred to as “loans”). Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost net of the ACLL. Amortized cost is the principal balance outstanding, net of premiums and discounts, and deferred loan fees and costs. Accrued interest on loans, which is excluded from the ACLL, totaled $11 million atand $8 million as of December 31, 20202022 and 2021 and was reported as a component of other assets on the Company’s balance sheet.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method. Premiums on loans held for investment are amortized into interest income on the level-yield method over the expected life of the loan.

Lease financing receivables, all of which are generally direct financing leases, are reported at their principal balance outstanding, including any lease residual amount, net of any unearned income, deferred loan fees and costs, and applicable ACLL. Leasing income is recognized on a basis that achieves a constant periodic rate of return on the outstanding lease financing balances over the lease terms.

Interest income on mortgage and commercial loans is typically discontinued at the time the loan is 80 days delinquent unless the loan is well secured and in process of collection. Past due status is based on the contractual terms of the loan, which may define past due status by the number of days or the number of payments past due. In most cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 80 days still on accrual include smaller balance, homogeneous loans that are evaluated collectively or individually for loss.

Interest accrued but not received for all classes of loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured, typically a minimum of six consecutive months of performance. Consumer and credit card loans are not placed on nonaccrual status but are reviewed periodically and charged-off when the loan is deemed uncollectible, generally no more than 120 days.

Purchased Credit Deteriorated LoansThe Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. The Company will generally classify a loan acquired in a business acquisition as PCD if it meets any of the following criteria:

Non-accretable discount assigned by the BankBank;
Classified by either the acquired bank or the Bank as Special Mention or SubstandardSubstandard;
Nonaccrual status when purchasedpurchased;
Past due 30 days or more when purchasedpurchased;
Loans that have been at least one time over 30 days past duedue;
Past maturity date when purchasedpurchased;
Select loans that are cross collateralized with any loans identified aboveabove;

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PCD loans are recorded at the amount paid. An ACLL is determined using the same methodology as other loans held for investment. The initial ACLL determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and ACLL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the ACLL are recorded through the Provision.

Allowance for Credit Losses on Loans The ACLL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the ACLL when management believes the lack of collectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

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The ACLL is measured on a collective or pooled basis when similar risk characteristics exist. The first table of Footnote 4 illustrates the Company’s loan portfolio by ACLL risk pool. This pooling method is primarily based on the pool’s collateral type or the pool’s purpose and generally follows the Bank’s loan segmentation for regulatory reporting. For each of its loan pools, the Company uses a “static-pool” method, which analyzes historical closed pools of similar loans over their expected lives to attain a loss rate. This loss rate is then adjusted for current conditions and reasonable and supportable forecasts prior to being applied to the current balance of the analyzed pools. Adjustments to the historical loss rate for current conditions include differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, such as changes in property values or other relevant factors. A one-year forecast adjustment to the historical loss rate is based on a forecast of the U.S. national unemployment rate, which has shown a relatively strong historical correlation to the Bank’s loan losses. For theits CRE loan pool, the Company uses a one-year forecast of general CRE vacancy rates within the Company’s footprint was introduced into the Company’s CECL model during the third quarter of 2020 due to pandemic-driven changes in culture, including increased and prolonged work-from-home practices.values. Subsequent to one-year forecasts, loss rates are assumed to immediately revert back to long-term historical averages.

Loans that do not share risk characteristics are evaluated on an individual basis, with the Company choosing to individually evaluate all TDRs. Loans evaluated individually are not also included in the pooled evaluation. When management determines thatevaluation but are instead evaluated under a loan isdiscounted cash flow or collateral-dependent method. A collateral dependent andmethod is used when foreclosure is probable, with expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs if appropriate.

Determining Expected Loan Lives: Expected credit losses are estimated over the contractual loan term, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower, or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

See Footnote 4 “Loans and Allowance for Credit Losses” in this section of the filing for additional discussion regarding the Company’s ACLL.

Troubled Debt RestructuringsA TDR is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. The Company measures the ACLL for TDRs individually using either a discounted cash flowcash-flow method or the collateral method, if the TDR is collateral dependent. TDRs whose ACLL is measured using a discounted cash flow method use the original pre-modification interest rate on the loan for discounting.

Performing loans receiving a COVID-19 accommodation are not classified as TDRs.

For additional discussion regarding loans accommodated due to COVID-19, see Footnote 4 “Loans and Allowance for Credit Losses” in this section of the filing.

Transfers of Financial Assets — Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Other Real Estate Owned — Assets acquired through loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. The Bank’s selling costs for OREO typically range from

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10- 13% of each property’s fair value, depending on property class. Fair value is commonly based on recent real estate appraisals or broker price opinions. Operating costs after acquisition are expensed.

Appraisals for both collateral-dependent loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Bank. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income

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approach. Once the appraisal is received, a member of the Bank’s CCAD reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources, such as recent market data or industry-wide statistics. On at least an annual basis, the Bank performs a back test of collateral appraisals by comparing actual selling prices on recent collateral sales to the most recent appraisal of such collateral. Back tests are performed for each collateral class, e.g., residential real estate or commercial real estate, and may lead to additional adjustments to the value of unliquidated collateral of similar class.

Premises and Equipment, NetLand is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the related assets on the straight-line method. Estimated lives typically range from 25 to 39 years for buildings and improvements, three to ten years for furniture, fixtures and equipment and three to five years for leasehold improvements.

Right of Use Assets and Operating Lease Liabilities — For its long-term operating leases, the Company records on its balance sheet operating lease liabilities equal to the present value of the required minimum lease payments plus any amounts probable of being owed under a residual value guarantee. Offsetting these operating lease liabilities, the Company records right-of-use assets for the underlying leased property.

Regarding lease terms, the Company’s assumes the remaining lease term includes the fixed noncancelable term, plus all periods for which failure to renew the lease imposes a penalty on the Company, plus all periods for which the Company is reasonably certain to exercise a lease renewal option, plus all periods for which the Company is reasonably certain not to exercise a lease termination option. In determining whether it is reasonably certain to exercise a lease renewal or termination option, the Company considers its overall strategic plan and all economic and environmental circumstances connected to the leased property.

To discount its operating lease payments and guarantees, the Company employs the interest rate curve published by the FHLB of Cincinnati for the FHLB’s collateralized term borrowings;borrowings, matching expected lease term to borrowing term.

The Company does not place short-term leases on its balance sheet. Short-term leases have a lease term of 12 months or less and do not include a purchase option that the Company is reasonably certain to exercise.

Federal Home Loan Bank Stock — The Bank is a member of the 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 annually evaluated for impairment. Because this stock is viewed as a long-term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are recorded as interest income.

Bank Owned Life Insurance — The Bank maintains BOLI policies on certain employees. BOLI is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. The Bank recognizes tax-free income from the periodic increases in cash surrender value of these policies and from death benefits in noninterest income. Credit ratings for the Bank’s BOLI carriers are reviewed at least annually.

Goodwill and Other Intangible Assets — Goodwill resulting from business acquisitions represents the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase combination and determined to have an indefinite useful life are not amortized but tested annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.

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The Company has selected September 30th as the date to perform its annual goodwill impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Bank’s balance sheet.

All goodwill is attributable to the Company’s Traditional Banking segment and is not expected to be deductible for tax purposes. Based on its assessment, the Company believes its goodwill of $16 million atas of December 31, 20202022 and 20192021 was not impaired and is properly recorded in the consolidated financial.

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Off Balance Sheet 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 client collateral or ability to repay. Such financial instruments are recorded upon funding. Instruments such as standby letters of credit are considered financial guarantees and are recorded at fair value.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The likelihood that funding will occur is based on the historical usage rate of such commitments.

For a listing of off-balance sheet credit exposures the Company generally considers for an ACLC, see Footnote 13 “Off Balance Sheet Risks, Commitments And Contingent Liabilities” in this section of the filing.

The ACLC is recorded as a component of other liabilities on the Company’s balance sheet. Any provision for the ACLC is recorded on the Company’s income statement as a component of other noninterest expense.

Derivatives —Derivatives are reported at fair value in other assets or other liabilities. The Company’s derivatives include interest rate swap agreements. For asset/liability management purposes, the Bank uses interest rate swap agreements to hedge the exposure or to modify the interest rate characteristic of certain immediately repricing liabilities.

The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For a derivative designated as a cash flow hedge, the effective portion of the derivative’s unrealized gain or loss

is recorded as a component of other comprehensive income (loss). For derivatives not designated as hedges, the gain or loss is recognized in current period earnings.

Net cash settlements on interest rate swaps are recorded in interest expense and cash flows related to the swaps are classified in the cash flow statement the same as the interest expense and cash flows from the liabilities being hedged. The Bank formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. The Bank also formally assesses, both at the hedge’s inception and on an ongoing basis, whether a swap is highly effective in offsetting changes in cash flows of the hedged items. The Bank discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods that the hedged transactions will affect earnings.

The Bank enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Bank enters into offsetting positions with dealer counterparties in order to minimize the Bank’s interest rate risk. These swaps are derivatives but are not designated as hedging instruments; therefore, changes in fair value are reported in current year earnings.

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Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or client owes the Bank and results in credit risk to the Bank. When the fair value of a derivative instrument contract is negative, the Bank owes the client or counterparty and does not have credit risk.

Stock Based Compensation — For stock options and restricted stock awards issued to employees, compensation cost is recognized based on the fair value of these awards at the date of grant. The Company utilizes a Black-Scholes model to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation expense is recognized over the required service period, generally defined as the vesting period. For awards with graded

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vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures of stock-based awards are accounted for when incurred in lieu of using forfeiture estimates.

Income Taxes — Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. DTAs and DTLs are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces DTAs to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Retirement Plans — 401(k) plan expense is recorded as a component of salaries and employee benefits and represents the amount of Company matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.

Earnings Per Common Share — Basic 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. Diluted earnings per share include the dilutive effect of additional potential Class A common shares issuable under stock options. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Earnings and dividends per share are restated for all stock dividends through the date of issuance of the financial statements.

Comprehensive Income — Comprehensive income consists of net income and OCI. OCI includes, net of tax, unrealized gains and losses on available-for-sale debt securities and unrealized gains and losses on cash flow hedges, which are also recognized as separate components of equity.

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 outstanding matters that would have a material effect on the financial statements.

Restrictions on Cash and Cash Equivalents — Republic ishas historically been required by the FRB to maintain average reserve balances. CashEffective March 15, 2020, the FRB reduced the Bank’s reserve requirement ratio to zero percent, therefore, cash and due from banks on the consolidated balance sheet included 0no required reserve balances atas of December 31, 20202022 and 2019.2021.

The Company’s Captive maintains cash reserves to cover insurable claims. Reserves totaled $3 million and $3$4 million as of December 31, 20202022 and 2019.2021.

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.

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Dividend Restrictions — Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to Republic or by Republic to shareholders.

Fair Value of Financial Instruments — Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Footnote 15 “Fair Value” in this section of the filing. 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.

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Revenue from Contracts with Customers - The Company’s services that fall within the scope of ASC 606, Revenue from Contracts with Customers, are presented within noninterest income and are recognized as revenue as the Company satisfies its obligation to its client. The Company expenses as-incurred incremental costs of obtaining a contract when the amortization period of those costs would be less than one year.

Segment Information — Reportable segments represent parts of the Company evaluated by management with separate financial information. Republic’s internal information is primarily reported and evaluated in 5five reportable segments – Traditional Banking, Warehouse, Mortgage Banking, TRS and RCS.

Reclassifications — Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported prior periods’ net income or shareholders’ equity.

Recently Adopted Accounting Standards

Effective January 1, 2020, the Company adopted ASC 326 Financial Instruments – Credit Losses, which replaces the pre-January 1, 2020 “probable-incurred” method for calculating the Company’s ACL with the CECL method. CECL is applicable to financial assets measured at amortized cost, including loan and lease receivables and HTM securities. CECL also applies to certain off-balance sheet credit exposures. In addition to CECL, ASC 326 made changes to the accounting for AFS debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on AFS debt securities that the Company does not intend or will likely not be compelled to sell.

The Company adopted ASC 326 primarily using the modified retrospective method for its financial instruments and off-balance sheet credit exposures. Results for periods beginning after December 31, 2019 are presented under CECL while prior-period amounts are presented under previously applicable GAAP.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which OTTI had been recognized prior to January 1, 2020. As a result, the amortized cost basis remained the same before and after the effective date of CECL. The effective interest rate on these debt securities was not changed. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2020 will be recorded in earnings when received.

The Company adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as PCI assets under ASC 310-30. As allowed by ASC 326, the Company did not reassess whether PCI assets met the PCD criteria as of the date of adoption. On January 1, 2020, the amortized cost basis of PCD assets was adjusted to reflect the addition of $1.4 million of ACLL formerly classified under previous GAAP as a non-accretable credit discount within gross loans. The remaining noncredit discount on PCD assets will be accreted into interest income at the effective interest rate as of January 1, 2020.

The Company elected the fair value option for its RCS installment loan product in 2016. This product continues to be accounted for at fair value under CECL.

When measuring an ACL, CECL primarily differs from the probable-incurred method by: a) incorporating a lower “expected” threshold for loss recognition versus a higher “probable” threshold; b) requiring life-of-loan considerations; and c) requiring reasonable and supportable forecasts.

In accordance with the adoption of ASC 326 and CECL, the Company recorded on January 1, 2020 a $6.7 million, or 16%, increase in the ACLL for its loans, a $51,000 ACLS for its investment debt securities, and a $456,000 ACLC for its off-balance sheet credit exposures. Of the $6.7 million increase in ACLL, approximately $1.4 million was a gross-up reclassification of non-accretable discount on previously-PCI, now-PCD, loans as mentioned above, and the remaining $5.3 million was a difference in ACL between CECL and the probable-incurred method. The Company also made a cumulative effect entry of $4.3 million to reduce its opening balance of retained earnings upon adoption of ASC 326, with no impact on 2020 earnings for these adoption entries. The adoption date increase in ACLL for the Company’s loans primarily reflects additional ACLL for longer duration loan portfolios, such as the Company's residential real estate and consumer loan portfolios. No additional segmentation of the Bank's loan portfolios was deemed necessary upon adoption.

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The following table illustrates the impact of ASC 326 adoption:Recently Adopted Accounting Standards

 

Allowance for Credit Losses as of January 1, 2020

As Reported

Impact

Under

Pre-ASC 326

of ASC 326

(in thousands)

    

ASC 326

    

Adoption

    

Adoption

Assets:

Allowance for credit losses on debt securities:

AFS debt securities - Corporate bonds

$

$

$

HTM debt securities - Corporate bond

51

51

Allowance for credit losses on debt securities

$

51

$

$

51

Allowance for credit losses on loans:

Traditional Banking:

Residential real estate:

Owner occupied

$

8,928

$

4,729

$

4,199

Nonowner occupied

 

1,885

 

1,737

 

 

148

Commercial real estate

 

10,759

 

10,486

 

 

273

Construction & land development

 

3,599

 

2,152

 

 

1,447

Commercial & industrial

 

1,564

 

2,882

 

 

(1,318)

Lease financing receivables

 

147

 

147

 

 

Aircraft

176

176

Home equity

 

4,373

 

2,721

 

 

1,652

Consumer:

Credit cards

 

1,053

 

1,020

 

 

33

Overdrafts

 

1,169

 

1,169

 

 

Automobile loans

 

605

 

612

 

 

(7)

Other consumer

 

681

 

374

 

 

307

Total Traditional Banking

34,939

28,205

6,734

Warehouse lines of credit

 

1,794

 

1,794

 

 

Total Core Banking

36,733

29,999

6,734

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

Other TRS loans

234

234

Republic Credit Solutions

 

13,118

 

13,118

 

 

Total Republic Processing Group

13,352

13,352

Allowance for credit losses on loans

$

50,085

$

43,351

 

$

6,734

Liabilities:

Allowance for credit losses on OBS credit exposures

$

456

$

$

456

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The following ASUs were also adopted by the Company during the year ended December 31, 2020:2022:

z

Method of

Financial

ASU. No.

    

Topic

    

Nature of Update

    

Date Adopted

    

Adoption

    

Statement Impact

2017-042020-06

Intangibles - GoodwillDebt—Debt with Conversion and Other (Topic 350)Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

This ASU simplifies goodwill impairment testingaccounting for convertible instruments by eliminating Step 2 fromremoving major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the goodwill impairment test.derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also eliminatessimplifies the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.diluted earnings per share calculation in certain areas.

January 1, 20202022

Prospectively

Immaterial

2020-042021-04

Reference Rate ReformEarnings Per Share (Topic 848)260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): FacilitationIssuer’s Accounting for Certain Modifications or Exchanges of the Effects of Reference Rate Reform on Financial ReportingFreestanding Equity-Classified Written Call Options

This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help during the global market-wide reference rate transition period; therefore, it will be in effect for a limited time through December 31, 2022.modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) How an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) How an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) How an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange.

March 12, 2020January 1, 2022

Prospectively

This ASU is expected to assist in the Company's transition away from LIBOR as a reference rate.Immaterial

Accounting Standards Updates

The following not-yet-effective ASUs were issued prior to December 31, 2020since the Company’s most recently filed Form 10-K and are considered relevant to the Company’s financial statements. Generally, if an issued-but-not-yet-effective ASU with an expected immaterial impact to the Company has been disclosed in prior Company financial statements, itfilings, that ASU will not be included below.subsequently redisclosed.

Date Adoption

Adoption

Expected

ASU. No.

Topic

Nature of Update

Required

Method

Financial Impact

2020-092022-02

Financial Instruments—Credit Losses (Topic 326): Troubled Debt
(Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762
Restructurings and Vintage Disclosures

This ASU amendseliminates the TDR recognition and supersedes various SEC paragraphsmeasurement guidance and, instead, requires the Company to reflect SEC Release No. 33-10762, which includes amendments toevaluate (consistent with the financialaccounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan. This ASU also enhances existing disclosure requirements applicableand introduces new requirements related to registered debt offeringscertain modifications of receivables made to borrowers experiencing financial difficulty.

This ASU requires the Company to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross writeoff information must be included in the vintage disclosures required for the Company in accordance with ASC 326-20-50-6, which requires
that includethe Company disclose the amortized cost basis of financing receivables by credit enhancements, such as subsidiary guarantees. These SEC changes are intended to both improvequality indicator and class of financing receivable by year of origination. (see Note 4 in this section of the quality of disclosure and increase the likelihood that issuers will conduct debt offerings on a registered basis.filing)

January 4, 20211, 2023

Prospectively

The Company is currently analyzing the impact of this ASU on its financial statements.

2022-03

Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to
Contractual Sale Restrictions

This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

January 1, 2024

Prospectively

Immaterial

2020-102022-06

Codification ImprovementsReference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848

This ASU affects a wide varietyextends the period of Topicstime preparers can utilize the reference rate reform relief guidance in the Codification.

More specifically, this ASU, among other things, contains amendments that improve the consistency
Topic 848. The objective of the Codification by including all disclosure guidance in Topic 848 is to provide relief during the appropriate Disclosure Section (Section 50). Many of the amendments arose becausetemporary transition period, so the FASB provided an optionincluded a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to give certain information either on the face of the financial statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section (Section 45) of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). Those amendments are not expected to change current practice.June 30, 2023.

January 1, 20212023

Prospectively

Immaterial

2020-11

Financial Services-Insurance (Topic 944): Effective DateImmaterial. The Company ceased making new loans and Early Application

This ASU allows the delayed adoption date of ASU No. 2018-12 and allows insurance companiesrenewing loans indexed to restate only one previous period, rather than two, if they choose to early adopt improvements to the accounting for long duration contracts.

LIBOR on January 1, 2021

2022.

Prospectively

Immaterial

2021-01

Reference Rate Reform (Topic 848): Scope

This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

January 7, 2021

Prospectively, with some retrospective elections available

Immaterial

111110

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2.

INVESTMENT SECURITIES

Available-for-Sale Debt Securities

The following tables summarize the amortized cost, fair value, and ACLS of AFS debt securities and the corresponding amounts of related gross unrealized gains and losses recognized in AOCI:

    

    

Gross

    

Gross

    

Allowance

 

    

    

    

Gross

    

Gross

    

Allowance

 

    

Amortized

Unrealized

Unrealized

for

 

Fair

Amortized

Unrealized

Unrealized

for

 

Fair

December 31, 2020 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

December 31, 2022 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

U.S. Treasury securities and U.S. Government agencies

$

245,204

$

1,730

$

(25)

$

$

246,909

$

436,333

$

1

$

(25,193)

$

$

411,141

Private label mortgage backed security

 

1,707

 

1,250

 

 

 

2,957

Mortgage backed securities - residential

 

203,786

 

7,419

 

(3)

 

 

211,202

Private label mortgage-backed security

 

843

 

1,284

 

 

 

2,127

Mortgage-backed securities - residential

 

189,312

 

16

 

(17,455)

 

 

171,873

Collateralized mortgage obligations

 

48,190

 

772

 

(10)

 

 

48,952

 

22,774

 

21

 

(1,427)

 

 

21,368

Corporate bonds

 

10,000

 

43

 

 

 

10,043

 

10,000

 

1

 

 

 

10,001

Trust preferred security

 

3,631

 

169

 

 

 

3,800

 

3,741

 

114

 

 

 

3,855

Total available-for-sale debt securities

$

512,518

$

11,383

$

(38)

$

$

523,863

$

663,003

$

1,437

$

(44,075)

$

$

620,365

    

    

Gross

    

Gross

    

Allowance

 

    

    

    

Gross

    

Gross

    

Allowance

 

    

Amortized

Unrealized

Unrealized

for

 

Fair

Amortized

Unrealized

Unrealized

for

 

Fair

December 31, 2019 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

December 31, 2021 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

U.S. Treasury securities and U.S. Government agencies

$

134,765

$

59

$

(184)

NA

$

134,640

$

239,880

$

473

$

(2,894)

$

$

237,459

Private label mortgage backed security

 

2,210

 

1,285

 

NA

 

3,495

Mortgage backed securities - residential

 

253,288

 

2,916

 

(357)

NA

 

255,847

Private label mortgage-backed security

 

1,418

 

1,313

 

 

 

2,731

Mortgage-backed securities - residential

 

207,697

 

3,525

 

(473)

 

 

210,749

Collateralized mortgage obligations

 

63,284

 

258

 

(171)

NA

 

63,371

 

29,947

 

377

 

(30)

 

 

30,294

Corporate bonds

 

10,000

 

2

 

NA

 

10,002

 

10,000

 

46

 

 

 

10,046

Trust preferred security

 

3,575

 

425

 

NA

 

4,000

 

3,684

 

163

 

 

 

3,847

Total available-for-sale debt securities

$

467,122

$

4,945

$

(712)

NA

$

471,355

$

492,626

$

5,897

$

(3,397)

$

$

495,126

Held-to-Maturity Debt Securities

The following tables summarize the amortized cost, fair value, and ACLS of HTM debt securities and the corresponding amounts of related gross unrecognized gains and losses:

    

    

    

Gross

    

Gross

    

    

    

Allowance

    

    

    

Gross

    

Gross

    

    

    

Allowance

Carrying

Unrecognized

Unrecognized

Fair

for

Amortized

Unrecognized

Unrecognized

Fair

for

December 31, 2020 (in thousands)

Value

Gains

Losses

Value

Credit Losses

December 31, 2022 (in thousands)

Cost

Gains

Losses

Value

Credit Losses

Mortgage backed securities - residential

$

99

$

5

$

$

104

$

U.S. Treasury securities and U.S. Government agencies

$

75,000

$

106

$

$

75,106

$

Mortgage-backed securities - residential

27

(1)

26

Collateralized mortgage obligations

 

13,061

 

176

 

 

13,237

 

 

7,270

 

54

 

(148)

 

7,176

 

Corporate bonds

 

39,986

 

499

 

 

40,485

 

(178)

 

4,974

 

 

(49)

 

4,925

 

(10)

Obligations of state and political subdivisions

356

8

364

125

(1)

124

Total held-to-maturity debt securities

$

53,502

$

688

$

$

54,190

$

(178)

$

87,396

$

160

$

(199)

$

87,357

$

(10)

    

    

    

Gross

    

Gross

    

    

    

Allowance

Carrying

Unrecognized

Unrecognized

Fair

for

December 31, 2019 (in thousands)

Value

Gains

Losses

Value

Credit Losses

Mortgage backed securities - residential

$

104

$

6

$

$

110

NA

Collateralized mortgage obligations

 

16,970

 

94

 

(21)

 

17,043

 

NA

Corporate bonds

 

44,995

 

544

 

 

45,539

 

NA

Obligations of state and political subdivisions

462

2

464

 

NA

Total held-to-maturity debt securities

$

62,531

$

646

$

(21)

$

63,156

 

NA

    

    

    

Gross

    

Gross

    

    

    

Allowance

Amortized

Unrecognized

Unrecognized

Fair

for

December 31, 2021 (in thousands)

Cost

Gains

Losses

Value

Credit Losses

Mortgage-backed securities - residential

$

46

$

$

$

46

$

Collateralized mortgage obligations

 

9,080

 

158

 

 

9,238

 

Corporate bonds

 

34,975

 

263

 

(6)

 

35,232

 

(47)

Obligations of state and political subdivisions

245

3

248

Total held-to-maturity debt securities

$

44,346

$

424

$

(6)

$

44,764

$

(47)

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Sales and Calls of Available-for-Sale Debt Securities

During 2020, 2019,2022, 2021, and 20182020 there were 0no material sales of AFS debt securities. The Company had no AFS debt securities called during 2022. The Company did have AFS debt securities called during 2021 and 2020 with an amortized cost of $90 million and $119 million.

Debt Securities by Contractual Maturity

The following table presents the amortized cost and fair value of debt securities by contractual maturity atas of December 31, 2020.2022. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or early termination penalties. Securities not due at a single maturity date are detailed separately.

Available-for-Sale

Held-to-Maturity

 

Available-for-Sale

Held-to-Maturity

 

Debt Securities

Debt Securities

 

Debt Securities

Debt Securities

 

    

Amortized

    

Fair

    

Carrying

    

Fair

 

    

Amortized

    

Fair

    

Amortized

    

Fair

 

December 31, 2020 (in thousands)

Cost

Value

Value

Value

 

December 31, 2022 (in thousands)

Cost

Value

Cost

Value

 

 

 

Due in one year or less

$

14,943

$

15,118

$

110

$

111

$

41,789

$

41,433

$

125

$

124

Due from one year to five years

 

240,261

 

241,834

 

35,277

 

35,708

 

404,544

 

379,709

 

79,974

 

80,031

Due from five years to ten years

 

 

 

4,955

 

5,030

 

 

 

 

Due beyond ten years

 

3,631

 

3,800

 

 

 

3,741

 

3,855

 

 

Private label mortgage backed security

 

1,707

 

2,957

 

 

Mortgage backed securities - residential

 

203,786

 

211,202

 

99

 

104

Private label mortgage-backed security

 

843

 

2,127

 

 

Mortgage-backed securities - residential

 

189,312

 

171,873

 

27

 

26

Collateralized mortgage obligations

 

48,190

 

48,952

 

13,061

 

13,237

 

22,774

 

21,368

 

7,270

 

7,176

Total debt securities

$

512,518

$

523,863

$

53,502

$

54,190

$

663,003

$

620,365

$

87,396

$

87,357

Unrealized-Loss Analysis on Debt Securities

The following table summarizestables summarize AFS debt securities in an unrealized loss position for which an ACLS had not been recorded atas of December 31, 2020,2022 and 2021, aggregated by investment category and length of time in a continuous unrealized loss position:

Less than 12 months

12 months or more

Total

 

Less than 12 months

12 months or more

Total

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

December 31, 2020 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

December 31, 2022 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

Available-for-sale debt securities:

U.S. Treasury securities and U.S. Government agencies

$

59,971

$

(25)

$

$

$

59,971

$

(25)

$

229,372

$

(7,139)

$

171,676

$

(18,054)

$

401,048

$

(25,193)

Mortgage backed securities - residential

1,068

(3)

1,068

(3)

Mortgage-backed securities - residential

105,274

(7,434)

65,520

(10,021)

170,794

(17,455)

Collateralized mortgage obligations

2,788

(10)

2,788

(10)

20,418

(1,426)

6

(1)

20,424

(1,427)

Total available-for-sale debt securities

$

63,827

$

(38)

$

$

$

63,827

$

(38)

$

355,064

$

(15,999)

$

237,202

$

(28,076)

$

592,266

$

(44,075)

Less than 12 months

12 months or more

Total

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

December 31, 2021 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

Available-for-sale debt securities:

U.S. Treasury securities and U.S. Government agencies

$

177,138

$

(2,622)

$

9,728

$

(272)

$

186,866

$

(2,894)

Mortgage-backed securities - residential

84,937

(473)

84,937

(473)

Collateralized mortgage obligations

4,495

(30)

4,495

(30)

Total available-for-sale debt securities

$

266,570

$

(3,125)

$

9,728

$

(272)

$

276,298

$

(3,397)

Debt securities with unrealized losses atAs of December 31, 2019, aggregated by investment category and length of time in a continuous unrealized loss position, were as follows:

Less than 12 months

12 months or more

Total

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

December 31, 2019 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

Available-for-sale debt securities:

U.S. Treasury securities and U.S. Government agencies

$

40,165

$

(176)

$

14,992

$

(8)

$

55,157

$

(184)

Mortgage backed securities - residential

65,630

(269)

16,633

(88)

82,263

(357)

Collateralized mortgage obligations

12,444

(36)

10,738

(135)

23,182

(171)

Total available-for-sale debt securities

$

118,239

$

(481)

$

42,363

$

(231)

$

160,602

$

(712)

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Table of Contents

Less than 12 months

12 months or more

Total

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

December 31, 2019 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

Held-to-maturity debt securities:

Collateralized mortgage obligations

$

4

$

(2)

$

4,827

$

(19)

$

4,831

$

(21)

Total held-to-maturity debt securities:

$

4

$

(2)

$

4,827

$

(19)

$

4,831

$

(21)

At December 31, 2020,2022, the Bank’s portfolio consisted of 173179 securities, 19163 of which were in an unrealized loss position.

AtAs of December 31, 2019,2021, the Bank’s portfolio consisted of 173 securities, 3429 of which were in an unrealized loss position.

AtAs of December 31, 20202022 and 2019,2021, there were no holdings of debt securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

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Mortgage BackedMortgage-Backed Securities and Collateralized Mortgage Obligations

AtAs of December 31, 2020,2022, with the exception of the $3.0$2.1 million private label mortgage backedmortgage-backed security, all other mortgage backedmortgage-backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FHLMC and FNMA. AtAs of December 31, 20202022 and 2019,2021, there were gross unrealized losses of $13,000$18.9 million and $528,000$503,000 related to AFS mortgage backedmortgage-backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to have OTTI.

Trust Preferred Security

During the fourth quarter of 2015, theThe Parent Company purchasedowns a $3 million floating rate trust preferred security atwith a price of 68% of its $5 million par value. The coupon on this security is based on the 3-month LIBOR rate plus 159 basis points. The Company performedperforms an initial analysis prior to acquisition and performs ongoing analysis of the credit risk of the underlying borrower in relation to its TRUP.

Private Label Mortgage BackedMortgage-Backed Security

The Bank owns 1one private label mortgage backedmortgage-backed security with a total carrying value of $3.0$2.1 million as of December 31, 2020.2022. This security is mostly backed by “Alternative A” first lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach, in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

See additional discussion regarding the Bank’s private label mortgage backedmortgage-backed security in this section of the filing under Footnote 15 “Fair Value.”

The following table presents a rollforward of the Bank’s private label mortgage backedmortgage-backed security credit losses recognized in earnings:

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Balance, beginning of period

$

1,462

$

1,613

$

1,765

$

1,462

$

1,462

$

1,462

Recovery of losses previously recorded

 

0

 

(151)

 

(152)

 

 

 

Balance, end of period

$

1,462

$

1,462

$

1,613

$

1,462

$

1,462

$

1,462

Further deterioration in economic conditions could cause the Bank to record an additional impairment charge related to credit losses of up to $843,000, which is the current gross amortized cost of the Bank’s remaining private label mortgage-backed security.

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Further deterioration in economic conditions could cause the Bank to record an additional impairment charge related to credit losses of up to $1.7 million, which is the current gross amortized cost of the Bank’s remaining private label mortgage backed security.

Rollforward of the Allowance for Credit Losses on Debt Securities

The tables below present a rollforward for 20202022 and 2021 of the ACLS on AFS and HTM debt securities:

ACLS Rollforward

ACLS Rollforward

Years Ended December 31, 

Year Ended December 31, 2020

2022

2021

Beginning

ASC 326

Charge-

Ending

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Adoption

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Available-for-Sale Securities:

Corporate Bonds

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

Held-to-Maturity Securities:

Corporate Bonds

51

127

178

47

(37)

10

178

(131)

47

Total

$

$

51

$

127

$

$

$

178

$

47

$

(37)

$

$

$

10

$

178

$

(131)

$

$

$

47

The Company increaseddecreased the ACLS on its HTM corporate bonds during 20202022 based on increasingimproved PD and LGD estimates on these bonds. PD and LGD estimates for these bonds resulting fromwere elevated during 2020 due to pandemic-driven economic concerns from the COVID-19 pandemic.concerns.

There were 0no HTM debt securities onin nonaccrual status or past due over 8990 days or more as of December 31, 2020.2022 and 2021. All of the Company’s HTM corporate bonds were rated investment grade as of December 31, 2020.2022 and 2021.

There were 0no HTM debt securities considered collateral dependent as of December 31, 2020.2022 and 2021.

Pledged Debt Securities

Debt securities pledged to secure public deposits, securities sold under agreements to repurchase, and securities held for other purposes, as required or permitted by law are as follows:

December 31, (in thousands)

    

 

2020

    

2019

 

    

 

2022

    

2021

 

Carrying amount

$

303,535

$

229,700

$

217,562

$

319,650

Fair value

 

303,611

 

229,706

 

217,562

 

319,808

Equity Securities

During 2022, the Company sold an equity security for $2.2 million and realized a loss of $55,000. There were no material sales of equity securities in 2021 or 2020. The following tables present the carrying value, gross unrealized gains and losses, and fair value of equity securities with readily determinable fair values:

    

    

Gross

    

Gross

    

    

 

Amortized

Unrealized

Unrealized

Fair

 

December 31, 2022 (in thousands)

Cost

Gains

Losses

Value

 

Freddie Mac preferred stock

$

$

111

$

$

111

Total equity securities with readily determinable fair values

$

$

111

$

$

111

    

    

Gross

    

Gross

    

    

 

Amortized

Unrealized

Unrealized

Fair

 

December 31, 2021 (in thousands)

Cost

Gains

Losses

Value

 

Freddie Mac preferred stock

$

$

170

$

$

170

Community Reinvestment Act mutual fund

 

2,500

 

 

(50)

 

2,450

Total equity securities with readily determinable fair values

$

2,500

$

170

$

(50)

$

2,620

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Equity Securities

The following tables present the carrying value, gross unrealized gains and losses, and fair value of equity securities with readily determinable fair values:

    

    

Gross

    

Gross

    

    

 

Amortized

Unrealized

Unrealized

Fair

 

December 31, 2020 (in thousands)

Cost

Gains

Losses

Value

 

Freddie Mac preferred stock

$

$

560

$

$

560

Community Reinvestment Act mutual fund

 

2,500

 

23

 

 

2,523

Total equity securities with readily determinable fair values

$

2,500

$

583

$

$

3,083

    

    

Gross

    

Gross

    

    

 

Amortized

Unrealized

Unrealized

Fair

 

December 31, 2019 (in thousands)

Cost

Gains

Losses

Value

 

Freddie Mac preferred stock

$

$

714

$

$

714

Community Reinvestment Act mutual fund

 

2,500

 

 

(26)

 

2,474

Total equity securities with readily determinable fair values

$

2,500

$

714

$

(26)

$

3,188

For equity securities with readily determinable fair values, the gross realized and unrealized gains and losses recognized in the Company’s consolidated statements of income were as follows:

Gains (Losses) Recognized on Equity Securities

Gains (Losses) Recognized on Equity Securities

Year Ended December 31, 2020

    

Year Ended December 31, 2019

Year Ended December 31, 2022

    

Year Ended December 31, 2021

(in thousands)

Realized

Unrealized

Total

Realized

Unrealized

Total

Realized

Unrealized

Total

Realized

Unrealized

Total

Freddie Mac preferred stock

$

$

(154)

$

(154)

$

$

304

$

304

$

$

(59)

$

(59)

$

$

(390)

$

(390)

Community Reinvestment Act mutual fund

 

 

49

 

49

 

 

78

 

78

 

(204)

 

 

(204)

 

 

(73)

 

(73)

Total equity securities with readily determinable fair value

$

$

(105)

$

(105)

$

$

382

$

382

$

(204)

$

(59)

$

(263)

$

$

(463)

$

(463)

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3.

LOANS HELD FOR SALE

In the ordinary course of business, the Bank originates for sale mortgage loans and consumer loans. Mortgage loans originated for sale are primarily originated and sold into the secondary market through the Bank’s Mortgage Banking segment, while consumer loans originated for sale are originated and sold through the RCS segment.

Mortgage Loans Held for Sale, at Fair Value

See additional detail regarding mortgage loans originated for sale, at fair value under Footnote 16 “Mortgage Banking Activities” of this section of the filing.

Consumer Loans Held for Sale, at Fair Value

In December 2019, theThe Bank began offeringoffers RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

Activity for consumer loans held for sale and carried at fair value was as follows:

    

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

2022

    

2021

    

2020

Balance, beginning of period

$

598

$

$

$

19,747

$

3,298

$

598

Origination of consumer loans held for sale

 

58,833

 

598

 

 

311,704

 

271,430

 

58,833

Proceeds from the sale of consumer loans held for sale

 

(57,814)

 

 

 

(333,438)

 

(260,730)

 

(57,814)

Net gain on sale of consumer loans held for sale

 

1,681

 

 

 

6,693

 

5,749

 

1,681

Balance, end of period

$

3,298

$

598

$

$

4,706

$

19,747

$

3,298

Consumer Loans Held for Sale, at Lower of Cost or Fair Value

RCS originates for sale 90% of the balances from its line-of-credit product and a portion of its healthcare receivables product. Ordinary gains or losses on the sale of these RCS products are reported as a component of “Program fees.”

Activity for consumer loans held for sale and carried at the lower of cost or market value was as follows:

    

    

 

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

2022

    

2021

    

2020

Balance, beginning of period

$

11,646

$

12,838

$

8,551

$

2,937

$

1,478

$

11,646

Origination of consumer loans held for sale

 

460,040

 

709,768

 

761,491

 

734,011

 

610,750

 

460,040

Loans transferred to held for investment

1,392

Proceeds from the sale of consumer loans held for sale

 

(473,507)

 

(716,062)

 

(764,929)

 

(730,363)

 

(614,840)

 

(473,507)

Net gain on sale of consumer loans held for sale

 

3,299

 

5,102

 

6,333

 

6,584

 

5,549

 

3,299

Balance, end of period

$

1,478

$

11,646

$

12,838

$

13,169

$

2,937

$

1,478

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4.

LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:

December 31, (in thousands)

   

 

2020

    

2019

 

   

 

2022

    

2021

 

Traditional Banking:

Residential real estate:

Owner occupied

$

879,800

$

949,568

$

911,427

$

820,731

Nonowner occupied

 

264,780

 

258,803

 

321,358

 

306,323

Commercial real estate

 

1,349,085

 

1,303,000

 

1,599,510

 

1,456,009

Construction & land development

 

98,674

 

159,702

 

153,875

 

129,337

Commercial & industrial

 

325,596

 

465,674

 

408,407

 

340,363

Paycheck Protection Program

392,319

4,980

56,014

Lease financing receivables

 

10,130

 

14,040

 

10,505

 

8,637

Aircraft

101,375

70,443

179,785

142,894

Home equity

 

240,640

 

293,186

 

241,739

 

210,578

Consumer:

Credit cards

 

14,196

 

17,836

 

15,473

 

14,510

Overdrafts

 

587

 

1,522

 

726

 

683

Automobile loans

 

30,300

 

52,923

 

6,731

 

14,448

Other consumer

 

8,167

 

9,234

 

626

 

1,432

Total Traditional Banking

3,715,649

3,595,931

3,855,142

3,501,959

Warehouse lines of credit*

 

962,796

 

717,458

 

403,560

 

850,550

Total Core Banking

4,678,445

4,313,389

4,258,702

4,352,509

Republic Processing Group*:

Tax Refund Solutions:

Easy Advances

 

Other TRS loans

23,765

14,365

Refund Advances

97,505

 

Other TRS commercial & industrial loans

51,767

50,987

Republic Credit Solutions

 

110,893

 

105,397

 

107,828

 

93,066

Total Republic Processing Group

134,658

119,762

257,100

144,053

Total loans**

 

4,813,103

 

4,433,151

 

4,515,802

 

4,496,562

Allowance for credit losses

 

(61,067)

 

(43,351)

 

(70,413)

 

(64,577)

Total loans, net

$

4,752,036

$

4,389,800

$

4,445,389

$

4,431,985

*Identifies loans to borrowers located primarily outside of the Bank’s market footprint.

**Total loans are presented inclusive of premiums, discounts and net loan origination fees and costs. See table directly below for expanded detail.

The following table reconciles the contractually receivable and carrying amounts of loans atas of December 31, 20202022 and 2019:2021:

December 31, (in thousands)

    

 

2020

    

2019

 

    

 

2022

    

2021

 

Contractually receivable

$

4,821,062

$

4,432,351

$

4,519,136

$

4,498,671

Unearned income

 

(708)

 

(1,139)

 

(835)

 

(542)

Unamortized premiums

 

216

 

366

 

99

 

116

Unaccreted discounts

 

(988)

 

(2,534)

 

(479)

 

(641)

PPP net unamortized deferred origination fees and costs

(8,564)

Other net unamortized deferred origination fees and costs

 

2,085

 

4,107

PPP net unamortized deferred origination (fees) and costs

(91)

(1,203)

Other net unamortized deferred origination (fees) and costs

 

(2,028)

 

161

Carrying value of loans

$

4,813,103

$

4,433,151

$

4,515,802

$

4,496,562

Paycheck Protection Program

The CARES Act was enacted in March 2020 and provided for the SBA’s PPP, which allowed the Bank to lend to its qualifying small business clients to assist them in their efforts to meet their cash-flow needs during the COVID-19 pandemic. The Economic Aid Act was enacted in December 2020 and provided for a second round of PPP loans. PPP loans are fully backed by the SBA and may be entirely forgiven if the loan client uses loan funds for qualifying reasons. As of December 31, 2020, the Bank had a recorded investment in2022, net PPP loans of $392$5 million which includes $401 millionremained on the Core Bank’s balance sheet with $91,000 of yet-to-be-earned PPP lender fees reported as a credit offset to these originated balances less $9balances.

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To provide liquidity to banks administering the SBA’s PPP, the FRB created the PPPLF, a

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lending liquidity facility secured by the PPP loans of the participating banks. As of December 31, 2020,2022, the Bank had 0no outstanding borrowings from the FRB under the PPPLF.

Credit Quality Indicators

Bank procedures for assessing and maintaining credit gradings differs slightly depending onare the same whether a new or renewed loan is being underwritten, or whether an existing loan is being re-evaluated for potential credit quality concerns. The latter usually occurs upon receipt of updated financial information, or other pertinent data, that would potentially causewhich triggers a changereview in the loan grade. Specific Bank procedures follow:

For new and renewed C&I, CRE and C&D loans, the Bank’s CCAD scores and assigns the credit quality grade to the loan.

Commercial loan officers are responsible for monitoring their respective loan portfolios and reporting any adverse material changes to senior management. When circumstances warrant a review and possible change in the credit quality grade, loan officers are required to notify the Bank’s CCAD.CCAD or Special Asset division (under certain deteriorating circumstances).

A senior officer meets at least monthly with commercial loan officers to discussThe Special Asset area of the Bank monitors throughout the month the status of all past due loans and possible classified loans.loans with the respective commercial officers. These meetings are designed to give loan officers an opportunity to identify other existing loans that should be downgraded.downgraded as well.

Monthly, members of senior managementExecutive Management along with managers of Commercial Lending, CCAD, Accounting, Special Assets and Retail Collections attend a Special Asset Committee meeting. The SAC reviews C&I and CREall loans for the Bank graded Special Mention or worse or loans potentially subject to downgrade into these classifications and discusses the relative trends and current status of these assets. In addition, the SAC reviews all classified and potentially classified residential real estate and home equity loans. SAC also reviews the actions taken by management regarding credit-quality grades, foreclosure mitigation, loan extensions, deferrals or forbearance, troubled debt restructurings, and collateral repossessions. Based on the information reviewed in this meeting, the SAC approves all specific loan loss allocations to be recognized by the Bank within the ACLL analysis.

During 2020, members of senior management performed periodic reviews, no less than monthly, of loans whose borrowers were negatively impacted by the COVID-19 pandemic. These reviews included borrowers in industries particularly harmed by pandemic-driven restrictions, such as the hospitality industry.

All new and renewed warehouse lines of credit are approved by the Executive Loan Committee. The CCAD assignscredit area of the initialWarehouse Lending division initially recommends the credit quality grade for warehouse facilities to warehouse facilities.ELC, of which ELC may approve or amend. The Bank’s internal loan review department is the final authority on a loan’s grade and reviews all approved loan grades, which they may approve or amend based on their independent review. Monthly, members of senior management reviewthe CLO reviews warehouse lending activity including data associated with the underlying collateral to the warehouse facilities, i.e., the mortgage loans associated with the balances drawn. Key performance indicators monitored include average days outstanding for each draw, average FICO credit report score for the underlying collateral, average LTV for the underlying collateral and other factors deemed relevant.

On at least an annual basis, the Bank’s internal loan review department analyzes all aggregate lending relationshipsindividual loans with outstanding balances greater than $1 million that are internally classified as “Special Mention,” “Substandard,” “Doubtful” or “Loss.” In addition, on an annual basis, the Bank analyzes a sample of “Pass” rated loans.

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, public information, and current economic trends. The Bank also considers the fair value of the underlying collateral and the strength and willingness of the guarantor(s). The Bank analyzes loans individually, and based on this analysis, establishes a credit risk rating. The Bank uses the following definitions for risk ratings:

Risk Grade 1 — Excellent (Pass): Loans fully secured by liquid collateral, such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans fully secured by publicly traded marketable securities where there is no impediment to liquidation; or loans to any publicly held company with a current long-term debt rating of A or better.

Risk Grade 2 — Good (Pass): Loans to businesses that have strong financial statements containing an unqualified opinion from a Certified Public Accounting firm and at least three consecutive years of profits; loans supported by unaudited

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financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans that are guaranteed

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or otherwise backed by the full faith and credit of the U.S. government or an agency thereof, such as the Small Business Administration; or loans to publicly held companies with current long-term debt ratings of Baa or better.

Risk Grade 3 — Satisfactory (Pass): Loans supported by financial statements (audited or unaudited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered.

Risk Grade 4 — Satisfactory/Monitored (Pass): Loans in this category are considered to be acceptable credit quality but contain greater credit risk than Satisfactory loans due to weak balance sheets, marginal earnings or cash flow, or other uncertainties.  These loans warrant a higher than averagehigher-than-average level of monitoring to ensure that weaknesses do not advance.  The level of risk in a Satisfactory/Monitored loan is within acceptable underwriting guidelines so long as the loan is given the proper level of management supervision.  All revolving lines of credit will be placed in this category if a borrowing base is to be implemented as a condition of approval for the loan.  Lastly, a start-up business venture will receive this rating due to the lack of any historical financial data.

Risk Grade 5 — Special Mention: Loans that possess some credit deficiency or potential weakness that deserves close attention. Such loans pose an unwarranted financial risk that, if not corrected, could weaken the loan by adversely impacting the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) credit weaknesses are considered potential and are not defined impairments to the primary source of repayment.

Purchased with Credit Deterioration Loans — Group 1: To the extent that a PCD, formerly PCI, loan’s performance does not reflect an increased risk of loss of contractual principal beyond the ACLL established as part of its initial day-one evaluation, such loan would be classified in the PCD-1 category, whose credit risk is considered by management equivalent to a non-PCD “Special Mention” loan within the Bank’s credit rating matrix.

Purchased with Credit Deterioration Loans — Substandard: If during the Bank’s periodic evaluations of its PCD, formerly PCI, loan portfolio, management deems a PCD-1 loan to have an increased risk of loss of contractual principal beyond the ACLL established as part of its initial day-one evaluation, such loan would be classified PCD-Sub within the Bank’s credit risk matrix. Management deems the risk of default and overall credit risk of a PCD-Sub loan to be greater than a PCD-1 loan and more analogous to a non-PCD “Substandard” loan within the Bank’s credit rating matrix.

Risk Grade 6 — Substandard: One or more of the following characteristics may be exhibited in loans classified as Substandard:

Loans that possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss.
Loans are inadequately protected by the current net worth and paying capacity of the obligor.
The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.
Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.
Unusual courses of action are needed to maintain a high probability of repayment.
The borrower is not generating enough cash flow to repay loan principal,principal; however, it continues to make interest payments.
The Bank is forced into a subordinated or unsecured position due to flaws in documentation.
The Bank is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.
There is significant deterioration in market conditions to which the borrower is highly vulnerable.

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Risk Grade 7 — Doubtful: One or more of the following characteristics may be present in loans classified as Doubtful:

Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable.
The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.
The possibility of loss is high but because of certain important pending factors, which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

Risk Grade 8 — Loss: Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified “Loss” when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

For all real estate and consumer loans, including small-dollar RPG loans, which do not meet the scope above, the Bank uses a grading system based on delinquency and nonaccrual status. Loans that are 9080 days or more past due or on nonaccrual are graded Substandard. Occasionally, a real estate loan below scope may be graded as “Special Mention” or “Substandard” if the loan is cross-collateralizedcross collateralized with a classified C&I or CRE loan.

Amid the COVID-19 pandemic the Bank has granted loan deferral and forbearance relief to many retail mortgage loans. As loans under such relief will generally not reflect slow pay, retail mortgage clients requesting loan deferral and forbearance relief beyond six consecutive months may be scrutinized and adversely classified. Mortgage loans adversely classified following prolonged deferral or forbearance relief will be monitored for at least six consecutive months before qualifying to exit adverse classification.

Purchased loans are accounted for as any other Bank-originated loan, potentially becoming nonaccrual, as well as being risk rated under the Bank’s standard practices and procedures. In addition, these loans are considered in the determination of the ACLL once day-one fair values are final.

Management separately monitors PCD, formerly PCI, loans and no less than quarterly reviews them against the factors and assumptions used in determining day-one fair values. In addition to its quarterly evaluation, a PCD loan is typically reviewed when it is modified or extended, or when information becomes available to the Bank that provides additional insight regarding the loan’s performance, the status of the borrower, or the quality or value of the underlying collateral.

If a troubled debt restructuring is performed on a PCD loan, the loan is transferred out of the PCD population. The loan may require an additional Provision if its restructured cash flows are less than management’s initial day-one expectations. PCD loans for which the Bank simply chooses to extend the maturity date are generally not considered TDRs and remain in the PCD population.

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The following tables include loans by segment, risk category, and, for non-revolving loans, origination year. Regarding origination year, loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a TDR. Loan extensions and renewals classified as TDRs generally receive no change in origination date upon extension or renewal.

��

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year

Amortized

Converted

As of December 31, 2022

2022

2021

2020

2019

Prior

Cost Basis

to Term

Total

Residential real estate owner occupied:

Risk Rating

Pass or not rated

$

231,638

$

189,495

$

188,004

$

71,306

$

208,296

$

$

$

888,739

Special Mention

160

7,240

7,400

Substandard

1,230

1,103

1,501

1,460

9,994

15,288

Doubtful

Total

$

232,868

$

190,758

$

189,505

$

72,766

$

225,530

$

$

$

911,427

Residential real estate nonowner occupied:

Risk Rating

Pass or not rated

$

78,337

$

91,778

$

55,058

$

32,803

$

57,053

$

$

6,147

$

321,176

Special Mention

32

32

Substandard

30

120

150

Doubtful

Total

$

78,337

$

91,808

$

55,058

$

32,803

$

57,205

$

$

6,147

$

321,358

Commercial real estate:

Risk Rating

Pass or not rated

$

451,327

$

394,317

$

210,055

$

117,928

$

253,213

$

25,499

$

99,791

$

1,552,130

Special Mention

3,124

11,870

21,296

9,967

318

46,575

Substandard

805

805

Doubtful

Total

$

454,451

$

406,187

$

210,055

$

139,224

$

263,985

$

25,817

$

99,791

$

1,599,510

Construction and land development:

Risk Rating

Pass or not rated

$

107,153

$

43,289

$

638

$

641

$

373

$

1,781

$

$

153,875

Special Mention

Substandard

Doubtful

Total

$

107,153

$

43,289

$

638

$

641

$

373

$

1,781

$

$

153,875

Commercial and industrial:

Risk Rating

Pass or not rated

$

116,483

$

78,224

$

17,171

$

36,254

$

36,367

$

103,257

$

4,865

$

392,621

Special Mention

536

13,239

1,756

255

15,786

Substandard

Doubtful

Total

$

117,019

$

91,463

$

17,171

$

36,254

$

38,123

$

103,512

$

4,865

$

408,407

Paycheck Protection Program:

Risk Rating

Pass or not rated

$

$

4,207

$

773

$

$

$

$

$

4,980

Special Mention

Substandard

Doubtful

Total

$

$

4,207

$

773

$

$

$

$

$

4,980

Lease financing receivables:

Risk Rating

Pass or not rated

$

5,469

$

1,964

$

542

$

1,548

$

982

$

$

$

10,505

Special Mention

Substandard

Doubtful

Total

$

5,469

$

1,964

$

542

$

1,548

$

982

$

$

$

10,505

Aircraft:

Risk Rating

Pass or not rated

$

65,399

$

54,749

$

35,085

$

16,888

$

7,454

$

$

$

179,575

Special Mention

Substandard

210

210

Doubtful

Total

$

65,399

$

54,749

$

35,085

$

16,888

$

7,664

$

$

$

179,785

Home equity:

Risk Rating

Pass or not rated

$

$

$

$

$

$

240,704

$

$

240,704

Special Mention

171

171

Substandard

864

864

Doubtful

Total

$

$

$

$

$

$

241,739

$

$

241,739

120

Table of Contents

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year (Continued)

Amortized

Converted

As of December 31, 2022

2022

2021

2020

2019

Prior

Cost Basis

to Term

Total

Consumer:

Risk Rating

Pass or not rated

$

415

$

499

$

168

$

2,531

$

4,328

$

15,573

$

$

23,514

Special Mention

Substandard

9

33

42

Doubtful

Total

$

415

$

499

$

168

$

2,540

$

4,361

$

15,573

$

$

23,556

Warehouse:

Risk Rating

Pass or not rated

$

$

$

$

$

$

403,560

$

$

403,560

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

403,560

$

$

403,560

TRS:

Risk Rating

Pass or not rated

$

$

$

$

$

$

149,272

$

$

149,272

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

149,272

$

$

149,272

RCS:

Risk Rating

Pass or not rated

$

22,357

$

2,273

$

1,264

$

602

$

29,594

$

50,589

$

$

106,679

Special Mention

Substandard

1,149

1,149

Doubtful

Total

$

22,357

$

2,273

$

1,264

$

602

$

29,594

$

51,738

$

$

107,828

Grand Total:

Risk Rating

Pass or not rated

$

1,078,578

$

860,795

$

508,758

$

280,501

$

597,660

$

990,235

$

110,803

$

4,427,330

Special Mention

3,660

25,269

21,296

18,995

744

69,964

Substandard

1,230

1,133

1,501

1,469

11,162

2,013

18,508

Doubtful

Grand Total

$

1,083,468

$

887,197

$

510,259

$

303,266

$

627,817

$

992,992

$

110,803

$

4,515,802

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year

Amortized

Converted

As of December 31, 2021

2021

2020

2019

2018

Prior

Cost Basis

to Term

Total

Residential real estate owner occupied:

Risk Rating

Pass or not rated

$

218,981

$

213,010

$

89,186

$

50,301

$

226,852

$

$

$

798,330

Special Mention

301

33

8,209

8,543

Substandard

45

870

679

1,189

11,075

13,858

Doubtful

Total

$

219,327

$

213,880

$

89,865

$

51,523

$

246,136

$

$

$

820,731

Residential real estate nonowner occupied:

Risk Rating

Pass or not rated

$

107,041

$

65,786

$

44,376

$

29,292

$

55,872

$

$

3,729

$

306,096

Special Mention

132

132

Substandard

95

95

Doubtful

Total

$

107,041

$

65,786

$

44,376

$

29,292

$

56,099

$

$

3,729

$

306,323

Commercial real estate:

Risk Rating

Pass or not rated

$

472,095

$

256,039

$

153,224

$

94,212

$

286,223

$

25,188

$

80,211

$

1,367,192

Special Mention

20,059

2,399

29,639

11,207

18,778

82,082

Substandard

111

266

2,453

3,905

6,735

Doubtful

Total

$

492,154

$

258,549

$

183,129

$

107,872

$

308,906

$

25,188

$

80,211

$

1,456,009

Construction and land development:

Risk Rating

Pass or not rated

$

88,743

$

30,593

$

2,599

$

1,155

$

128

$

1,925

$

$

125,143

Special Mention

524

3,670

4,194

Substandard

Doubtful

Total

$

88,743

$

31,117

$

6,269

$

1,155

$

128

$

1,925

$

$

129,337

Commercial and industrial:

Risk Rating

Pass or not rated

$

105,148

$

34,361

$

54,524

$

18,110

$

44,972

$

60,454

$

2,541

$

320,110

Special Mention

15,015

1,921

785

34

1,956

350

20,061

Substandard

13

179

192

Doubtful

Total

$

120,163

$

36,295

$

55,488

$

18,144

$

46,928

$

60,804

$

2,541

$

340,363

121

Table of Contents

The following tables include loans by segment and risk category. As of December 31, 2020, for non-revolving loans originated after 2017, loans are also classified by origination year. Loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a TDR. Loan extensions and renewals classified as TDRs generally receive no change in origination date upon extension or renewal.

Revolving Loans

Revolving Loans

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year

Amortized

Converted

Term Loans Amortized Cost Basis by Origination Year (Continued)

Amortized

Converted

As of December 31, 2020

2020

2019

2018

2017

Prior

Cost Basis

to Term

Total

Residential real estate owner occupied:

Risk Rating

Pass or not rated

$

268,313

$

132,018

$

82,754

$

67,430

$

301,366

$

$

$

851,881

Special Mention

364

42

1,610

8,730

10,746

Substandard

394

1,423

1,331

614

13,411

17,173

Doubtful

Total

$

268,707

$

133,805

$

84,127

$

69,654

$

323,507

$

$

$

879,800

Residential real estate nonowner occupied:

Risk Rating

Pass or not rated

$

73,291

$

63,102

$

43,610

$

45,759

$

38,316

$

$

621

$

264,699

Special Mention

Substandard

81

81

Doubtful

Total

$

73,291

$

63,102

$

43,610

$

45,759

$

38,397

$

$

621

$

264,780

Commercial real estate:

Risk Rating

Pass or not rated

$

315,550

$

258,251

$

166,542

$

171,207

$

315,336

$

$

55,949

$

1,282,835

Special Mention

3,397

30,969

236

11,355

9,659

55,616

Substandard

2,596

349

987

3,899

2,803

10,634

Doubtful

Total

$

321,543

$

289,569

$

166,778

$

183,549

$

328,894

$

$

58,752

$

1,349,085

Construction and land development:

Risk Rating

Pass or not rated

$

53,972

$

31,756

$

7,840

$

701

$

1,964

$

$

$

96,233

Special Mention

2,397

2,397

Substandard

44

44

Doubtful

Total

$

53,972

$

34,197

$

7,840

$

701

$

1,964

$

$

$

98,674

Commercial and industrial:

Risk Rating

Pass or not rated

$

105,985

$

84,575

$

33,391

$

32,303

$

46,697

$

$

1,040

$

303,991

Special Mention

18,195

800

2,215

21,210

Substandard

383

12

395

Doubtful

Total

$

124,563

$

85,387

$

33,391

$

32,303

$

48,912

$

$

1,040

$

325,596

As of December 31, 2021

2021

2020

2019

2018

Prior

Cost Basis

to Term

Total

Paycheck Protection Program:

Risk Rating

Pass or not rated

$

392,319

$

$

$

$

$

$

$

392,319

$

40,607

$

15,407

$

$

$

$

$

$

56,014

Special Mention

Substandard

Doubtful

Total

$

392,319

$

$

$

$

$

$

$

392,319

$

40,607

$

15,407

$

$

$

$

$

$

56,014

Lease financing receivables:

Risk Rating

Pass or not rated

$

1,117

$

3,663

$

1,814

$

2,847

$

689

$

$

$

10,130

$

2,638

$

839

$

2,641

$

1,264

$

1,255

$

$

$

8,637

Special Mention

Substandard

Doubtful

Total

$

1,117

$

3,663

$

1,814

$

2,847

$

689

$

$

$

10,130

$

2,638

$

839

$

2,641

$

1,264

$

1,255

$

$

$

8,637

Aircraft:

Risk Rating

Pass or not rated

$

55,823

$

30,529

$

13,804

$

1,219

$

$

$

$

101,375

$

65,886

$

43,301

$

22,933

$

9,119

$

1,655

$

$

$

142,894

Special Mention

Substandard

Doubtful

Total

$

55,823

$

30,529

$

13,804

$

1,219

$

$

$

$

101,375

$

65,886

$

43,301

$

22,933

$

9,119

$

1,655

$

$

$

142,894

Home equity:

Risk Rating

Pass or not rated

$

$

$

$

$

$

237,633

$

$

237,633

$

$

$

$

$

$

208,429

$

$

208,429

Special Mention

127

127

279

279

Substandard

2,880

2,880

1,870

1,870

Doubtful

Total

$

$

$

$

$

$

240,640

$

$

240,640

$

$

$

$

$

$

210,578

$

$

210,578

Consumer:

Risk Rating

Pass or not rated

$

978

$

417

$

4,694

$

4,326

$

5,768

$

14,613

$

$

30,796

Special Mention

Substandard

22

61

194

277

Doubtful

Total

$

978

$

417

$

4,716

$

4,387

$

5,962

$

14,613

$

$

31,073

Warehouse:

Risk Rating

Pass or not rated

$

$

$

$

$

$

850,550

$

$

850,550

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

850,550

$

$

850,550

TRS:

Risk Rating

Pass or not rated

$

$

$

$

$

$

50,987

$

$

50,987

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

50,987

$

$

50,987

RCS:

Risk Rating

Pass or not rated

$

5,524

$

3,409

$

1,642

$

869

$

3,699

$

77,544

$

$

92,687

Special Mention

Substandard

379

379

Doubtful

Total

$

5,524

$

3,409

$

1,642

$

869

$

3,699

$

77,923

$

$

93,066

Grand Total:

Risk Rating

Pass or not rated

$

1,107,641

$

663,162

$

375,819

$

208,648

$

626,424

$

1,289,690

$

86,481

$

4,357,865

Special Mention

35,375

4,844

34,094

11,274

29,075

629

115,291

Substandard

45

994

1,146

3,703

15,269

2,249

��

23,406

Doubtful

Grand Total

$

1,143,061

$

669,000

$

411,059

$

223,625

$

670,768

$

1,292,568

$

86,481

$

4,496,562

122

Table of Contents

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year (Continued)

Amortized

Converted

As of December 31, 2020

2020

2019

2018

2017

Prior

Cost Basis

to Term

Total

Consumer:

Risk Rating

Pass or not rated

$

425

$

13,636

$

8,563

$

7,125

$

8,648

$

14,321

$

$

52,718

Special Mention

5

5

Substandard

32

49

229

212

5

527

Doubtful

Total

$

425

$

13,668

$

8,612

$

7,354

$

8,865

$

14,326

$

$

53,250

Warehouse:

Risk Rating

Pass or not rated

$

$

$

$

$

$

962,796

$

$

962,796

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

962,796

$

$

962,796

TRS:

Risk Rating

Pass or not rated

$

$

$

$

$

$

23,765

$

$

23,765

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

23,765

$

$

23,765

RCS:

Risk Rating

Pass or not rated

$

27,683

$

5,704

$

2,485

$

1,232

$

19,095

$

54,348

$

$

110,547

Special Mention

Substandard

346

346

Doubtful

Total

$

27,683

��

$

5,704

$

2,485

$

1,232

$

19,095

$

54,694

$

$

110,893

Grand Total:

Risk Rating

Pass or not rated

$

1,294,478

$

623,234

$

360,803

$

329,823

$

732,111

$

1,292,863

$

57,610

$

4,690,922

Special Mention

21,592

34,530

278

12,965

20,609

127

90,101

Substandard

3,373

1,860

1,380

1,830

17,603

3,231

2,803

32,080

Doubtful

Grand Total

$

1,319,443

$

659,624

$

362,461

$

344,618

$

770,323

$

1,296,221

$

60,413

$

4,813,103

December 31, 2019

Special

Doubtful /

PCI Loans -

PCI Loans -

Total Rated

 

(in thousands)

Pass

Mention

Substandard

Loss

Group 1

Substandard

Loans*

 

Traditional Banking:

Residential real estate:

Owner occupied

$

$

12,153

$

14,441

$

$

140

$

1,281

$

28,015

Nonowner occupied

 

 

487

 

1,285

 

 

 

 

1,772

Commercial real estate

 

1,286,623

 

4,623

 

11,123

 

 

631

 

 

1,303,000

Construction & land development

 

157,165

 

2,339

 

198

 

 

 

 

159,702

Commercial & industrial

 

461,532

 

2,152

 

1,968

 

 

22

 

 

465,674

Lease financing receivables

 

14,040

 

 

 

 

 

 

14,040

Aircraft

11,562

11,562

Home equity

 

 

 

3,276

 

 

4

 

6

 

3,286

Consumer:

Credit cards

 

 

 

 

 

 

 

Overdrafts

 

 

 

 

 

 

 

Automobile loans

 

 

 

247

 

 

 

 

247

Other consumer

 

 

 

351

 

 

 

2

 

353

Total Traditional Banking

1,930,922

21,754

32,889

797

1,289

1,987,651

Warehouse lines of credit

 

717,458

 

 

 

 

 

 

717,458

Total Core Banking

2,648,380

21,754

32,889

797

1,289

2,705,109

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

 

 

 

 

 

 

Other TRS loans

53

53

Republic Credit Solutions

 

 

 

355

 

 

 

 

355

Total Republic Processing Group

408

408

Total rated loans

$

2,648,380

$

21,754

$

33,297

$

$

797

$

1,289

$

2,705,517

* The above table excludes all non-classified residential real estate, home equity and consumer loans.

123

Table of Contents

Loans Downgraded Subsequent to December 31, 2020

The Bank downgraded an additional $15 million in CRE loans and an additional $5 million in C&I loans from Pass to Special Mention subsequent to December 31, 2020.

Subprime Lending

Both the Traditional Banking segment and the RCS segment of the Company have certain classes of loans that are considered to be “subprime” strictly due to the credit score of the borrower at the time of origination.

Traditional Bank loans considered subprime totaled approximately $52$49 million and $52$48 million atas of December 31, 20202022 and 2019.2021. Approximately $27$30 million and $23$28 million of the outstanding Traditional Bank subprime loan portfolio atas of December 31, 20202022 and 20192021 were originated for CRA purposes. Management does not consider these loans to possess significantly higher credit risk due to other underwriting qualifications.

The RCS segment originates atwo short-term line-of-credit product.products, with the second product introduced in January 2021. The Bank has traditionally soldsells 90% or 95% of the balances maintained through this productthese products within three business days of loan origination and retainedretains a 5% or 10% interest. This product isThese products are unsecured and made to borrowers with subprime or near prime credit scores. The aggregate outstanding balance held-for-investment for this portfoliothese products totaled $18$29 million and $28$26 million atas of December 31, 20202022 and 2019.2021.

Allowance for Credit Losses

The following tables present the activity in the ACLL by portfolio class for the years ended December 31, 2022, 2021, and 2020:

ACLL Rollforward

Years Ended December 31, 

2022

2021

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Traditional Banking:

Residential real estate:

Owner occupied

$

8,647

$

181

$

(21)

$

102

$

8,909

$

9,715

$

(1,461)

$

$

393

$

8,647

Nonowner occupied

2,700

129

2

2,831

2,466

231

3

2,700

Commercial real estate

23,769

(308)

(9)

287

23,739

23,606

509

(428)

82

23,769

Construction & land development

4,128

(5)

4,123

3,274

854

4,128

Commercial & industrial

3,487

218

271

3,976

2,797

700

(86)

76

3,487

Paycheck Protection Program

Lease financing receivables

91

19

110

106

(15)

91

Aircraft

357

92

449

253

104

357

Home equity

4,111

396

121

4,628

4,990

(874)

(51)

46

4,111

Consumer:

Credit cards

934

140

(155)

77

996

929

107

(163)

61

934

Overdrafts

683

866

(1,038)

215

726

587

425

(641)

312

683

Automobile loans

186

(111)

(3)

15

87

399

(233)

(19)

39

186

Other consumer

314

(151)

(94)

66

135

577

(254)

(72)

63

314

Total Traditional Banking

49,407

1,466

(1,320)

1,156

50,709

49,699

93

(1,460)

1,075

49,407

Warehouse lines of credit

2,126

(1,117)

1,009

2,407

(281)

2,126

Total Core Banking

51,533

349

(1,320)

1,156

51,718

52,106

(188)

(1,460)

1,075

51,533

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

10,471

(11,505)

4,831

3,797

6,723

(10,256)

3,533

Other TRS commercial & industrial loans

96

(516)

(154)

665

91

158

(40)

(51)

29

96

Republic Credit Solutions

12,948

12,081

(11,390)

1,168

14,807

8,803

8,444

(4,707)

408

12,948

Total Republic Processing Group

13,044

22,036

(23,049)

6,664

18,695

8,961

15,127

(15,014)

3,970

13,044

Total

$

64,577

$

22,385

$

(24,369)

$

7,820

$

70,413

$

61,067

$

14,939

$

(16,474)

$

5,045

$

64,577

124123

Table of Contents

Allowance for Credit Losses

The following tables present the activity in the ACLL by portfolio class for the years ended December 31, 2020, 2019, and 2018:

ACLL Rollforward

Years Ended December 31, 

ACLL Rollforward

2020

2019

Year Ended December 31, 2020

Beginning

ASC 326

Charge-

Ending

Beginning

Charge-

Ending

Beginning

ASC 326

Provision

Charge-

Ending

(in thousands)

Balance

Adoption

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Balance

Adoption

for Credit Loss

offs

Recoveries

Balance

Traditional Banking:

Residential real estate:

Owner occupied

$

4,729

$

4,199

$

785

$

(169)

$

171

$

9,715

$

6,035

$

(1,087)

$

(610)

$

391

$

4,729

$

4,729

$

4,199

$

785

$

(169)

$

171

$

9,715

Nonowner occupied

1,737

148

570

11

2,466

1,662

125

(73)

23

1,737

1,737

148

570

11

2,466

Commercial real estate

10,486

273

13,170

(795)

472

23,606

10,030

1,859

(1,407)

4

10,486

10,486

273

13,170

(795)

472

23,606

Construction & land development

2,152

1,447

(325)

3,274

2,555

(403)

2,152

2,152

1,447

(325)

3,274

Commercial & industrial

2,882

(1,318)

1,421

(310)

122

2,797

2,873

1,505

(1,505)

9

2,882

2,882

(1,318)

1,421

(310)

122

2,797

Paycheck Protection Program

Lease financing receivables

147

(41)

106

158

(11)

147

147

(41)

106

Aircraft

176

77

253

91

85

176

176

77

253

Home equity

2,721

1,652

516

(14)

115

4,990

3,477

(764)

(64)

72

2,721

2,721

1,652

516

(14)

115

4,990

Consumer:

Credit cards

1,020

33

111

(295)

60

929

1,140

226

(402)

56

1,020

1,020

33

111

(295)

60

929

Overdrafts

1,169

79

(886)

225

587

1,102

1,155

(1,310)

222

1,169

1,169

79

(886)

225

587

Automobile loans

612

(7)

(176)

(60)

30

399

724

(42)

(79)

9

612

612

(7)

(176)

(60)

30

399

Other consumer

374

307

(57)

(240)

193

577

500

(204)

(263)

341

374

374

307

(57)

(240)

193

577

Total Traditional Banking

28,205

6,734

16,130

(2,769)

1,399

49,699

30,347

2,444

(5,713)

1,127

28,205

28,205

6,734

16,130

(2,769)

1,399

49,699

Warehouse lines of credit

1,794

613

2,407

1,172

622

1,794

1,794

613

2,407

Total Core Banking

29,999

6,734

16,743

(2,769)

1,399

52,106

31,519

3,066

(5,713)

1,127

29,999

29,999

6,734

16,743

(2,769)

1,399

52,106

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

13,033

(19,575)

6,542

10,643

(13,425)

2,782

Other TRS loans

234

156

(234)

2

158

107

606

(692)

213

234

Refund Advances

13,033

(19,575)

6,542

Other TRS commercial & industrial loans

234

156

(234)

2

158

Republic Credit Solutions

13,118

1,219

(6,163)

629

8,803

13,049

11,443

(12,566)

1,192

13,118

13,118

1,219

(6,163)

629

8,803

Total Republic Processing Group

13,352

14,408

(25,972)

7,173

8,961

13,156

22,692

(26,683)

4,187

13,352

13,352

14,408

(25,972)

7,173

8,961

Total

$

43,351

$

6,734

$

31,151

$

(28,741)

$

8,572

$

61,067

$

44,675

$

25,758

$

(32,396)

$

5,314

$

43,351

$

43,351

6,734

$

31,151

$

(28,741)

$

8,572

$

61,067

125

Table of Contents

ACLL Rollforward

Year Ended December 31, 2018

Beginning

Provision

Charge-

Ending

(in thousands)

Balance

for Credit Loss

offs

��

Recoveries

Balance

Traditional Banking:

Residential real estate:

Owner occupied

$

6,474

$

170

$

(855)

$

246

$

6,035

Nonowner occupied

1,396

559

(332)

39

1,662

Commercial real estate

9,043

863

(7)

131

10,030

Construction & land development

2,364

161

30

2,555

Commercial & industrial

2,198

824

(200)

51

2,873

Lease financing receivables

174

(16)

158

Aircraft

37

54

91

Home equity

3,754

(473)

(115)

311

3,477

Consumer:

Credit cards

607

906

(416)

43

1,140

Overdrafts

974

1,082

(1,215)

261

1,102

Automobile loans

687

57

(24)

4

724

Other consumer

1,125

(477)

(444)

296

500

Total Traditional Banking

28,833

3,710

(3,608)

1,412

30,347

Warehouse lines of credit

1,314

(142)

1,172

Total Core Banking

30,147

3,568

(3,608)

1,412

31,519

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

10,760

(12,478)

1,718

Other TRS loans

12

159

(74)

10

107

Republic Credit Solutions

12,610

16,881

(17,692)

1,250

13,049

Total Republic Processing Group

12,622

27,800

(30,244)

2,978

13,156

Total

$

42,769

$

31,368

$

(33,852)

$

4,390

$

44,675

The cumulative loss rate used as the basis for the estimate of the Company’s ACLL atas of December 31, 20202022 was primarily based on a static pool analysis of each of the Company’s loan pools using the Company’s loss experience from 2013 through 2020, adjustedsupplemented by qualitative factor adjustments for current and forecasted conditions that consider the economic impact of the COVID-19 pandemic and the public’s response to it.

conditions. The Company’s primary forecasting tool throughout 2020 was the U.S. national employment rate. At March 31, 2020 and June 30, 2020, the Company forecasted national unemployment in theemploys one-year horizon above 8%, which was either at or above the levelsforecasts of unemployment experiencedand CRE values within its ACLL model, with reversion to long-term averages following the forecasted period. The cumulative loss rate within the Company’s historical analysis periodsACLL also includes estimated losses based on an individual evaluation of loans which are either collateral dependent or considered within its current-conditions qualitative factors. These forecasted unemployment levels from March and June of 2020 led the Company to increase its ACLL through June 30, 2020. In contrast, the U.S. unemployment rate fell from 11.1% in June 2020 to 6.7% in December 2020 and was forecasted to fall below 5% in the one-year horizon. As losses consistentwhich do not share risk characteristics with unemployment above 8% have yet to materialize since they were first forecasted back in March 2020, the Company believes its loan losses in the current environment are lagging historical correlations by as much as one year due to economic relief granted by the Company and the U.S. government thus far. As such, the Company did not relieve any forecast-based ACLL previously established during 2020 but reclassified this ACLL from a forecast-based ACLL to a current-conditions based ACLL, as the Company still expects its loan losses to rise to levels consistent with a U.S. unemployment rate above 8%. After this expected rise, the Company assumes that its loan losses will immediately revert back to long-term historical averages.pooled loans, e.g., TDRs.

Along withFor its forecasted unemployment considerations,CRE loan pool, the Company madeinitially employed a one-year forecast of CRE vacancy rates through March 31, 2021 but discontinued use of this forecast during the following pandemic-related considerations within its ACLL during 2020:second quarter of 2021 in favor of a one-year forecast of general CRE values. This change in forecast method had no material impact on the Company’s ACLL.

The Company accommodated deferral and forbearance requests for approximately 20% of its Traditional Bank loan portfolio due to COVID-19 hardship and increased its ACLL for the higher risk of loss on this accommodated portfolio.
The Company increased its ACLL for the higher risk of loss for industries more directly impacted by the pandemic, such as the hospitality industry.
For its CRE loan pool, the Company used forecasted vacancy rates on CRE within its market footprint. Vacancy rates as of December 2020 were forecasted to increase in the one-year horizon partially due to a rise in “work-from-home” culture.

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Table of Contents

Nonperforming Loans and Nonperforming Assets

Detail of nonperforming loans and nonperforming assets and select credit quality ratios follows:

December 31, (dollars in thousands)

    

2020

    

2019

    

December 31, (in thousands)

    

2022

    

2021

    

Loans on nonaccrual status*

$

23,548

$

23,332

$

15,562

$

20,504

Loans past due 90-days-or-more and still on accrual**

 

47

 

157

 

756

 

48

Total nonperforming loans

 

23,595

 

23,489

 

16,318

 

20,552

Other real estate owned

 

2,499

 

113

 

1,581

 

1,792

Total nonperforming assets

$

26,094

$

23,602

$

17,899

$

22,344

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans

 

0.49

%  

 

0.53

%

 

0.36

%  

 

0.46

%

Nonperforming assets to total loans (including OREO)

 

0.54

 

0.53

 

0.40

 

0.50

Nonperforming assets to total assets

 

0.42

 

0.42

 

0.31

 

0.37

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans

 

0.50

%  

 

0.54

%

 

0.37

%  

 

0.47

%

Nonperforming assets to total loans (including OREO)

 

0.56

 

0.54

 

0.40

 

0.51

Nonperforming assets to total assets

 

0.45

 

0.43

 

0.32

 

0.40

*Loans on nonaccrual status include collateral-dependent loans.

**Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.

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Table of Contents

The following table presents the recorded investment in nonaccrual loans and loans past due 90-days-or-more and still on accrual by class of loans:

Past Due 90-Days-or-More

 

Past Due 90-Days-or-More

 

Nonaccrual

and Still Accruing Interest*

 

Nonaccrual

and Still Accruing Interest*

 

December 31, (in thousands)

    

2020

    

2019

    

    

2020

    

2019

    

2022

2021

    

2022

2021

Traditional Banking:

Residential real estate:

Owner occupied

$

14,328

$

12,220

$

$

$

13,388

$

12,039

$

$

Nonowner occupied

 

81

 

623

 

 

 

117

 

95

 

 

Commercial real estate

 

6,762

 

6,865

 

 

 

1,001

 

6,557

 

 

Construction & land development

 

 

143

 

 

 

 

 

 

Commercial & industrial

 

55

 

1,424

 

 

 

 

13

 

 

Paycheck Protection Program

Lease financing receivables

 

 

 

 

 

 

 

 

Aircraft

Home equity

 

2,141

 

1,865

 

 

 

815

 

1,700

 

 

Consumer:

Credit cards

 

 

 

5

 

 

 

 

 

Overdrafts

 

 

 

 

 

 

 

 

1

Automobile loans

 

170

 

179

 

 

 

31

 

97

 

 

Other consumer

 

11

 

13

 

 

 

210

 

3

 

 

Total Traditional Banking

23,548

23,332

5

15,562

20,504

1

Warehouse lines of credit

 

 

 

 

 

 

 

 

Total Core Banking

23,548

23,332

5

15,562

20,504

1

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

Other TRS loans

53

Refund Advances

Other TRS commercial & industrial loans

Republic Credit Solutions

42

104

756

47

Total Republic Processing Group

42

157

756

47

Total

$

23,548

$

23,332

$

47

$

157

$

15,562

$

20,504

$

756

$

48

* Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.

Year Ended

Year Ended

As of December 31, 2020

December 31, 2020

As of December 31, 2022

December 31, 2022

  

  

Nonaccrual

    

Nonaccrual

    

Total

Interest Income

    

Nonaccrual

    

Nonaccrual

    

Total

Interest Income

Loans with

Loans without

Nonaccrual

Recognized

Loans with

Loans without

Nonaccrual

Recognized

(in thousands)

ACLL

ACLL

Loans

on Nonaccrual Loans*

ACLL

ACLL

Loans

on Nonaccrual Loans*

Residential real estate:

Owner occupied

$

1,995

$

12,333

$

14,328

$

824

$

2,252

$

11,136

$

13,388

$

1,000

Nonowner occupied

 

8

73

81

11

 

56

61

117

1

Commercial real estate

 

576

6,186

6,762

857

 

1,001

1,001

1,384

Construction & land development

 

 

Commercial & industrial

 

55

55

17

 

Paycheck Protection Program

Lease financing receivables

 

 

Aircraft

Home equity

 

91

2,050

2,141

94

 

815

815

263

Consumer

69

112

181

13

15

226

241

16

Total

$

2,739

$

20,809

$

23,548

$

1,816

$

3,324

$

12,238

$

15,562

$

2,664

* Includes interest income for loans on nonaccrual loans as of the beginning of the period that were paid off during the period.

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Table of Contents

Year Ended

As of December 31, 2021

December 31, 2021

    

Nonaccrual

    

Nonaccrual

    

Total

Interest Income

Loans with

Loans without

Nonaccrual

Recognized

(in thousands)

ACLL

ACLL

Loans

on Nonaccrual Loans*

Residential real estate:

Owner occupied

$

1,944

$

10,095

$

12,039

$

874

Nonowner occupied

 

31

64

95

6

Commercial real estate

 

4,105

2,452

6,557

154

Construction & land development

 

Commercial & industrial

 

13

13

3

Paycheck Protection Program

Lease financing receivables

 

Aircraft

Home equity

 

1,700

1,700

152

Consumer

17

83

100

10

$

6,097

$

14,407

$

20,504

$

1,199

* Includes interest income for loans on nonaccrual as of the beginning of the period that were paid off during the period.

Nonaccrual loans and loans past due 90-days-or-more and still on accrual include smaller balance, primarily retail, homogeneous loans. Nonaccrual loans are typically returned to accrual status when all the principal and interest amounts contractually due are brought current and held current for six consecutive months and future contractual payments are reasonably assured. TDRs on nonaccrual status are reviewed for return to accrual status on an individual basis, with additional consideration given to performance under the modified terms.

127

Table of Contents

Nonaccrual loans and loans past due 90-days-or-more and still on accrual include both smaller balance, primarily retail, homogeneous loans. Nonaccrual loans are typically returned to accrual status when all the principal and interest amounts contractually due are brought current and held current for six consecutive months and future contractual payments are reasonably assured. TDRs on nonaccrual status are reviewed for return to accrual status on an individual basis, with additional consideration given to performance under the modified terms.

Delinquent Loans

The following tables present the aging of the recorded investment in loans by class of loans:

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

 

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

 

December 31, 2020

Days

Days

Days

Total

Total

 

December 31, 2022

December 31, 2022

Days

Days

Days

Total

Total

 

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Traditional Banking:

Residential real estate:

��

Owner occupied

$

1,038

$

668

$

1,554

$

3,260

$

876,540

$

879,800

$

2,382

$

1,185

$

1,267

$

4,834

$

906,593

$

911,427

Nonowner occupied

 

 

 

 

 

264,780

 

264,780

 

 

 

 

 

321,358

 

321,358

Commercial real estate

 

 

348

 

5,109

 

5,457

 

1,343,628

 

1,349,085

 

604

 

 

 

604

 

1,598,906

 

1,599,510

Construction & land development

 

 

 

 

 

98,674

 

98,674

 

 

 

 

 

153,875

 

153,875

Commercial & industrial

 

 

 

12

 

12

 

325,584

 

325,596

 

177

 

 

 

177

 

408,230

 

408,407

Paycheck Protection Program

392,319

392,319

4,980

4,980

Lease financing receivables

 

 

 

 

 

10,130

 

10,130

 

 

 

 

 

10,505

 

10,505

Aircraft

101,375

101,375

179,785

179,785

Home equity

 

93

 

14

 

595

 

702

 

239,938

 

240,640

 

56

 

93

 

26

 

175

 

241,564

 

241,739

Consumer:

Credit cards

 

33

 

35

 

5

 

73

 

14,123

 

14,196

 

50

 

5

 

 

55

 

15,418

 

15,473

Overdrafts

 

140

 

5

 

2

 

147

 

440

 

587

 

158

 

1

 

1

 

160

 

566

 

726

Automobile loans

 

42

 

 

14

 

56

 

30,244

 

30,300

 

8

 

 

3

 

11

 

6,720

 

6,731

Other consumer

 

6

 

 

 

6

 

8,161

 

8,167

 

43

 

1

 

 

44

 

582

 

626

Total Traditional Banking

1,352

1,070

7,291

9,713

3,705,936

3,715,649

3,478

1,285

1,297

6,060

3,849,082

3,855,142

Warehouse lines of credit

 

 

 

 

 

962,796

 

962,796

 

 

 

 

 

403,560

 

403,560

Total Core Banking

1,352

1,070

7,291

9,713

4,668,732

4,678,445

3,478

1,285

1,297

6,060

4,252,642

4,258,702

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

 

 

 

 

Other TRS loans

 

 

 

 

 

23,765

 

23,765

Refund Advances

 

 

 

 

97,505

 

97,505

Other TRS commercial & industrial loans

 

 

 

 

 

51,767

 

51,767

Republic Credit Solutions

6,572

 

3,620

 

42

 

10,234

 

100,659

 

110,893

6,488

 

1,956

 

756

 

9,200

 

98,628

 

107,828

Total Republic Processing Group

6,572

3,620

42

10,234

124,424

134,658

6,488

1,956

756

9,200

247,900

257,100

Total

$

7,924

$

4,690

$

7,333

$

19,947

$

4,793,156

$

4,813,103

$

9,966

$

3,241

$

2,053

$

15,260

$

4,500,542

$

4,515,802

Delinquency ratio***

 

0.16

%  

 

0.10

%  

 

0.15

%  

 

0.41

%  

 

0.22

%  

 

0.07

%  

 

0.05

%  

 

0.34

%  

*All loans past due 90-days-or-more, excluding small balance consumer loans, were on nonaccrual status.

**Delinquent status may be determined by either the number of days past due or number of payments past due.

***Represents total loans 30-days-or-more past due by aging category divided by total loans.

129128

Table of Contents

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

    

 

December 31, 2019

Days

Days

Days

Total

Total

 

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Traditional Banking:

Residential real estate:

Owner occupied

$

1,460

$

1,153

$

1,821

$

4,434

$

945,134

$

949,568

Nonowner occupied

 

 

 

539

 

539

 

258,264

 

258,803

Commercial real estate

 

155

 

 

3,145

 

3,300

 

1,299,700

 

1,303,000

Construction & land development

 

 

 

 

 

159,702

 

159,702

Commercial & industrial

 

200

 

128

 

1,027

 

1,355

 

464,319

 

465,674

Lease financing receivables

 

 

 

 

 

14,040

 

14,040

Aircraft

 

 

 

 

70,443

 

70,443

Home equity

 

1,810

 

166

 

942

 

2,918

 

290,268

 

293,186

Consumer:

Credit cards

 

80

 

75

 

 

155

 

17,681

 

17,836

Overdrafts

 

278

 

4

 

1

 

283

 

1,239

 

1,522

Automobile loans

 

16

 

15

 

18

 

49

 

52,874

 

52,923

Other consumer

 

2

 

6

 

1

 

9

 

9,225

 

9,234

Total Traditional Banking

4,001

1,547

7,494

13,042

3,582,889

3,595,931

Warehouse lines of credit

 

 

 

 

 

717,458

 

717,458

Total Core Banking

4,001

1,547

7,494

13,042

4,300,347

4,313,389

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

 

 

 

 

Other TRS loans

 

35

 

31

 

53

 

119

 

14,246

 

14,365

Republic Credit Solutions

6,054

 

1,485

 

104

 

7,643

 

97,754

 

105,397

Total Republic Processing Group

6,089

1,516

157

7,762

112,000

119,762

Total

$

10,090

$

3,063

$

7,651

$

20,804

$

4,412,347

$

4,433,151

Delinquency ratio***

 

0.23

%  

 

0.07

%  

 

0.17

%  

 

0.47

%  

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

    

 

December 31, 2021

Days

Days

Days

Total

Total

 

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Traditional Banking:

Residential real estate:

Owner occupied

$

606

$

383

$

610

$

1,599

$

819,132

$

820,731

Nonowner occupied

 

 

 

 

 

306,323

 

306,323

Commercial real estate

 

 

 

5,292

 

5,292

 

1,450,717

 

1,456,009

Construction & land development

 

 

 

 

 

129,337

 

129,337

Commercial & industrial

 

8

 

 

13

 

21

 

340,342

 

340,363

Paycheck Protection Program

56,014

56,014

Lease financing receivables

 

 

 

 

 

8,637

 

8,637

Aircraft

 

 

 

142,894

 

142,894

Home equity

 

38

 

35

 

241

 

314

 

210,264

 

210,578

Consumer:

Credit cards

 

19

 

11

 

 

30

 

14,480

 

14,510

Overdrafts

 

160

 

3

 

1

 

164

 

519

 

683

Automobile loans

 

 

 

9

 

9

 

14,439

 

14,448

Other consumer

 

1

 

 

 

1

 

1,431

 

1,432

Total Traditional Banking

832

432

6,166

7,430

3,494,529

3,501,959

Warehouse lines of credit

 

 

 

 

 

850,550

 

850,550

Total Core Banking

832

432

6,166

7,430

4,345,079

4,352,509

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

 

 

 

 

 

Other TRS commercial & industrial loans

 

 

 

 

 

50,987

 

50,987

Republic Credit Solutions

5,010

 

978

 

47

 

6,035

 

87,031

 

93,066

Total Republic Processing Group

5,010

978

47

6,035

138,018

144,053

Total

$

5,842

$

1,410

$

6,213

$

13,465

$

4,483,097

$

4,496,562

Delinquency ratio***

 

0.13

%  

 

0.03

%  

 

0.14

%  

 

0.30

%  

*All loans past due 90 days-or-more, excluding small-dollar consumer loans, were on nonaccrual status.

**Delinquent status may be determined by either the number of days past due or number of payments past due.

***Represents total loans 30-days-or-more past due divided by total loans.

Collateral-Dependent Loans

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2022, 2021, and 2020:

Secured

    

Secured

December 31, 2022

December 31, 2021

December 31, 2020

December 31, 2020

by Real

by Personal

(dollars in thousands)

Estate

Property

Secured

    

Secured

Secured

    

Secured

Secured

    

Secured

by Real

by Personal

by Real

by Personal

by Real

by Personal

(in thousands)

Estate

Property

Estate

Property

Estate

Property

Traditional Banking:

Residential real estate:

Owner occupied

$

17,212

$

$

18,057

$

$

14,798

$

$

17,212

$

Nonowner occupied

 

81

 

 

150

 

 

95

 

 

81

 

Commercial real estate

 

10,205

 

 

1,041

 

 

6,736

 

 

10,205

 

Construction & land development

 

 

 

 

 

 

 

 

Commercial & industrial

 

 

12

 

 

 

 

192

 

 

12

Paycheck Protection Program

Lease financing receivables

 

 

 

 

 

 

 

 

Aircraft

 

 

210

 

 

Home equity

 

2,899

 

 

967

 

 

1,976

 

 

2,899

 

Consumer

 

237

 

26

 

274

 

237

Total Traditional Banking

$

30,397

$

249

$

20,215

$

236

$

23,605

$

466

$

30,397

$

249

130129

Table of Contents

Collateral-dependent loans are generally secured by real estate or personal property. If there is insufficient collateral value to secure the Company’s recorded investment in these loans, they are charged down to collateral value less estimated selling cost, when selling costs are applicable. Selling costs range from 10%-13%, with those percentages based on annual studies performed by the Company.

Impaired Loans

Information regarding the Bank’s impaired loans follows:

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

Loans with no allocated ACLL

$

$

33,061

$

19,555

Loans with allocated ACLL

 

 

17,289

 

21,880

Total recorded investment in impaired loans

$

$

50,350

$

41,435

Amount of ACLL allocated

$

$

2,512

$

3,764

Average of individually impaired loans during the year

 

 

45,400

 

45,620

Interest income recognized during impairment

 

2,739

 

1,342

 

1,245

Cash basis interest income recognized

 

 

 

The following tables present the balance in the ACLL and the recorded investment in loans by portfolio class based on impairment method as of December 31, 2019:

Allowance for Credit Losses on Loans

Loans

    

Individually

    

    

PCI with

    

    

  

Individually

    

    

PCI with

    

PCI without

    

    

    

December 31, 2019

Evaluated

Collectively

Post-Acquisition

Total

  

Evaluated

Collectively

Post-Acquisition

Post-Acquisition

Total

ACLL to

(dollars in thousands)

Excluding PCI

Evaluated

Impairment

ACLL

  

Excluding PCI

Evaluated

Impairment

Impairment

Loans

Total Loans

  

Traditional Banking:

  

Residential real estate:

  

Owner occupied

$

1,207

$

3,337

$

185

$

4,729

  

$

25,384

$

922,764

$

1,420

$

$

949,568

0.50

%  

Nonowner occupied

 

 

1,737

 

1,737

  

 

1,448

 

257,355

 

 

258,803

0.67

Commercial real estate

 

426

 

10,054

 

6

10,486

  

 

15,144

 

1,287,225

 

631

 

1,303,000

0.80

Construction & land development

 

 

2,152

 

2,152

  

 

198

 

159,504

 

 

159,702

1.35

Commercial & industrial

 

22

 

2,860

 

2,882

  

 

1,989

 

463,663

 

 

22

465,674

0.62

Lease financing receivables

 

 

147

 

147

  

 

 

14,040

 

 

14,040

1.05

Aircraft

176

176

70,443

70,443

0.25

Home equity

 

174

 

2,547

 

2,721

  

 

3,276

 

289,900

 

10

 

293,186

0.93

Consumer:

  

Credit cards

 

 

1,020

 

1,020

  

 

 

17,836

 

 

17,836

5.72

Overdrafts

 

 

1,169

 

1,169

  

 

 

1,522

 

 

1,522

76.81

Automobile loans

 

43

 

569

 

612

  

 

247

 

52,676

 

 

52,923

1.16

Other consumer

 

333

 

41

 

374

  

 

350

 

8,881

 

2

 

1

9,234

4.05

Total Traditional Banking

2,205

25,809

191

28,205

  

48,036

3,545,809

2,063

23

3,595,931

0.78

Warehouse lines of credit

 

 

1,794

 

1,794

  

 

 

717,458

 

 

717,458

0.25

Total Core Banking

2,205

27,603

191

29,999

  

48,036

4,263,267

2,063

23

4,313,389

0.70

  

Republic Processing Group:

  

Tax Refund Solutions:

  

Easy Advances

  

Other TRS loans

234

234

  

14,365

14,365

1.63

Republic Credit Solutions

116

13,002

13,118

  

251

105,146

105,397

12.45

Total Republic Processing Group

116

13,236

13,352

  

251

119,511

119,762

11.15

Total

$

2,321

$

40,839

$

191

$

43,351

  

$

48,287

$

4,382,778

$

2,063

$

23

$

4,433,151

0.98

%  

131

Table of Contents

The following tables present loans individually evaluated for impairment by class of loans as of December 31, 2019, and 2018. The difference between the “Unpaid Principal Balance” and “Recorded Investment” columns represents life-to-date partial write downs/charge-offs taken on individual impaired credits.

As of

Year Ended

December 31, 2019

December 31, 2019

 

Cash Basis

 

    

    

Unpaid

    

    

    

    

    

Average

    

Interest

    

Interest

 

Principal

Recorded

Allocated

Recorded

Income

Income

 

(in thousands)

Balance

Investment

ACLL

Investment

Recognized

Recognized

 

 

Impaired loans with no allocated ACLL:

Residential real estate:

Owner occupied

$

14,768

$

13,893

$

$

12,655

$

191

$

Nonowner occupied

 

1,515

1,448

 

 

1,425

 

57

 

Commercial real estate

 

15,028

12,547

 

 

7,514

 

298

 

Construction & land development

 

198

198

 

 

65

 

2

 

Commercial & industrial

 

3,308

1,792

 

 

913

 

35

 

Lease financing receivables

 

 

 

 

 

Aircraft

 

 

 

 

Home equity

 

3,107

3,023

 

 

2,140

 

75

 

Consumer

 

206

160

 

 

76

 

4

 

Impaired loans with allocated ACLL:

Residential real estate:

Owner occupied

 

12,954

 

12,911

 

1,392

 

13,824

 

502

 

Nonowner occupied

 

 

 

 

108

 

 

Commercial real estate

 

3,228

 

3,228

 

432

 

3,624

 

151

 

Construction & land development

 

 

 

 

30

 

 

Commercial & industrial

 

197

 

197

 

22

 

2,054

 

3

 

Lease financing receivables

 

 

 

 

 

 

Aircraft

Home equity

 

263

 

263

 

174

 

417

 

8

 

Consumer

 

701

 

690

 

492

 

555

 

16

 

Total impaired loans

$

55,473

$

50,350

$

2,512

$

45,400

$

1,342

$

As of

Year Ended

 

December 31, 2018

December 31, 2018

 

    

    

    

    

    

    

    

    

    

    

Cash Basis

 

Unpaid

Average

Interest

Interest

 

Principal

Recorded

Allocated

Recorded

Income

Income

 

(in thousands)

    

Balance

Investment

ACLL

Investment

Recognized

Recognized

 

Impaired loans with no allocated ACLL:

Residential real estate:

Owner occupied

$

12,058

$

11,085

$

$

11,202

$

198

$

Non owner occupied

 

2,729

 

2,350

 

 

2,561

 

87

 

Commercial real estate

 

5,688

 

4,607

 

 

5,040

 

151

 

Construction & land development

 

 

 

 

119

 

 

Commercial & industrial

 

712

 

604

 

 

755

 

3

 

Lease financing receivables

 

 

 

 

 

 

Aircraft

Home equity

 

919

 

876

 

 

682

 

17

 

Consumer

 

33

 

33

 

 

49

 

2

 

Impaired loans with allocated ACLL:

Residential real estate:

Owner occupied

 

16,215

 

15,802

 

2,433

 

17,754

 

528

 

Non owner occupied

 

78

 

56

 

4

 

136

 

 

Commercial real estate

 

4,416

 

4,416

 

303

 

5,495

 

206

 

Construction & land development

 

65

 

65

 

4

 

113

 

3

 

Commercial & industrial

 

416

 

416

 

130

 

158

 

19

 

Lease financing receivables

 

 

 

 

 

 

Aircraft

Home equity

 

572

 

571

 

360

 

925

 

9

 

Consumer

 

554

 

554

 

530

 

631

 

22

 

Total impaired loans

$

44,455

$

41,435

$

3,764

$

45,620

$

1,245

$

132

Table of Contents

Troubled Debt Restructurings

A TDR is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of their debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Bank’s internal underwriting policy.

The majority of the Bank’s commercial-related and construction TDRs involve a restructuring of financing terms, such as a reduction in the payment amount to require only interest and escrow (if required) and/or extending the maturity date of the debt. The substantial majority of the Bank’s residential real estate TDR concessions involve reducing the client’s loan payment through a rate reduction for a set period based on the borrower’s ability to service the modified loan payment. Retail loans may also be classified as TDRs due to legal modifications, such as bankruptcies.

Nonaccrual loans modified as TDRs typically remain on nonaccrual status and continue to be reported as nonperforming loans for a minimum of six consecutive months. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. AtAs of December 31, 20202022 and 2019, $72021, $3 million and $10$6 million of TDRs were on nonaccrual status.

Detail of TDRs differentiated by loan type and accrual status follows:

    

Troubled Debt

    

Troubled Debt

    

Total

 

    

Troubled Debt

    

Troubled Debt

    

Total

 

Restructurings on

Restructurings on

Troubled Debt

 

Restructurings on

Restructurings on

Troubled Debt

 

Nonaccrual Status

Accrual Status

Restructurings

 

Nonaccrual Status

Accrual Status

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

December 31, 2020 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

December 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

61

$

4,189

123

$

11,041

184

$

15,230

66

$

3,427

84

$

7,345

150

$

10,772

Commercial real estate

2

2,509

5

2,395

7

 

4,904

1

847

1

 

847

Construction & land development

1

44

1

 

44

Commercial & industrial

1

1

1

 

1

1

1

1

 

1

Consumer

1

14

2,194

585

2,195

599

1

9

2,322

397

2,323

406

Total troubled debt restructurings

64

$

6,712

2,324

$

14,066

2,388

$

20,778

67

$

3,436

2,408

$

8,590

2,475

$

12,026

    

Troubled Debt

    

Troubled Debt

    

Total

 

    

Troubled Debt

    

Troubled Debt

    

Total

 

Restructurings on

Restructurings on

Troubled Debt

 

Restructurings on

Restructurings on

Troubled Debt

 

Nonaccrual Status

Accrual Status

Restructurings

 

Nonaccrual Status

Accrual Status

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

December 31, 2019 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

December 31, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

53

$

4,402

141

$

15,368

194

$

19,770

63

$

3,179

89

$

7,856

152

$

11,035

Commercial real estate

4

 

4,040

9

 

4,885

13

 

8,925

2

2,575

2

1,239

4

 

3,814

Construction & land development

 

1

 

54

1

 

54

Commercial & industrial

4

 

1,424

3

 

22

7

 

1,446

2

45

1

1

3

 

46

Consumer

1,613

586

1,613

586

1

12

2,269

479

2,270

491

Total troubled debt restructurings

61

$

9,866

1,767

$

20,915

1,828

$

30,781

68

$

5,811

2,361

$

9,575

2,429

$

15,386

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Table of Contents

The Bank considers a TDR to be performing to its modified terms if the loan is in accrual status and not past due 30 days-or-more as of the reporting date. A summary of the categories of TDR loan modifications outstanding and respective performance under modified terms atas of December 31, 20202022 and 20192021 follows:

    

Troubled Debt

    

Troubled Debt

    

    

 

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

December 31, 2020 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

December 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

1

$

826

$

1

$

826

Rate reduction

101

 

9,526

6

 

370

107

 

9,896

67

$

6,305

3

$

242

70

$

6,547

Principal deferral

9

 

858

2

 

166

11

 

1,024

7

 

699

 

7

 

699

Legal modification

58

 

3,068

7

 

416

65

 

3,484

67

 

3,149

6

 

377

73

 

3,526

Total residential TDRs

169

 

14,278

15

 

952

184

 

15,230

141

 

10,153

9

 

619

150

 

10,772

Commercial related and construction/land development loans:

Interest only payments

1

 

488

 

1

 

488

Rate reduction

2

 

1,046

1

 

45

3

 

1,091

1

 

847

 

1

 

847

Principal deferral

4

 

906

1

 

2,464

5

 

3,370

1

 

1

 

1

 

1

Total commercial TDRs

7

 

2,440

2

 

2,509

9

 

4,949

2

 

848

 

2

 

848

Consumer loans:

Principal deferral

2,193

578

 

2,193

 

578

2,320

393

 

2,320

 

393

Legal modification

2

21

2

 

21

3

13

3

 

13

Total consumer TDRs

2,195

 

599

 

2,195

 

599

2,323

 

406

 

2,323

 

406

Total troubled debt restructurings

2,371

$

17,317

17

$

3,461

2,388

$

20,778

2,466

$

11,407

9

$

619

2,475

$

12,026

    

Troubled Debt

    

Troubled Debt

    

    

 

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

December 31, 2019 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

December 31, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

1

$

904

$

1

$

904

Rate reduction

118

 

13,847

5

 

352

123

 

14,199

82

$

7,461

4

$

303

86

$

7,764

Principal deferral

8

 

845

2

 

179

10

 

1,024

7

 

729

 

7

 

729

Legal modification

54

 

3,200

6

 

443

60

 

3,643

48

 

2,100

11

 

442

59

 

2,542

Total residential TDRs

181

 

18,796

13

 

974

194

 

19,770

137

 

10,290

15

 

745

152

 

11,035

Commercial related and construction/land development loans:

Interest only payments

3

 

1,568

 

3

 

1,568

Rate reduction

3

 

1,207

1

 

45

4

 

1,252

1

 

919

 

1

 

919

Principal deferral

11

 

5,981

1

 

597

12

 

6,578

5

 

477

1

 

2,464

6

 

2,941

Legal modification

2

1,027

2

1,027

Total commercial TDRs

17

 

8,756

4

 

1,669

21

 

10,425

6

 

1,396

1

 

2,464

7

 

3,860

Consumer loans:

Principal deferral

1,612

577

 

1,612

 

577

2,266

470

 

2,266

 

470

Legal modification

1

9

1

 

9

4

21

4

 

21

Total consumer TDRs

1,613

 

586

 

1,613

 

586

2,270

 

491

 

2,270

 

491

Total troubled debt restructurings

1,811

$

28,138

17

$

2,643

1,828

$

30,781

2,413

$

12,177

16

$

3,209

2,429

$

15,386

As of December 31, 20202022 and 2019, 83%2021, 95% and 91%79% of the Bank’s TDR balances were performing according to their modified terms. The Bank had provided $1 million$769,000 and $2 million of specific reserve allocations to clients whose loan terms have been modified in TDRs as of December 31, 2022 and 2021. The Bank had no commitments to lend any additional material amounts to its existing TDR relationships as of December 31, 2022 and 2021.

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TDRs as of December 31, 2020 and 2019. The Bank had 0 commitments to lend any additional material amounts to its existing TDR relationships at December 31, 2020 and 2019.

A summary of the categories of TDR loan modifications and respective performance as of December 31, 2020, 2019,2022, 2021, and 20182020 that were modified during the years ended December 31, 2020, 2019,2022, 2021, and 20182020 follows:

    

Troubled Debt

    

Troubled Debt

    

    

 

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

December 31, 2020 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

December 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Principal deferral

2

$

53

1

$

3

3

$

56

Rate reduction

1

$

192

$

1

$

192

Legal modification

15

701

3

131

18

$

832

30

1,607

3

297

33

1,904

Total residential TDRs

17

 

754

4

 

134

21

 

888

31

 

1,799

3

 

297

34

 

2,096

Commercial related and construction/land development loans:

Principal deferral

2

 

133

 

2

 

133

Total commercial TDRs

2

 

133

 

2

 

133

Consumer loans:

Principal deferral

486

 

71

 

486

 

71

1,042

 

145

 

1,042

 

145

Legal modification

1

 

14

 

1

 

14

Total consumer TDRs

487

 

85

 

487

 

85

1,042

 

145

 

1,042

 

145

Total troubled debt restructurings

506

$

972

4

$

134

510

$

1,106

1,073

$

1,944

3

$

297

1,076

$

2,241

    

Troubled Debt

    

Troubled Debt

    

    

 

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

December 31, 2019 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

December 31, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Rate reduction

1

$

365

$

1

$

365

Principal deferral

1

$

159

$

1

$

159

Legal modification

26

 

1,958

5

 

417

31

 

2,375

9

309

5

272

14

581

Total residential TDRs

27

 

2,323

5

 

417

32

 

2,740

10

 

468

5

 

272

15

 

740

Commercial related and construction/land development loans:

Interest only payments

2

 

1,423

 

2

1,423

Principal deferral

4

 

3,199

 

4

3,199

2

 

45

 

2

45

Legal modification

2

1,027

2

1,027

Total commercial TDRs

6

 

4,622

2

 

1,027

8

 

5,649

2

 

45

 

2

 

45

Consumer loans:

Principal deferral

1,279

 

201

 

1,279

201

621

 

92

 

621

92

Legal modification

1

 

9

 

1

9

2

 

4

 

2

4

Total consumer TDRs

1,280

 

210

 

1,280

 

210

623

 

96

 

623

 

96

Total troubled debt restructurings

1,313

$

7,155

7

$

1,444

1,320

$

8,599

635

$

609

5

$

272

640

$

881

The tables above are inclusive of loans that were TDRs at the end of previous years and were re-modified, e.g., a maturity date extension during the current year.

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Troubled Debt

    

Troubled Debt

    

    

    

Troubled Debt

    

Troubled Debt

    

    

Restructurings

Restructurings

Total

Restructurings

Restructurings

Total

Performing to

Not Performing to

Troubled Debt

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

December 31, 2018 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

 

December 31, 2020 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

 

Residential real estate loans (including home equity loans):

Interest only payments

$

1

$

970

1

$

970

Rate reduction

2

 

465

 

2

 

465

2

$

53

1

$

3

3

$

56

Principal deferral

3

 

43

3

 

1,849

6

 

1,892

Legal modification

7

 

121

1

 

18

8

 

139

15

701

3

131

18

 

832

Total residential TDRs

12

 

629

5

 

2,837

17

 

3,466

17

 

754

4

 

134

21

 

888

Commercial related and construction/land development loans:

Principal deferral

6

 

1,402

 

6

 

1,402

2

 

133

 

2

 

133

Legal modification

 

1

 

28

1

 

28

Total commercial TDRs

6

 

1,402

1

 

28

7

 

1,430

2

 

133

 

2

 

133

Consumer loans:

Principal deferral

1

 

52

 

1

52

486

 

71

 

486

71

Legal modification

1

 

14

1

14

Total consumer TDRs

1

 

52

 

1

 

52

487

 

85

 

487

 

85

Total troubled debt restructurings

19

$

2,083

6

$

2,865

25

$

4,948

506

$

972

4

$

134

510

$

1,106

The table above is inclusive of loans that were TDRs at the end of previous years and were re-modified, e.g., a maturity date extension during the current year.

As of December 31, 2022, 2021, and 2020, 2019,87%, 69% and 2018, 88%, 83% and 42% of the Bank’s TDR balances that occurred during the years ended December 31, 2020, 2019,2022, 2021, and 20182020 were performing according to their modified terms. The Bank provided approximately $48,000, $220,000$45,000, $45,000 and $472,000$48,000 in specific reserve allocations to clients whose loan terms were modified in TDRs during 2020, 20192022, 2021, and 2018.2020.

There was 0no significant change between the pre and post modification loan balances atas of December 31, 2020, 2019,2022, 2021, and 2018.2020.

The following tables present loans by class modified as troubled debt restructurings within the previous 12 months of December 31, 2020, 2019,2022, 2021, and 20182020 and for which there was a payment default during 2020, 2019,2022, 2021, and 2018:2020:

Years Ended December 31, 

Years Ended December 31, 

2020

2019

2018

2022

2021

2020

Number of

    

Recorded

    

Number of

    

Recorded

     

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

     

Number of

    

Recorded

(dollars in thousands)

Loans

Investment

Loans

Investment

 

Loans

Investment

Loans

Investment

Loans

Investment

 

Loans

Investment

Residential real estate:

Owner occupied

5

$

218

4

$

248

6

$

2,920

7

$

441

5

$

314

5

$

218

Commercial real estate

 

1

 

541

1

 

28

 

 

 

Commercial & industrial

 

2

 

1,027

 

Home equity

2

 

32

 

 

2

 

43

1

 

14

2

 

32

Consumer

 

1,279

 

201

 

Total

7

$

250

1,286

$

2,017

7

$

2,948

9

$

484

6

$

328

7

$

250

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COVID-19 Loan Accommodations

The CARES Act provided several forms of economic relief designed to defray the impact of COVID-19. In April 2020, through its own independent relief efforts and CARES Act provisions, the Company began offering loan accommodations through deferrals and forbearances. These accommodations were generally under three-month terms for commercial clients, with residential and consumer accommodations in line with prevailing regulatory and legal parameters. Loans that received an accommodation were generally not considered troubled debt restructurings by the Company if such loans were not greater than 30 days past due as of December 31, 2019.

During 2020 the Company accommodated $808 million, or approximately 20% of its Traditional Bank loan portfolio due to pandemic-driven hardship. At December 31, 2020, $14 million, or 2% of those previously accommodated balances remained under an accommodation.

Foreclosures

The following table presents the carrying amount of foreclosed properties held atas of December 31, 20202022 and 20192021 as a result of the Bank obtaining physical possession of such properties:

December 31, (in thousands)

 

2020

2019

 

2022

2021

Residential real estate

 

$

496

$

113

 

$

$

Commercial real estate

2,003

1,581

1,792

Total other real estate owned

$

2,499

$

113

$

1,581

$

1,792

The following table presents the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction as of December 31, 20202022 and 2019:2021:

December 31, (in thousands)

    

 

2020

2019

    

 

2022

2021

Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure

 

$

981

$

2,201

 

$

909

$

508

Easy AdvancesRefund advances

The Company’s TRS segment offered its EARA product during the first two months of 2022, 2021, and 2020 2019 and 2018. Duringits ERA product during December 2022 related to the first quarter of each year, the2023 tax filing season. The Company bases its estimated Provision for EAsRAs on the current year’s EARA delinquency information, and the prior year’s tax refund payment patterns subsequent to the first quarter.quarter, and any Tax Provider loss guarantee arrangements. Each year, all unpaid EAsRAs and ERAs are charged off by June 30th, and each quarter thereafter, any credits to the Provision for EAs matchesRAs and ERAs match the recovery of previously charged-off accounts.

Information regarding EAsRA follows:

Years Ended

Years Ended

    

December 31, 

    

December 31, 

(dollars in thousands)

    

2020

  

2019

2018

    

2022

  

2021

2020

Easy Advances originated

 

$

387,762

$

388,970

$

430,210

Net charge to the Provision for Easy Advances

 

13,033

10,643

10,760

Provision to total Easy Advances originated

3.36

%  

2.74

%  

2.50

%  

Easy Advances net charge-offs

 

$

13,033

$

10,643

$

10,760

Easy Advances net charge-offs to total Easy Advances originated

3.36

%  

2.74

%  

2.50

%  

Refund Advances originated

 

$

311,207

$

250,045

$

387,762

Net charge (credit) to the Provision for Refund Advances

 

6,674

6,723

13,033

Provision to total Refund Advances originated

2.14

%  

2.69

%  

3.36

%  

Refund Advances net charge-offs (recoveries)

 

$

6,674

$

6,723

$

13,033

Refund Advances net charge-offs (recoveries) to total Refund Advances originated

2.14

%  

2.69

%  

3.36

%  

Information regarding ERAs follows:

Years Ended

    

December 31, 

(dollars in thousands)

    

2022

  

2021

2020

Early Season Refund Advances originated

 

$

97,505

$

$

Net charge (credit) to the Provision for Early Season Refund Advances

 

3,797

Provision to total Early Season Refund Advances originated

3.89

%  

%  

%  

Early Season Refund Advances net charge-offs (recoveries)

 

$

$

$

ERAs net charge-offs (recoveries) to total Early Season Refund Advances originated

%  

%  

%  

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5.

PREMISES AND EQUIPMENT

A summary of the cost and accumulated depreciation of premises and equipment follows:

December 31, (in thousands)

    

2020

    

2019

 

    

2022

    

2021

 

Land

$

4,303

$

4,693

$

3,818

$

3,818

Buildings and improvements

 

33,225

 

33,780

 

32,780

 

32,629

Furniture, fixtures and equipment

 

51,467

 

48,782

 

51,652

 

51,429

Leasehold improvements

 

21,921

 

20,649

 

21,755

 

22,430

Construction in progress

 

 

2,232

 

547

 

Total premises and equipment

 

110,916

 

110,136

 

110,552

 

110,306

Less: Accumulated depreciation and amortization

 

71,404

 

63,940

 

78,574

 

74,233

Premises and equipment, net

$

39,512

$

46,196

$

31,978

$

36,073

Depreciation expense related to premises and equipment follows:

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Depreciation expense

$

9,725

$

9,230

$

9,347

$

7,598

$

8,986

$

9,725

6.

RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

Since its adoption of ASU 2016-02 on January 1, 2019, theThe Company has recordedrecords as operating lease liabilities the present value of its required minimum lease payments plus any amounts probable of being owed under a residual value guarantee. Offsetting these operating lease liabilities, the Company has recordedrecords right-of-use assets for the underlying leased property.

As of December 31, 2020,2022, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 37 of its offices, with 1412 such operating leases contracted with a related party of the Company. As of December 31, 2020,2022, payments on 2522 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.

The Company recorded two new third-party office leases, renewed one of its existing related-party leases, and extended six of its third-party leases during the first nine months of 2022, with a related total right-of-use asset value of $6 million connected to this 2022 activity.

The Company executed 3no new third-party and 1 new related-party operating leaseleases during 2020 with a total right-of-use asset value of approximately $14 million for all 4 leases.2021. The largest of these 4 leases was a related-party lease for the Company’s Corporate Center location, which had a right-of-use asset value of approximately $12 million upon lease commencement. Additionally, the Company renewed a related-party lease on one of its Louisville, Kentucky banking centers during the fourth quarter of 2020. This renewed lease2020 that commenced in January 2021 with a right-of-use asset value of $392,000.

$392,000. During the second quarter of 2021, the Company extended one third-party lease for an additional five years, with the extended term beginning during the third quarter of 2021 and valued at approximately $263,000. During the fourth quarter of 2021, the Company recorded two amendments to one related-party lease to add leased space, with these amendments valued at approximately $1.1 million.

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The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the category “Occupancy and equipment, net” for years ended December 31, 20202022, 2021, and 2019:2020:

Years Ended December 31, (in thousands)

    

2020

2019

    

2022

2021

2020

Operating lease expense:

 

 

Related Party:

Variable lease expense

$

4,885

$

4,690

$

4,831

 

$

4,921

$

4,885

Fixed lease expense

 

91

37

 

207

137

91

Third Party:

Variable lease expense

786

883

1,001

787

786

Fixed lease expense

1,617

1,505

1,526

1,372

1,617

Short-term lease expense

62

Total operating lease expense

$

7,379

$

7,177

$

7,565

 

$

7,217

$

7,379

Other information concerning operating leases:

Cash paid for amounts included in the measurement of operating lease liabilities

$

7,254

$

7,175

$

6,847

$

7,286

$

7,254

Cash paid for variable rent payments not included in measurement of operating lease liabilities

603

Short-term lease payments not included in the measurement of lease liabilities

62

The following table presents the weighted average remaining term and weighted average discount rate for the Company’s non-short-term operating leases as of December 31, 20202022 and 2019:2021:

December 31, (dollars in thousands)

    

2020

2019

    

2022

2021

Weighted average remaining term in years

8.37

8.02

8.44

7.57

Weighted average discount rate

 

3.10

%

3.46

%

 

2.10

%

 

3.05

%

The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of December 31, 2020:2022:

Year (in thousands)

    

Related Party

    

Third Party

    

Total

 

2021

 

$

4,638

 

$

2,422

 

$

7,060

2022

 

4,639

 

2,418

 

7,057

2023

 

4,639

 

1,995

 

6,634

2024

 

4,512

 

1,463

 

5,975

2025

 

4,344

 

925

 

5,269

Thereafter

 

15,800

 

2,707

 

18,507

Total undiscounted cash flows

$

38,572

$

11,930

$

50,502

Discount applied to cash flows

(4,781)

(1,381)

(6,162)

Total discounted cash flows reported as operating lease liabilities

$

33,791

$

10,549

$

44,340

Year (in thousands)

    

Related Party

    

Third Party

    

Total

 

2023

 

$

4,050

 

$

2,522

 

$

6,572

2024

 

3,726

 

2,144

 

5,870

2025

 

3,570

 

1,609

 

5,179

2026

 

3,640

 

1,310

 

4,950

2027

 

3,680

 

987

 

4,667

Thereafter

 

11,751

 

3,601

 

15,352

Total undiscounted cash flows

$

30,417

$

12,173

$

42,590

Discount applied to cash flows

(3,258)

(1,523)

(4,781)

Total discounted cash flows reported as operating lease liabilities

$

27,159

$

10,650

$

37,809

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7.

7.GOODWILL AND CORE DEPOSIT INTANGIBLE ASSETS

A progression of the balance for goodwill follows:

Years Ended December 31, (in thousands)

    

2020

    

2019

 

2018

    

2022

    

2021

 

2020

Beginning of period

$

16,300

$

16,300

$

16,300

$

16,300

$

16,300

$

16,300

Acquired goodwill

 

0

 

0

 

0

 

 

 

Impairment

 

0

 

0

 

0

 

 

 

End of period

$

16,300

$

16,300

$

16,300

$

16,300

$

16,300

$

16,300

The goodwill balance relates entirely to the Company’s Traditional Banking segment and Core Banking operations.

The Company adopted ASU 2017-04 on January 1, 2020, which simplified goodwill impairment testing by eliminating Step 2 from the goodwill impairment test. The ASU also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. AtAs of December 31, 20202022 and 2019,2021, the Company’s Core Banking reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more-likely-than-not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting unit exceeded its fair value.

8.

INTEREST RATE SWAPS

Interest rate swap derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a cash flow hedging relationship. For a derivative designated as a cash flow hedge, the effective portion of the derivative’s unrealized gain or loss is recorded as a component of OCI. For derivatives not designated as hedges, the gain or loss is recognized in current period earnings.

Interest Rate Swaps Used as Cash Flow Hedges

The Bank entered into 2 interest rate swap agreements (“swaps”) during 2013 as part of its interest rate risk management strategy. Both of these interest rate swaps matured in December 2020.

The following table reflects information about swaps designated as cash flow hedges as of December 31, 2020 and 2019:

December 31, 2020

December 31, 2019

Unrealized

Unrealized

Notional

Pay

Receive

Assets /

Gain (Loss)

Assets /

Gain (Loss)

(dollars in thousands)

    

Amount

    

Rate

    

Rate

    

Term

    

(Liabilities)

    

in AOCI

    

(Liabilities)

    

in AOCI

Interest rate swap on money market deposits

 

$

10,000

 

2.17

%

 

1M LIBOR

 

12/2013 - 12/2020

 

$

 

$

 

$

(46)

 

$

(34)

Interest rate swap on FHLB advance

10,000

 

2.33

%

 

3M LIBOR

 

12/2013 - 12/2020

(58)

(43)

Total

 

$

20,000

$

$

$

(104)

$

(77)

The following table reflects the total interest expense recorded on these swap transactions in the consolidated statements of income during the years ended December 31, 2020, 2019, and 2018:

Years Ended December 31, (in thousands)

    

2020

    

2019

 

2018

Interest rate swap on money market deposits

$

138

$

(10)

$

18

Interest rate swap on FHLB advance

 

143

 

(10)

 

10

Total interest (benefit) expense on swap transactions

$

281

$

(20)

$

28

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The following table presents the net gains (losses) recorded in accumulated OCI and the consolidated statements of income relating to the swaps for the years ended December 31, 2020, 2019, and 2018:

Years Ended December 31, (in thousands)

2020

2019

2018

Gains (losses) recognized in OCI on derivative (effective portion)

$

(177)

$

(199)

$

178

Gains (losses) reclassified from OCI on derivative (effective portion)

(281)

20

(28)

Gains (losses) recognized in income on derivative (ineffective portion)

0

0

0

Non-hedge Interest Rate Swaps

The Bank enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Bank enters into offsetting positions in order to minimize the Bank’s interest rate risk. These swaps are derivatives, but are not designated as hedging instruments, and therefore changes in fair value are reported in current year earnings.

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counter party or client owes the Bank, and results in credit risk to the Bank. When the fair value of a derivative instrument contract is negative, the Bank owes the client or counterparty and has no credit risk.

A summary of the Bank’s interest rate swaps related to clients as of December 31, 20202022 and 20192021 is included in the following table:

    

 

2020

2019

    

 

2022

2021

 

Notional

Notional

 

Notional

Notional

December 31, (in thousands)

    

Bank Position

 

Amount

    

Fair Value

    

Amount

    

Fair Value

    

Bank Position

 

Amount

    

Fair Value

    

Amount

    

Fair Value

Interest rate swaps with Bank clients - Assets

 

Pay variable/receive fixed

 

$

138,277

 

$

12,545

 

$

95,411

 

$

5,062

 

Pay variable/receive fixed

 

$

40,032

 

$

1,386

 

$

107,502

 

$

5,786

Interest rate swaps with Bank clients - Liabilities

 

Pay variable/receive fixed

 

6,640

(55)

 

Pay variable/receive fixed

 

91,636

(6,742)

16,423

(298)

Interest rate swaps with Bank clients - Total

 

Pay variable/receive fixed

 

$

138,277

 

$

12,545

$

102,051

 

$

5,007

 

Pay variable/receive fixed

 

$

131,668

 

$

(5,356)

$

123,925

 

$

5,488

Offsetting interest rate swaps with institutional swap dealer

Pay fixed/receive variable

138,277

(12,545)

102,051

(5,007)

Offsetting interest rate swaps with institutional swap dealer - Assets

Pay fixed/receive variable

91,636

6,742

16,423

298

Offsetting interest rate swaps with institutional swap dealer - Liabilities

Pay fixed/receive variable

40,032

(1,386)

107,502

(5,786)

Offsetting interest rate swaps with institutional swap dealer - Total

Pay fixed/receive variable

$

131,668

 

$

5,356

$

123,925

 

$

(5,488)

Total

 

$

276,554

 

$

 

$

204,102

 

$

 

$

263,336

 

$

 

$

247,850

 

$

The Bank is required to pledge securities or cash as collateral when the Bank is in a net loss position for all swaps with dealer counterparties when such net loss positions exceed $250,000. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $13.3$560,000 and $6.8 million and $7.5 million atas of December 31, 20202022 and 2019.2021.

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9.

DEPOSITS

The composition of the deposit portfolio follows:

December 31, (in thousands)

    

 

2020

    

2019

 

    

 

2022

    

2021

 

Core Bank:

Demand

$

1,217,263

$

922,972

$

1,336,082

$

1,381,522

Money market accounts

 

712,824

 

793,950

 

707,272

 

789,876

Savings

 

236,335

 

175,588

 

323,015

 

311,624

Reciprocal money market

 

28,635

 

60,685

Individual retirement accounts (1)

 

47,889

 

51,548

 

38,640

 

43,724

Time deposits, $250 and over (1)

 

83,448

 

104,412

 

54,855

 

81,050

Other certificates of deposit (1)

 

199,214

 

248,161

 

129,324

 

154,174

Reciprocal money market and time deposits (1)

 

314,109

 

189,774

Brokered deposits (1)

 

25,010

 

200,072

Reciprocal time deposits (1)

 

7,405

 

17,265

Total Core Bank interest-bearing deposits

 

2,836,092

 

2,686,477

 

2,625,228

 

2,839,920

Total Core Bank noninterest-bearing deposits

1,503,662

981,164

1,464,493

1,579,171

Total Core Bank deposits

4,339,754

3,667,641

4,089,721

4,419,091

Republic Processing Group:

Money market accounts

6,673

66,152

3,849

9,717

Total RPG interest-bearing deposits

6,673

66,152

3,849

9,717

Brokered prepaid card deposits

257,856

9,128

328,655

320,907

Other noninterest-bearing deposits

128,898

43,087

115,620

89,601

Total RPG noninterest-bearing deposits

386,754

52,215

444,275

410,508

Total RPG deposits

393,427

118,367

448,124

420,225

Total deposits

$

4,733,181

$

3,786,008

$

4,537,845

$

4,839,316

(1)IncludesRepresents time deposits.

Time deposits at or above the FDIC insured limitAs of $250,000 are presented in the table below:

December 31, (in thousands)

    

2020

    

2019

 

Time deposits of $250 or more

$

83,448

$

104,412

At December 31, 2020,2022, the scheduled maturities and weighted average rate of all time deposits, including brokered and reciprocal certificates of deposit, were as follows:

    

    

Weighted

 

    

    

Weighted

 

Average

 

Average

 

Years (dollars in thousands)

Principal

Rate

 

Principal

Rate

 

2021

$

272,154

 

1.17

%  

2022

 

48,837

 

1.70

2023

 

62,134

 

2.62

$

173,120

 

1.40

%  

2024

 

11,390

 

2.19

 

27,226

 

1.42

2025

 

3,829

 

0.59

 

16,815

 

1.45

2026

 

3,611

 

0.29

2027

 

8,589

 

1.45

Thereafter

 

60

 

0.48

 

128

 

1.98

Total

$

398,404

 

1.49

$

229,489

 

1.39

10.

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10.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase consist of short-term excess funds from correspondent banks, repurchase agreements and overnight liabilities to deposit clients arising from the Bank’s treasury management program. While comparable to deposits in their transactional nature, these overnight liabilities to clients are in the form of repurchase agreements. 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. Should the fair value of

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currently pledged securities fall below the associated repurchase agreements, the Bank would be required to pledge additional securities. To mitigate the risk of under collateralization, the Bank typically pledges at least 2two percent more in securities than the associated repurchase agreements. All such securities are under the Bank’s control.

AtAs of December 31, 20202022 and 2019,2021, all securities sold under agreements to repurchase had overnight maturities. Additional information regarding securities sold under agreements to repurchase follows:

December 31, (dollars in thousands)

    

2020

    

2019

    

    

2022

    

2021

    

Outstanding balance at end of period

$

211,026

$

167,617

$

216,956

$

290,967

Weighted average interest rate at end of period

 

0.04

%  

 

0.32

%

 

0.41

%  

 

0.04

%

Fair value of securities pledged:

U.S. Treasury securities and U.S. Government agencies

$

60,059

$

70,015

$

254,296

$

108,813

Mortgage backed securities - residential

140,554

134,265

Mortgage-backed securities - residential

167,561

Collateralized mortgage obligations

29,656

17,030

33,441

Total securities pledged

$

230,269

$

221,310

$

254,296

$

309,815

Additional information regarding securities sold under agreements to repurchase for the years ended December 31, 2020, 20192022, 2021, and 20182020 follows:

Years Ended December 31, (dollars in thousands)

2020

    

2019

    

2018

 

Years Ended December 31, (in thousands)

2022

    

2021

    

2020

 

Average outstanding balance during the period

$

204,797

$

236,883

$

225,145

$

265,188

$

231,430

$

204,797

Average interest rate during the period

0.09

%  

0.51

%  

 

0.50

%

0.15

%  

0.03

%  

 

0.09

%

Maximum outstanding at any month end during the period

$

295,698

$

276,927

$

260,147

$

303,315

$

432,047

$

295,698

11.

FEDERAL HOME LOAN BANK ADVANCES

AtAs of December 31, 20202022 and 2019,2021, FHLB advances were as follows:

December 31, (in thousands)

    

 

2020

    

2019

 

    

 

2022

    

2021

 

Overnight advances

$

225,000

$

200,000

$

75,000

$

25,000

Variable interest rate advance indexed to 3-Month LIBOR plus 0.14%

 

 

10,000

Fixed interest rate advances

 

10,000

 

540,000

 

20,000

 

Total FHLB advances

$

235,000

$

750,000

$

95,000

$

25,000

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. The Company incurred $2.1 million early termination penalties on the payoff of $60 million in FHLB advances during 2020, with 0no similar penalty incurred in 20192022 or 2018.2021.

FHLB advances are collateralized by a blanket pledge of eligible real estate loans. AtAs of December 31, 20202022 and 2019,2021, Republic had available borrowing capacity of $683$899 million and $259$900 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million and $125 million available through various other financial institutions as of December 31, 20202022 and 2019.2021.

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Aggregate future principal payments on FHLB advances based on contractual maturity and the weighted average cost of such advances are detailed below:

    

    

Weighted

 

    

    

Weighted

 

Average

 

Average

 

Year (dollars in thousands)

Principal

Rate

 

Principal

Rate

 

2021 (Overnight)

 

$

225,000

 

0.16

%

2021 (Term)

 

10,000

1.89

2022

 

 

2023

 

 

 

$

75,000

 

4.36

%

2024

 

 

 

2025

 

 

 

 

Thereafter

 

 

2026

 

 

2027

20,000

 

1.89

Total

$

235,000

 

0.23

%

$

95,000

 

3.84

%

Due to their nature, the Bank considers average balance information more meaningful than period-end balances for its overnight borrowings from the FHLB. Information regarding overnight FHLB advances follows:

December 31, (dollars in thousands)

    

2020

    

2019

    

2022

    

2021

Outstanding balance at end of period

 

$

225,000

 

$

200,000

 

$

75,000

 

$

25,000

Weighted average interest rate at end of period

0.16

%

1.63

%

4.36

%

0.14

%

Years Ended December 31, (dollars in thousands)

    

2020

    

2019

    

2018

    

    

2022

    

2021

    

2020

    

Average outstanding balance during the period

 

$

25,546

 

$

270,992

 

$

202,830

 

$

4,630

 

$

28,767

 

$

25,546

Average interest rate during the period

0.81

%

2.43

%

1.98

%

0.53

%

0.15

%

0.81

%

Maximum outstanding at any month end during the period

 

$

250,000

 

$

785,000

 

$

560,000

 

$

75,000

 

$

25,000

 

$

250,000

The following table illustrates real estate loans pledged to collateralize advances and letters of credit with the FHLB:

December 31, (in thousands)

    

2020

    

2019

 

    

2022

    

2021

 

First lien, single family residential real estate

$

1,048,236

$

1,099,941

$

1,106,287

$

1,041,461

Home equity lines of credit

 

208,944

 

274,990

 

219,644

 

186,396

12.

SUBORDINATED NOTE

In 2005, RBCT,Republic Bancorp Capital Trust, an unconsolidated trust subsidiary of Republic, was formed and issued $40 million in TPS. The sole asset of RBCT representsrepresented the proceeds of the offering loaned to Republic in exchange for a subordinated note with similar terms to the TPS. TheOn September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic repaid the subordinated note and redeemed the TPS are treated as part of Republic’s Tier I Capital.at par without penalty.

The subordinated note and related interest expense are included in Republic’s consolidated financial statements. The subordinated note paid a fixed interest rate of 6.015% through September 30, 2015 and adjusted to 3-month LIBOR + 1.42% thereafter. The subordinated note matures on December 31, 2035 and is now redeemable at the Company’s option on a quarterly basis. The Company chose not to redeem the subordinated note on January 1, 2021, and carried the note at a cost of 3-month LIBOR + 1.42%, or 1.66%, at December 31, 2020.

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13.

OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

COVID-19 Pandemic

COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. Since March 2020, to slow the spread of COVID-19, jurisdictions within the U.S. have imposed economic and social restrictions on the population in general and non-essential businesses in particular. These restrictions in combination with the public’s response to them effectively suspended or curtailed economic activity for many industries across the U.S., with industries in the Company’s market footprint impacted.

The future potential financial impact of the COVID-19 pandemic is still unknown at this time; however, this pandemic and the public’s response to it could cause the Company to experience a material adverse impact on its business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, MSRs, deferred tax assets, or counterparty risk derivatives.

Commitments to Extend Credit

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. 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 the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the

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contracts. For example, the Company may not be obligated to advance funds if the client’s financial condition deteriorates or if the client fails to meet specific covenants.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. 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.

The following table presents the Company’s commitments, exclusive of Mortgage Banking loan commitments for each year ended:

December 31, (in thousands)

    

2020

    

2019

 

    

2022

    

2021

 

Unused warehouse lines of credit

$

456,004

$

436,541

$

733,940

$

565,950

Unused home equity lines of credit

 

353,322

 

363,195

 

410,057

 

348,681

Unused loan commitments - other

 

775,128

 

757,657

 

951,021

 

828,229

Standby letters of credit

 

10,949

 

11,252

 

9,735

 

11,305

FHLB letter of credit

 

643

 

2,485

 

643

 

643

Total commitments

$

1,596,046

$

1,571,130

$

2,105,396

$

1,754,808

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third-party.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. 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.

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The following tables present a rollforward of the ACLC for yearyears ended December 31, 2020:2022 and 2021:

ACLC Rollforward

ACLC Rollforward

Years Ended December 31, 

Year Ended December 31, 2020

2022

2021

Beginning

ASC 326

Charge-

Ending

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Adoption

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Loan Commitments

Unused warehouse lines of credit

$

$

55

$

24

$

$

$

79

$

154

$

36

$

$

$

190

$

79

$

75

$

$

$

154

Unused home equity lines of credit

89

84

173

247

85

332

173

74

247

Unused loan commitments - other

312

425

737

651

77

728

737

(86)

651

Total

$

$

456

$

533

$

$

$

989

$

1,052

$

198

$

$

$

1,250

$

989

$

63

$

$

$

1,052

The Company increased its ACLC during 2020 based on higher estimated usage rates on its2022 primarily due to a $192 million increase in unused lines and higher loss expectations on that usage. Current and forecasted economic concerns driven by the COVID-19 pandemic drove the Company’s higher loss expectations.commitments.

14.

STOCKHOLDERS’ EQUITY AND REGULATORY CAPITAL MATTERS

Common Stock The Company’s 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 1one vote per share and Class B Common shares have 10ten votes per share. Class B Common shares may be converted, at the option of the holder, to Class A Common shares on a share-for-share basis. The Class A Common shares are not convertible into any other class of Republic’s capital stock.

Dividend Restrictions — The Parent Company’s principal source of funds for dividend payments are dividends received from the Bank. 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, 2020,As of January 1, 2023, the Bank could, without prior approval, declare dividends of approximately $183$92 million. Any payment of dividends in the future will depend, in large part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors.

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Regulatory Capital Requirements — The Parent Company and the Bank are subject to various regulatory capital requirements administered by banking regulators. 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.

Prompt corrective action regulations provide 5five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. AtAs of December 31, 20202022 and 2019,2021, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

For prompt corrective action, the regulations in accordance with Basel III define “well capitalized” as a 10.0% Total Risk-Based Capital ratio, a 6.5% Common Equity Tier 1 Risk-Based Capital ratio, an 8.0% Tier 1 Risk-Based Capital ratio, and a 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, the Company and Bank must hold a capital conservation buffer of 2.5% composed of Common Equity Tier 1 Risk-Based Capital above their minimum risk-based capital requirements.

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Minimum Requirement

 

to be Well Capitalized

 

Minimum Requirement

Under Prompt

 

for Capital Adequacy

Corrective Action

 

Actual

Purposes

Provisions

 

(dollars in thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

As of December 31, 2020

Total capital to risk-weighted assets

Republic Bancorp, Inc.

$

896,053

 

18.52

%  

$

387,163

 

8.00

%  

NA

 

NA

Republic Bank & Trust Company

 

796,114

 

16.46

 

386,842

 

8.00

$

483,553

 

10.00

%

Common equity tier 1 capital to risk-weighted assets

Republic Bancorp, Inc.

 

803,682

 

16.61

 

217,779

 

4.50

 

NA

 

NA

Republic Bank & Trust Company

 

743,743

 

15.38

 

217,599

 

4.50

 

314,309

 

6.50

Tier 1 (core) capital to risk-weighted assets

Republic Bancorp, Inc.

 

843,682

 

17.43

 

290,372

 

6.00

 

NA

 

NA

Republic Bank & Trust Company

 

743,743

 

15.38

 

290,132

 

6.00

 

386,842

 

8.00

Tier 1 leverage capital to average assets

Republic Bancorp, Inc.

 

843,682

 

13.70

 

246,385

 

4.00

 

NA

 

NA

Republic Bank & Trust Company

 

743,743

 

12.11

 

245,723

 

4.00

 

307,154

 

5.00

For prompt corrective action, the regulations in accordance with Basel III define “well capitalized” as a 10.0% Total Risk-Based Capital ratio, a 6.5% Common Equity Tier 1 Risk-Based Capital ratio, an 8.0% Tier 1 Risk-Based Capital ratio, and a 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, the Company and Bank must hold a capital conservation buffer of 2.5% composed of Common Equity Tier 1 Risk-Based Capital above their minimum risk-based capital requirements.

Minimum Requirement

 

Minimum Requirement

 

to be Well Capitalized

 

to be Well Capitalized

 

Minimum Requirement

Under Prompt

 

Minimum Requirement

Under Prompt

 

for Capital Adequacy

Corrective Action

 

for Capital Adequacy

Corrective Action

 

Actual

Purposes

Provisions

 

Actual

Purposes

Provisions

 

(dollars in thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

As of December 31, 2019

As of December 31, 2022

Total capital to risk-weighted assets

Republic Bancorp, Inc.

$

825,987

 

17.01

%  

$

388,526

 

8.00

%  

NA

 

NA

$

941,865

 

17.92

%  

$

420,514

 

8.00

%  

NA

 

NA

Republic Bank & Trust Company

 

723,248

 

14.91

 

388,143

 

8.00

$

485,179

 

10.00

%

 

904,592

 

17.23

 

420,040

 

8.00

$

525,050

 

10.00

%

Common equity tier 1 capital to risk-weighted assets

Republic Bancorp, Inc.

 

742,636

 

15.29

 

218,546

 

4.50

 

NA

 

NA

 

877,735

 

16.70

 

236,539

 

4.50

 

NA

 

NA

Republic Bank & Trust Company

 

679,897

 

14.01

 

218,331

 

4.50

 

315,366

 

6.50

 

840,462

 

16.01

 

236,273

 

4.50

 

341,283

 

6.50

Tier 1 (core) capital to risk-weighted assets

Republic Bancorp, Inc.

 

782,636

 

16.11

 

291,394

 

6.00

 

NA

 

NA

 

877,735

 

16.70

 

315,386

 

6.00

 

NA

 

NA

Republic Bank & Trust Company

 

679,897

 

14.01

 

291,107

 

6.00

 

388,143

 

8.00

 

840,462

 

16.01

 

315,030

 

6.00

 

420,040

 

8.00

Tier 1 leverage capital to average assets

Republic Bancorp, Inc.

 

782,636

 

13.93

 

224,799

 

4.00

 

NA

 

NA

 

877,735

 

14.81

 

237,106

 

4.00

 

NA

 

NA

Republic Bank & Trust Company

 

679,897

 

12.11

 

224,515

 

4.00

 

280,644

 

5.00

 

840,462

 

14.09

 

238,578

 

4.00

 

298,222

 

5.00

Minimum Requirement

 

to be Well Capitalized

 

Minimum Requirement

Under Prompt

 

for Capital Adequacy

Corrective Action

 

Actual

Purposes

Provisions

 

(dollars in thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

As of December 31, 2021

Total capital to risk-weighted assets

Republic Bancorp, Inc.

$

879,310

 

17.48

%  

$

402,327

 

8.00

%  

NA

 

NA

Republic Bank & Trust Company

 

862,637

 

17.16

 

402,166

 

8.00

$

502,707

 

10.00

%

Common equity tier 1 capital to risk-weighted assets

Republic Bancorp, Inc.

 

824,326

 

16.39

 

226,309

 

4.50

 

NA

 

NA

Republic Bank & Trust Company

 

807,653

 

16.07

 

226,218

 

4.50

 

326,760

 

6.50

Tier 1 (core) capital to risk-weighted assets

Republic Bancorp, Inc.

 

824,326

 

16.39

 

301,745

 

6.00

 

NA

 

NA

Republic Bank & Trust Company

 

807,653

 

16.07

 

301,624

 

6.00

 

402,166

 

8.00

Tier 1 leverage capital to average assets

Republic Bancorp, Inc.

 

824,326

 

13.36

 

246,751

 

4.00

 

NA

 

NA

Republic Bank & Trust Company

 

807,653

 

13.11

 

246,334

 

4.00

 

307,917

 

5.00

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15.

FAIR VALUE

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Bank used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Available-for-sale debt securities: Except for the Bank’s U.S. Treasury securities, its private label mortgage backedmortgage-backed security, and its TRUP investment, the fair value of AFS debt securities is typically determined by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The Bank’s U.S. Treasury securities are based on quoted market prices (Level 1 inputs) and considered highly liquid.

The Bank’s private label mortgage backedmortgage-backed security remains illiquid, and as such, the Bank classifies this security as a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (present value model) approach in determining the fair value of this security.

See in this section of the filing under Footnote 2 “Investment Securities” for additional discussion regarding the Bank’s private label mortgage backedmortgage-backed security.

The Company acquired its TRUP investment in 2015 and considered the most recent bid price for the same instrument to approximate market value atas of December 31, 2020.2022. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

Equity securities with readily determinable fair value: Quoted market prices in an active market are available for the Bank’s CRA mutual fund investment and fall within Level 1 of the fair value hierarchy.

The fair value of the Company’s Freddie Mac preferred stock is determined by matrix pricing, as described above (Level 2 inputs).

Mortgage loans held for sale, at fair value: The fair value of mortgage loans held for sale is determined using quoted secondary market prices. Mortgage loans held for sale are classified as Level 2 in the fair value hierarchy.

Consumer loans held for sale, at fair value: In December 2019, the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried atThe fair value under a fair-value option, with the portfolio marked to market monthly. Fair value for these loans is based on contractual sales terms, Level 3 inputs.

Consumer loans held for investment, at fair value: The Bank held an immaterial amount of consumer loans at fair value through a consumer loan program the Company is currently unwinding. The fair value of these loans was based on the discounted cash flows of the underlying loans, Level 3 inputs. Further disclosure of these loans is considered immaterial and thus omitted.

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Mortgage Banking derivatives: Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts (“forward contracts”) and interest rate lock loan commitments. The fair value of the Bank’s derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The

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pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by the Bank. Forward contracts and rate lock loan commitments are classified as Level 2 in the fair value hierarchy.

Interest rate swap agreements: Interest rate swaps are recorded at fair value on a recurring basis. The Company values its interest rate swaps using a third-party valuation service and classifies such valuations as Level 2. Valuations of these interest rate swaps are also received from the relevant dealer counterparty and validated against the Company’s calculations. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.

Collateral-dependent loans: Collateral-dependent loans generally reflect partial charge-downs to their respective fair value, which is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Collateral-dependent loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other real estate owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for collateral-dependent impaired loans, impaired premises and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Bank. Once the appraisal is received, a member of the Bank’s CCAD reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources, such as recent market data or industry-wide statistics. On at least an annual basis, the Bank performs a back test of collateral appraisals by comparing actual selling prices on recent collateral sales to the most recent appraisal of such collateral. Back tests are performed for each collateral class, e.g., residential real estate or commercial real estate, and may lead to additional adjustments to the value of unliquidated collateral of similar class.

Mortgage servicing rights: At least quarterly, MSRs are evaluated for impairment based upon the fair value of the MSRs as compared to carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded, and the respective individual tranche is carried at fair value. If the carrying amount of an individual tranche does not exceed fair value, impairment is reversed if previously recognized and the carrying value of the individual tranche is based on the amortization method. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and can generally be validated against available market data (Level 2).

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Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below:

Fair Value Measurements at 

 

Fair Value Measurements at 

 

December 31, 2020 Using:

 

December 31, 2022 Using:

 

    

Quoted Prices in

    

Significant

    

    

 

    

Quoted Prices in

    

Significant

    

    

 

Active Markets

Other

Significant

 

Active Markets

Other

Significant

 

for Identical

Observable

Unobservable

Total

 

for Identical

Observable

Unobservable

Total

 

Assets

Inputs

Inputs

Fair

 

Assets

Inputs

Inputs

Fair

 

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

 

(Level 1)

(Level 2)

(Level 3)

Value

 

Financial assets:

Available-for-sale debt securities:

U.S. Treasury securities and U.S. Government agencies

$

$

246,909

$

$

246,909

$

193,385

$

217,756

$

$

411,141

Private label mortgage backed security

 

 

 

2,957

 

2,957

Mortgage backed securities - residential

 

 

211,202

 

 

211,202

Private label mortgage-backed security

 

 

 

2,127

 

2,127

Mortgage-backed securities - residential

 

 

171,873

 

 

171,873

Collateralized mortgage obligations

 

 

48,952

 

 

48,952

 

 

21,368

 

 

21,368

Corporate bonds

10,043

10,043

10,001

10,001

Trust preferred security

 

 

 

3,800

 

3,800

 

 

 

3,855

 

3,855

Total available-for-sale debt securities

$

$

517,106

$

6,757

$

523,863

$

193,385

$

420,998

$

5,982

$

620,365

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

560

$

$

560

$

$

111

$

$

111

Community Reinvestment Act mutual fund

 

2,523

 

 

 

2,523

Total equity securities with readily determinable fair value

$

2,523

$

560

$

$

3,083

$

$

111

$

$

111

Mortgage loans held for sale

$

$

46,867

$

$

46,867

$

$

1,302

$

$

1,302

Consumer loans held for sale

3,298

3,298

4,706

4,706

Consumer loans held for investment

497

497

2

2

Rate lock loan commitments

 

 

4,540

 

 

4,540

 

 

2

 

 

2

Mandatory forward contracts

Interest rate swap agreements

12,545

12,545

8,127

8,127

Financial liabilities:

Rate lock loan commitments

$

$

$

$

Mandatory forward contracts

$

$

976

$

$

976

67

67

Interest rate swap agreements

12,545

12,545

8,127

8,127

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Fair Value Measurements at

 

Fair Value Measurements at

 

December 31, 2019 Using:

 

December 31, 2021 Using:

 

    

Quoted Prices in

    

Significant

    

    

 

    

Quoted Prices in

    

Significant

    

    

 

Active Markets

Other

Significant

 

Active Markets

Other

Significant

 

for Identical

Observable

Unobservable

Total

 

for Identical

Observable

Unobservable

Total

 

Assets

Inputs

Inputs

Fair

 

Assets

Inputs

Inputs

Fair

 

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

 

(Level 1)

(Level 2)

(Level 3)

Value

 

Financial assets:

Available-for-sale debt securities:

U.S. Treasury securities and U.S. Government agencies

$

$

134,640

$

$

134,640

$

70,112

$

167,347

$

$

237,459

Private label mortgage backed security

 

 

 

3,495

 

3,495

Mortgage backed securities - residential

 

 

255,847

 

 

255,847

Private label mortgage-backed security

 

 

 

2,731

 

2,731

Mortgage-backed securities - residential

 

 

210,749

 

 

210,749

Collateralized mortgage obligations

 

 

63,371

 

 

63,371

 

 

30,294

 

 

30,294

Corporate bonds

10,002

10,002

10,046

10,046

Trust preferred security

 

 

 

4,000

 

4,000

 

 

 

3,847

 

3,847

Total available-for-sale debt securities

$

$

463,860

$

7,495

$

471,355

$

70,112

$

418,436

$

6,578

$

495,126

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

714

$

$

714

$

$

170

$

$

170

Community Reinvestment Act mutual fund

 

2,474

 

 

 

2,474

 

2,450

 

 

 

2,450

Total equity securities with readily determinable fair value

$

2,474

$

714

$

$

3,188

$

2,450

$

170

$

$

2,620

Mortgage loans held for sale

$

$

19,224

$

$

19,224

$

$

29,393

$

$

29,393

Consumer loans held for sale

598

598

19,747

19,747

Consumer loans held for investment

998

998

170

170

Rate lock loan commitments

 

 

789

 

 

789

 

 

1,404

 

 

1,404

Mandatory forward contracts

66

66

Interest rate swap agreements

 

 

5,062

 

 

5,062

 

 

5,786

 

 

5,786

Financial liabilities:

Mandatory forward contracts

$

$

131

$

$

131

Interest rate swap agreements

5,166

 

5,166

5,786

 

5,786

All transfers between levels are generally recognized at the end of each quarter. There were 0no transfers into or out of Level 1, 2 or 3 assets during the years ended December 31, 20202022 and 2019.

The following table presents a reconciliation of the Bank’s Private Label Mortgage Backed Security measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods ended December 31, 2020, 2019, and 2018:2021.

Private Label Mortgage BackedMortgage-Backed Security

The following table presents a reconciliation of the Bank’s private label mortgage backedmortgage-backed security measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Balance, beginning of period

$

3,495

$

3,712

$

4,449

$

2,731

$

2,957

$

3,495

Total gains or losses included in earnings:

Net change in unrealized gain

 

(35)

 

(79)

 

(20)

 

(29)

 

63

 

(35)

Recovery of actual losses previously recorded

 

 

151

 

152

Principal paydowns

 

(503)

 

(289)

 

(869)

 

(575)

 

(289)

 

(503)

Balance, end of period

$

2,957

$

3,495

$

3,712

$

2,127

$

2,731

$

2,957

The fair value of the Bank’s single private label mortgage backedmortgage-backed security is supported by analysis prepared by an independent third party. The third party’s approach to determining fair value involved several steps: 1) detailed collateral analysis of the underlying mortgages, including consideration of geographic location, original loan-to-value and the weighted average FICO score of the borrowers; 2) collateral performance projections for each pool of mortgages underlying the security (probability of default, severity of default, and prepayment probabilities) and 3) discounted cash flow modeling.

The significant unobservable inputs in the fair value measurement of the Bank’s single private label mortgage-backed security are prepayment rates, probability of default and loss severity in the event of default. Significant fluctuations in any of those inputs in isolation would result in a significantly different fair value measurement.

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The significant unobservable inputs in the fair value measurement of the Bank’s single private label mortgage backed security are prepayment rates, probability of default and loss severity in the event of default. Significant fluctuations in any of those inputs in isolation would result in a significantly different fair value measurement.

The following tables present quantitative information about recurring Level 3 fair value measurements atas of December 31, 20202022 and 2019:2021:

    

Fair

    

Valuation

    

    

    

 

    

Fair

    

Valuation

    

    

    

 

December 31, 2020 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

December 31, 2022 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage backed security

$

2,957

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 18.0%

Private label mortgage-backed security

$

2,127

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 4.7%

 

(2) Probability of default

 

1.8% - 9.0%

 

(2) Probability of default

 

1.8% - 9.3%

 

(3) Loss severity

 

50% - 75%

 

(3) Loss severity

 

25% - 35%

    

Fair

    

Valuation

    

    

    

 

    

Fair

    

Valuation

    

    

    

 

December 31, 2019 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

December 31, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage backed security

$

3,495

 

Discounted cash flow

 

(1) Constant prepayment rate

 

2.3% - 5.0%

Private label mortgage-backed security

$

2,731

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 5.7%

 

(2) Probability of default

 

1.8% - 6.3%

 

(2) Probability of default

 

1.8% - 9.3%

 

(3) Loss severity

 

50% - 75%

 

(3) Loss severity

 

50% - 75%

Trust Preferred Security

The Company invested in its TRUP in November 2015. The following table presents a reconciliation of the Company’s TRUP measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ending December 31, 2020, 2019,2022, 2021, and 2018:2020:

    

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

2022

    

2021

    

2020

Balance, beginning of period

$

4,000

$

4,075

$

3,600

$

3,847

$

3,800

$

4,000

Total gains or losses included in earnings:

Discount accretion

56

42

40

57

53

56

Net change in unrealized gain

 

(256)

 

(117)

 

435

 

(49)

 

(6)

 

(256)

Balance, end of period

$

3,800

$

4,000

$

4,075

$

3,855

$

3,847

$

3,800

The fair value of the Company’s TRUP investment is based on the most recent bid price for this instrument, as provided by a third-party broker.

Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with Bank policy for such instruments. NaNNone of these loans were past due 90-days-or-more nor on nonaccrual as of December 31, 20202022 and 2019.2021.

As of December 31, 2022 and 2021, the aggregate fair value, contractual balance (including accrued interest), and unrealized gain was as follows:

December 31, (in thousands)

    

 

2022

    

2021

 

Aggregate fair value

$

1,302

$

29,393

Contractual balance

 

1,265

 

28,668

Unrealized (loss) gain

 

37

 

725

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As of December 31, 2020 and 2019, the aggregate fair value, contractual balance (including accrued interest), and unrealized gain was as follows:

December 31, (in thousands)

    

 

2020

    

2019

 

Aggregate fair value

$

46,867

$

19,224

Contractual balance

 

44,781

 

18,690

Unrealized gain

 

2,086

 

534

The total amount of gains and losses from changes in fair value of mortgage loans held for sale included in earnings for 2020, 2019,2022, 2021, and 20182020 are presented in the following table:

    

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

 

2022

    

2021

    

2020

 

Interest income

$

1,362

$

697

$

402

$

519

$

1,081

$

1,362

Change in fair value

 

1,552

 

239

 

203

 

(688)

 

(1,361)

 

1,552

Total included in earnings

$

2,914

$

936

$

605

$

(169)

$

(280)

$

2,914

Consumer Loans Held for Sale

RCS carries loans originated through its installment loan program at fair value. Interest income is recorded based on the contractual terms of the loan and in accordance with Bank policy for such instruments. NaNNone of these loans were past due 90-days-or-more or on nonaccrual as of December 31, 20202022 and 2019.2021.

The significant unobservable inputs in the fair value measurement of the Bank’s short-term installment loans are the net contractual premiums and level of loans sold at a discount price. Significant fluctuations in any of those inputs in isolation would result in a significantly lower/higher fair value measurement.

The following table presents quantitative information about recurring Level 3 fair value measurement inputs for installment loans:

    

Fair

    

Valuation

    

    

    

    

Fair

    

Valuation

    

    

    

December 31, 2020 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

December 31, 2022 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$

3,298

 

Contract Terms

 

(1) Net Premium

 

1.4%

$

4,706

 

Contract Terms

 

(1) Net Premium

 

0.15%

 

(2) Discounted Sales

 

5.00%

 

(2) Discounted Sales

 

10.00%

    

Fair

    

Valuation

    

    

    

    

Fair

    

Valuation

    

    

    

December 31, 2019 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

December 31, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$

598

 

Contract Terms

 

(1) Net Premium

 

1.4%

$

19,747

 

Contract Terms

 

(1) Net Premium

 

1.4%

 

(2) Discounted Sales

 

5.00%

 

(2) Discounted Sales

 

5.00%

The aggregate fair value, contractual balance, and unrealized gain on consumer loans held for sale, at fair value, were as follows:

December 31, (in thousands)

    

2020

2019

    

2022

2021

Aggregate fair value

$

3,298

$

598

$

4,706

$

19,747

Contractual balance

 

3,284

 

593

 

4,734

 

19,633

Unrealized gain

 

14

 

5

Unrealized (loss) gain

 

(28)

 

114

The total amount of net gains from changes in fair value included in earnings for consumer loans held for sale, at fair value, are presented in the following table:

Years Ended December 31, (in thousands)

2022

    

2021

    

2020

Interest income

$

9,970

$

7,708

$

1,808

Change in fair value

 

(142)

 

100

 

9

Total included in earnings

$

9,828

$

7,808

$

1,817

153149

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The total amount of net gains from changes in fair value included in earnings for consumer loans held for sale, at fair value, are presented in the following table:

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

Interest income

$

1,808

$

13

$

Change in fair value

 

9

 

5

 

Total included in earnings

$

1,817

$

18

$

Assets measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements at

Fair Value Measurements at

December 31, 2020 Using:

December 31, 2022 Using:

    

Quoted Prices in

    

Significant

    

    

    

    

Quoted Prices in

    

Significant

    

    

    

Active Markets

Other

Significant

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Total

for Identical

Observable

Unobservable

Total

Assets

Inputs

Inputs

Fair

Assets

Inputs

Inputs

Fair

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

(Level 1)

(Level 2)

(Level 3)

Value

Collateral-dependent loans:

Residential real estate:

Owner occupied

$

$

$

3,860

$

3,860

$

$

$

1,456

$

1,456

Commercial real estate

 

 

 

4,107

 

4,107

 

 

 

906

 

906

Home equity

 

 

 

395

 

395

Total collateral-dependent loans*

$

$

$

8,362

$

8,362

$

$

$

2,362

$

2,362

Other real estate owned:

Commercial real estate

$

$

$

2,003

$

2,003

$

$

$

1,581

$

1,581

Total other real estate owned

$

$

$

2,003

$

2,003

$

$

$

1,581

$

1,581

Mortgage servicing rights

$

$

3,233

$

$

3,233

Fair Value Measurements at

���

Fair Value Measurements at

December 31, 2019 Using:

December 31, 2021 Using:

    

Quoted Prices in

    

Significant

    

    

    

    

Quoted Prices in

    

Significant

    

    

    

Active Markets

Other

Significant

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Total

for Identical

Observable

Unobservable

Total

Assets

Inputs

Inputs

Fair

Assets

Inputs

Inputs

Fair

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

(Level 1)

(Level 2)

(Level 3)

Value

Impaired loans:

Collateral-dependent loans:

Residential real estate:

Owner occupied

$

$

$

3,598

$

3,598

$

$

$

1,626

$

1,626

Nonowner occupied

 

 

 

14

 

14

Commercial real estate

 

 

 

3,276

 

3,276

 

 

 

2,841

 

2,841

Commercial & industrial

 

 

1,562

 

1,562

Home equity

 

 

 

470

 

470

 

 

 

378

 

378

Total impaired loans*

$

$

$

8,920

$

8,920

Total collateral-dependent loans*

$

$

$

4,845

$

4,845

Other real estate owned:

Residential real estate

$

$

$

1,792

$

1,792

Total other real estate owned

$

$

$

1,792

$

1,792

* The difference between the carrying value and the fair value of collateral dependent or impaired loans measured at fair value is reconciled in a subsequent table of this Footnote.

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis as of December 31, 2022 and 2021:

    

    

    

    

    

    

    

Range

Fair

Valuation

Unobservable

(Weighted

December 31, 2022 (dollars in thousands)

Value

Technique

Inputs

Average)

Collateral-dependent loans - residential real estate owner occupied

$

1,456

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

0% - 41% (11%)

Collateral-dependent loans - commercial real estate

$

906

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

16% (16%)

Other real estate owned - commercial real estate

$

1,581

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

39% (39%)

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The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2020 and 2019:

    

    

    

    

    

    

    

Range

Fair

Valuation

Unobservable

(Weighted

December 31, 2020 (dollars in thousands)

Value

Technique

Inputs

Average)

Collateral-dependent loans - residential real estate owner occupied

$

3,860

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

0% - 51% (8%)

Collateral-dependent loans - commercial real estate

$

4,107

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

7% - 31% (26%)

Collateral-dependent loans - home equity

$

395

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

2%-6% (5%)

Other real estate owned - commercial real estate

$

2,003

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

26% (26%)

    

    

    

    

    

    

    

Range

    

    

    

    

    

    

    

Range

Fair

Valuation

Unobservable

(Weighted

Fair

Valuation

Unobservable

(Weighted

December 31, 2019 (dollars in thousands)

Value

Technique

Inputs

Average)

December 31, 2021 (dollars in thousands)

Value

Technique

Inputs

Average)

Impaired loans - residential real estate owner occupied

$

3,598

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

0% - 58% (12%)

Collateral-dependent loans - residential real estate owner occupied

$

1,626

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

0% - 51% (10%)

Impaired loans - residential real estate nonowner occupied

$

14

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

5% (5%)

Collateral-dependent loans - commercial real estate

$

2,841

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

12% - 13% (12%)

Impaired loans - commercial real estate

$

3,276

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

1% - 10% (4%)

Collateral-dependent loans - home equity

$

378

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

2%-4% (3%)

Impaired loans - commercial & industrial

$

1,562

 

Income approach

 

Adjustments for differences between net operating income expectations

 

3% - 50% (37%)

Impaired loans - home equity

$

470

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

2% (2%)

Other real estate owned - commercial real estate

$

1,792

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

33% (33%)

Collateral Dependent/ImpairedDependent Loans

Collateral-dependent impaired loans are generally measured for loss using the fair value for reasonable disposition of the underlying collateral. The Bank’s practice is to obtain new or updated appraisals or BPOs on the loans subject to the initial impairment review and then to evaluate the need for an update to this value on an as-necessary or possibly annual basis thereafter (depending on the market conditions impacting the value of the collateral). The Bank may discount the valuation amount as necessary for selling costs and past due real estate taxes. If a new or updated appraisal or BPO is not available at the time of a loan’s loss review, the Bank may apply a discount to the existing value of an old valuation to reflect the property’s current estimated value if it is believed to have deteriorated in either: (i) the physical or economic aspects of the subject property or (ii) material changes in market conditions. The impairment review generally results in a partial charge-off of the loan if fair value, less selling costs, are below the loan’s carrying value. Collateral-dependent loans are valued within Level 3 of the fair value hierarchy.

    

 

Years Ended December 31, (in thousands)

2022

    

2021

    

2020

Provision on collateral-dependent loans

$

7

$

960

$

559

Collateral-dependent/impaired loans are as follows:

Other Real Estate Owned

December 31, (in thousands)

    

 

2020

    

2019

Carrying amount of loans measured at fair value

$

7,110

$

7,729

Estimated selling costs considered in carrying amount

 

1,252

 

1,193

Valuation allowance

(2)

Total fair value

$

8,362

$

8,920

Other real estate owned, which is carried at the lower of cost or fair value, is periodically assessed for impairment based on fair value at the reporting date. Fair value is determined from external appraisals or BPOs using judgments and estimates of external professionals. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3.

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

Provision on collateral-dependent, impaired loans

$

559

$

3,039

$

1,629

Details of other real estate owned carrying value and write downs follow:

    

Years Ended December 31, (in thousands)

    

2022

    

2021

    

2020

 

Other real estate owned carried at fair value

$

1,581

$

1,792

$

2,003

Other real estate owned carried at cost

 

 

 

496

Total carrying value of other real estate owned

$

1,581

$

1,792

$

2,499

Other real estate owned write-downs during the years ended

$

211

$

211

$

105

155151

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Other Real Estate OwnedFinancial Instruments

Other real estate owned, which is carried at the lower of cost or fair value, is periodically assessed for impairment based on fair value at the reporting date. Fair value is determined from external appraisals or BPOs using judgments and estimates of external professionals. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3.

Details of other real estate owned carrying value and write downs follow:

December 31, (in thousands)

    

2020

    

2019

    

2018

Other real estate owned carried at fair value

$

2,003

$

$

Other real estate owned carried at cost

 

496

 

113

 

160

Total carrying value of other real estate owned

$

2,499

$

113

$

160

Other real estate owned write-downs during the years ended

$

105

$

$

The carrying amounts and estimated exit price fair values of financial instruments, atas of December 31, 20202022 and 20192021 follow:

Fair Value Measurements at

 

Fair Value Measurements at

 

December 31, 2020:

 

December 31, 2022:

 

    

    

    

    

    

Total

 

    

    

    

    

    

Total

 

Carrying

Fair

 

Carrying

Fair

 

(in thousands)

Value

Level 1

Level 2

Level 3

Value

 

Value

Level 1

Level 2

Level 3

Value

 

Assets:

Cash and cash equivalents

$

485,587

$

485,587

$

$

$

485,587

$

313,689

$

313,689

$

$

$

313,689

Available-for-sale debt securities

 

523,863

 

 

517,106

 

6,757

 

523,863

 

620,365

 

193,385

 

420,998

 

5,982

 

620,365

Held-to-maturity debt securities

 

53,324

 

 

54,190

 

 

54,190

 

87,386

 

 

87,357

 

 

87,357

Equity securities with readily determinable fair values

3,083

2,523

560

3,083

111

111

111

Mortgage loans held for sale, at fair value

 

46,867

 

 

46,867

 

 

46,867

 

1,302

 

 

1,302

 

 

1,302

Consumer loans held for sale, at fair value

3,298

3,298

3,298

4,706

4,706

4,706

Consumer loans held for sale, at the lower of cost or fair value

1,478

1,478

1,478

13,169

13,169

13,169

Loans, net

 

4,752,036

 

 

 

4,749,831

 

4,749,831

 

4,445,389

 

 

 

4,276,423

 

4,276,423

Federal Home Loan Bank stock

 

17,397

 

 

 

 

NA

 

9,146

 

 

 

 

NA

Accrued interest receivable

 

12,925

 

 

12,925

 

 

12,925

 

13,572

 

 

2,462

 

11,110

 

13,572

Mortgage servicing rights

7,095

8,318

8,318

8,769

17,592

17,592

Rate lock loan commitments

4,540

4,540

4,540

Mandatory forward contracts

Interest rate swap agreements

12,545

12,545

12,545

8,127

8,127

8,127

Liabilities:

Noninterest-bearing deposits

$

1,890,416

 

$

1,890,416

 

$

1,890,416

$

1,908,768

$

$

1,908,768

$

$

1,908,768

Transaction deposits

 

2,444,361

 

 

2,444,361

 

 

2,444,361

 

2,398,853

 

 

2,398,853

 

 

2,398,853

Time deposits

 

398,404

 

 

404,773

 

 

404,773

 

230,224

 

 

223,912

 

 

223,912

Securities sold under agreements to repurchase and other short-term borrowings

 

211,026

 

 

211,026

 

 

211,026

 

216,956

 

 

216,956

 

 

216,956

Federal Home Loan Bank advances

 

235,000

 

 

235,009

 

 

235,009

 

95,000

 

 

93,044

 

 

93,044

Subordinated note

 

41,240

 

 

31,071

 

 

31,071

Accrued interest payable

 

342

 

 

342

 

 

342

 

239

 

 

239

 

 

239

Mandatory forward contracts

976

976

976

Rate lock loan commitments

Interest rate swap agreements

12,545

12,545

12,545

8,127

8,127

8,127

NA - Not applicable

156152

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Fair Value Measurements at

 

Fair Value Measurements at

 

December 31, 2019:

 

December 31, 2021:

 

    

    

    

    

    

    

Total

 

    

    

    

    

    

    

Total

 

Carrying

Fair

 

Carrying

Fair

 

(in thousands)

Value

Level 1

Level 2

Level 3

Value

 

Value

Level 1

Level 2

Level 3

Value

 

Assets:

Cash and cash equivalents

$

385,303

$

385,303

$

$

$

385,303

$

756,971

$

756,971

$

$

$

756,971

Available-for-sale debt securities

 

471,355

 

 

463,860

 

7,495

 

471,355

 

495,126

 

70,112

 

418,436

 

6,578

 

495,126

Held-to-maturity debt securities

 

62,531

 

 

63,156

 

 

63,156

 

44,299

 

 

44,764

 

 

44,764

Equity securities with readily determinable fair values

3,188

2,474

714

3,188

2,620

2,450

170

2,620

Mortgage loans held for sale, at fair value

 

19,224

 

 

19,224

 

 

19,224

 

29,393

 

 

29,393

 

 

29,393

Consumer loans held for sale, at fair value

598

598

598

19,747

19,747

19,747

Consumer loans held for sale, at the lower of cost or fair value

11,646

11,646

11,646

2,937

2,937

2,937

Loans, net

 

4,389,800

 

 

 

4,381,396

 

4,381,396

 

4,431,985

 

 

 

4,445,244

 

4,445,244

Federal Home Loan Bank stock

 

30,831

 

 

 

 

NA

 

10,311

 

 

 

 

NA

Accrued interest receivable

 

12,937

 

 

12,937

 

 

12,937

 

9,877

 

 

1,441

 

8,436

 

1,441

Mortgage servicing rights

5,888

9,068

9,068

9,196

11,540

11,540

Rate lock loan commitments

789

789

789

1,404

1,404

1,404

Mandatory forward contracts

66

66

66

Interest rate swap agreements

5,062

5,062

5,062

5,786

5,786

5,786

Liabilities:

Noninterest-bearing deposits

$

1,033,379

 

$

1,033,379

 

$

1,033,379

$

1,989,679

$

$

1,989,679

$

$

1,989,679

Transaction deposits

 

2,018,687

 

 

2,018,687

 

 

2,018,687

 

2,553,424

 

 

2,553,424

 

 

2,553,424

Time deposits

 

733,942

 

 

737,733

 

 

737,733

 

296,213

 

 

298,236

 

 

298,236

Securities sold under agreements to repurchase and other short-term borrowings

 

167,617

 

 

167,617

 

 

167,617

 

290,967

 

 

290,967

 

 

290,967

Federal Home Loan Bank advances

 

750,000

 

 

749,667

 

 

749,667

 

25,000

 

 

25,000

 

 

25,000

Subordinated note

 

41,240

 

 

32,587

 

 

32,587

Accrued interest payable

 

2,802

 

 

2,802

 

 

2,802

 

159

 

 

159

 

 

159

Mandatory forward contracts

131

131

131

Interest rate swap agreements

5,166

5,166

5,166

5,786

5,786

5,786

NA - Not applicable

16.MORTGAGE BANKING ACTIVITIES

Mortgage Banking activities primarily include residential mortgage originations and servicing.

Activity for mortgage loans held for sale was as follows:

    

Years Ended December 31, (in thousands)

2022

    

2021

    

2020

 

Balance, beginning of period

$

29,393

$

46,867

$

19,224

Origination of mortgage loans held for sale

 

205,365

 

680,714

 

782,939

Proceeds from the sale of mortgage loans held for sale

 

(238,398)

 

(717,847)

 

(788,475)

Net gain on sale of mortgage loans held for sale

 

4,942

 

19,659

 

33,179

Balance, end of period

$

1,302

$

29,393

$

46,867

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16.

MORTGAGE BANKING ACTIVITIES

Mortgage Banking activities primarily include residential mortgage originations and servicing.

Activity for mortgage loans held for sale was as follows:

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

Balance, beginning of period

$

19,224

$

8,971

$

5,761

Origination of mortgage loans held for sale

 

782,939

 

356,097

 

176,916

Proceeds from the sale of mortgage loans held for sale

 

(788,475)

 

(354,660)

 

(177,545)

Net gain on sale of mortgage loans held for sale

 

33,179

 

8,816

 

3,839

Balance, end of period

$

46,867

$

19,224

$

8,971

Mortgage loans serviced for others are not reported as assets. The following table provides information for loans serviced by the Bank serviced loans for others, primarily the FHLMC totaling $1.3 billion and $1.1 billion atFNMA as of December 31, 20202022 and 2019. 2021:

December 31, (in thousands)

    

2022

2021

FHLMC

$

966,677

$

1,004,199

FNMA

420,637

378,942

Total

$

1,387,314

$

1,383,141

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 approximately $20$11 million and $11$14 million atas of December 31, 20202022 and 2019.2021.

The following table presents the components of Mortgage Banking income:

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

 

2022

    

2021

    

2020

 

Net gain realized on sale of mortgage loans held for sale

$

28,721

$

8,013

$

3,843

$

7,164

$

23,114

$

28,721

Net change in fair value recognized on loans held for sale

 

1,552

 

239

 

203

 

(688)

 

(1,361)

 

1,552

Net change in fair value recognized on rate lock loan commitments

 

3,751

 

433

 

46

 

(1,402)

 

(3,136)

 

3,751

Net change in fair value recognized on forward contracts

 

(845)

 

131

 

(253)

 

(132)

 

1,042

 

(845)

Net gain recognized

 

33,179

 

8,816

 

3,839

 

4,942

 

19,659

 

33,179

Loan servicing income

 

2,924

 

2,506

 

2,418

 

3,518

 

3,288

 

2,924

Amortization of mortgage servicing rights

 

(3,756)

 

(1,823)

 

(1,432)

 

(2,264)

 

(3,453)

 

(3,756)

Change in mortgage servicing rights valuation allowance

 

(500)

 

 

 

 

500

 

(500)

Net servicing income recognized

 

(1,332)

 

683

 

986

 

1,254

 

335

 

(1,332)

Total Mortgage Banking income

$

31,847

$

9,499

$

4,825

$

6,196

$

19,994

$

31,847

Activity for capitalized mortgage servicing rights was as follows:

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

 

2022

    

2021

    

2020

 

Balance, beginning of period

$

5,888

$

4,919

$

5,044

$

9,196

$

7,095

$

5,888

Additions

 

5,463

 

2,792

 

1,307

 

1,838

 

5,054

 

5,463

Amortized to expense

 

(3,756)

 

(1,823)

 

(1,432)

 

(2,264)

 

(3,453)

 

(3,756)

Change in valuation allowance

 

(500)

 

 

 

 

500

 

(500)

Balance, end of period

$

7,095

$

5,888

$

4,919

$

8,770

$

9,196

$

7,095

Activity in the valuation allowance for capitalized mortgage servicing rights follows:

    

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

2022

    

2021

    

2020

Beginning valuation allowance

$

$

$

$

$

500

$

Charge during the period

 

500

 

 

 

 

(500)

 

500

Ending valuation allowance

$

500

$

$

$

$

$

500

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Other information relating to mortgage servicing rights follows:

December 31, (in thousands)

    

2020

2019

    

2022

2021

Fair value of mortgage servicing rights portfolio

$

8,318

$

9,068

$

17,145

$

11,540

Monthly weighted average prepayment rate of unpaid principal balance*

 

308

%

 

202

%

 

127

%

 

208

%

Discount rate

10.00

%

10.00

%

10.21

%

10.15

%

Weighted average foreclosure rate

0.44

%

0.14

%

0.10

%

0.19

%

Weighted average life in years

 

4.85

 

5.76

 

7.54

 

5.93

* Rates are applied to individual tranches with similar characteristics.

Estimated future amortization expense of the MSR portfolio (net of any applicable impairment charge) follows; however, actual amortization expense will be impacted by loan payoffs and changes in estimated lives that occur during each respective year:

Year

    

(in thousands)

 

    

(in thousands)

 

2021

$

1,486

2022

 

1,474

2023

 

1,386

$

1,130

2024

 

1,003

 

1,127

2025

 

656

 

1,124

2026

 

448

 

1,098

2027

 

642

 

1,064

2028

 

936

Thereafter

 

2,291

Total

$

7,095

$

8,770

Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts and interest rate lock loan commitments. Mandatory forward contracts represent future commitments to deliver loans at a specified price and date or to purchase TBA securities and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Interest rate lock loan 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.

Mandatory forward contracts also contain an element of risk in that the counterparties may be unable to meet the terms of such agreements. In the event the counterparties fail to deliver commitments or are unable to fulfill their obligations, the Bank could potentially incur significant additional costs by replacing the positions at then current market rates. The Bank manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management and the Board of Directors. The Bank does not expect any counterparty to default on their obligations and therefore, the Bank does not expect to incur any cost related to counterparty default.

The Bank is exposed to interest rate risk on loans held for sale and rate lock loan commitments. As market interest rates fluctuate, the fair value of mortgage loans held for sale and rate lock commitments will decline or increase. To offset this interest rate risk the Bank enters into derivatives, such as mandatory forward contracts to sell loans.loans or purchase TBA securities. The fair value of these mandatory forward contracts will fluctuate as market interest rates fluctuate, 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 loan 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.

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The following table includes the notional amounts and fair values of mortgage loans held for sale and mortgage banking derivatives as of the period ends presented:

2020

2019

2022

2021

Notional

Notional

Notional

Notional

December 31, (in thousands)

Amount

Fair Value

Amount

Fair Value

(in thousands)

Amount

Fair Value

Amount

Fair Value

Included in Mortgage loans held for sale:

Mortgage loans held for sale, at fair value

$

44,781

$

46,867

$

18,690

$

19,224

$

1,265

$

1,302

$

28,668

$

29,393

Included in other assets:

Rate lock loan commitments

$

105,395

$

4,540

$

32,776

$

789

$

4,118

$

2

$

56,736

$

1,404

Mandatory forward contracts

70,812

66

Included in other liabilities:

Rate lock loan commitments

$

$

$

$

Mandatory forward contracts

$

136,236

$

976

$

44,919

$

131

4,009

67

17.

STOCK PLANS AND STOCK BASED COMPENSATION

In January 2015, the Company’s Board of Directors adopted the Republic Bancorp, Inc. 2015 Stock Incentive Plan (the “2015 Plan”), which replaced the 2005 Stock Incentive Plan. The number of authorized shares under the 2015 Plan is fixed at 3,000,000, with such number subject to adjustment in the event of certain events, such as stock dividends, stock splits, or the like. There is a minimum three-year vesting period for awards granted to employees under the 2015 Plan that vest based solely on the completion of a specified period of service, with options generally exercisable fivethree to six years after the issue date. Stock options generally must be exercised within one year from the date the options become exercisable and have an exercise price that is at least equal to the fair market value of the Company’s stock on their grant date.

All shares issued under the 2015 Plan were from authorized and reserved unissued shares. The Company has a sufficient number of authorized and reserved unissued shares to satisfy all anticipated option exercises. There are 0no Class B stock options outstanding or available for exercise under the Company’s plans.

Stock Options

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes based stock option valuation model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. Expected volatilities are based on historical volatility of Republic’s stock and other factors. Expected dividends are based on dividend trends and the market price of Republic’s stock price at grant. Republic uses historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant.

All share-based payments to employees, including grants of employee stock options, are recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values.

The fair value of stock options granted was determined using the following weighted average assumptions as of grant date:

Years Ended December 31,

2020

    

2019

    

2018

 

2022

    

2021

    

2020

 

Risk-free interest rate

0.44

%  

1.85

%  

3.00

%  

1.35

%  

0.20

%  

0.44

%  

Expected dividend yield

3.53

%  

2.25

%  

2.01

%  

2.50

%  

3.18

%  

3.53

%  

Expected stock price volatility

23.71

%  

20.11

%  

18.59

%  

32.12

%  

31.71

%  

23.71

%  

Expected life of options (in years)

5

5

5

4

4

5

Estimated fair value per share

$

4.06

$

7.12

$

8.09

$

10.41

$

6.26

$

4.06

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The following table summarizes stock option activity from January 1, 2019 through December 31, 2020:

    

    

    

    

    

Weighted

    

    

 

Weighted

Average

 

Options

Average

Remaining

Aggregate

 

Class A

Exercise

Contractual

Intrinsic

 

    

Shares

    

Price

    

Term

    

Value

  

Outstanding, January 1, 2019

 

433,200

$

33.50

Granted

 

5,500

 

47.02

Exercised

 

(100,600)

 

24.50

Forfeited or expired

 

(26,650)

 

36.00

Outstanding, December 31, 2019

 

311,450

$

36.43

2.73

$

3,449,454

Outstanding, January 1, 2020

311,450

$

36.43

Granted

 

285,995

 

32.37

Exercised

 

(64,850)

 

24.44

Forfeited or expired

 

(26,650)

 

35.95

Outstanding, December 31, 2020

505,945

$

35.70

3.48

$

1,925,343

Unvested

 

427,245

$

37.75

 

4.06

$

1,022,143

Exercisable (vested) at December 31, 2020

 

78,700

$

24.59

 

0.34

$

903,200

Information related to the stock options during each year follows:

Years Ended December 31,

    

2020

    

2019

    

2018

Intrinsic value of options exercised

$

634

$

2,249

$

79

Cash received from options exercised, net of shares redeemed

 

210

 

(191)

 

83

Loan balances of non-executive officer employees that were originated solely to fund stock option exercises were as follows:

December 31, (in thousands)

    

2020

    

2019

 

Outstanding loans

$

390

$

355

Restricted Stock Awards

Restricted stock awards generally vest within six years after issue, with accelerated vesting due to “change in control” or “death or disability of a participant” as defined and outlined in the 2015 Plan.

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The following table summarizes stock option activity from January 1, 2021 through December 31, 2022:

    

    

    

    

    

Weighted

    

    

 

Weighted

Average

 

Options

Average

Remaining

Aggregate

 

Class A

Exercise

Contractual

Intrinsic

 

    

Shares

    

Price

    

Term (years)

    

Value

  

Outstanding, January 1, 2022

460,502

$

37.54

Granted

 

54,281

 

50.34

Exercised

 

(5,250)

 

34.17

Forfeited or expired

 

(44,500)

 

40.32

Outstanding, December 31, 2022

465,033

$

38.81

2.25

$

2,322,635

Unvested

 

414,033

$

37.69

 

2.44

$

2,319,200

Exercisable (vested) at December 31, 2022

 

51,000

$

47.87

 

0.72

$

3,435

Information related to the stock options during each year follows:

Years Ended December 31,

    

2022

    

2021

    

2020

Total intrinsic value of options exercised

$

57

$

1,335

$

634

Total cash received from options exercised, net of shares redeemed

 

52

 

(142)

 

210

Total tax benefit of options exercised

6

223

78

Loan balances of employees that were originated solely to fund stock option exercises were as follows:

December 31, (in thousands)

    

2022

    

2021

 

Outstanding loans

$

178

$

239

Restricted Stock Awards

Restricted stock awards generally vest within three to six years after issuance, with accelerated vesting due to “change in control” or “death or disability of a participant” as defined and outlined in the 2015 Plan.

The following table summarizes all restricted stock activity from January 1, 20192021 through December 31, 2020:2022:

    

Restricted

    

    

Restricted

    

Weighted-Average

 

Weighted-Average

Stock Awards

Weighted-Average

Stock Awards

Grant Date 

 

Remaining Contractual

Class A Shares

Grant Date Fair Value

Class A Shares

Fair Value

 

Term (years)

Outstanding, January 1, 2019

 

51,110

$

39.06

Outstanding, January 1, 2022

56,059

$

39.12

Granted

 

2,336

 

49.34

 

12,174

 

46.05

Forfeited

 

 

 

 

Earned and issued

 

(12,336)

 

46.63

 

(3,500)

 

37.74

Outstanding, December 31, 2019

 

41,110

$

37.37

Outstanding, January 1, 2020

41,110

$

37.37

Granted

 

1,218

 

34.02

Forfeited

 

 

Earned and issued

 

(2,828)

 

30.77

Outstanding, December 31, 2020

 

39,500

$

38.56

Outstanding, December 31, 2022

 

64,733

$

40.49

1.23

Unvested

 

39,500

$

38.56

 

64,733

$

40.49

 

1.23

The fair value of the restricted stock awards is based on the closing stock price on the date of grant with the associated expense amortized to compensation expense over the vesting period, generally fivethree to six years.

years

Performance Stock Units

. The Company first granted PSUs under the 2015 Plan in January 2016. Halftotal fair value of these PSUs were awarded in the first quarter of 2019 after the Company’s Compensation Committee determinedrestricted shares that the Company had achieved an ROA of greater than 1.25% for fiscal year 2018. The remaining PSUs were awardedvested during the first quarter of2022, 2021 and 2020 after the Company’s Compensation Committee determined that the Company had achieved an ROA of greater than 1.25% for fiscal year 2019.was approximately $186,000, $50,000, and $46,000.

The following table summarizes PSU activity from January 1, 2019 through December 31, 2020:

Performance

Stock Units

Weighted-Average

Class A Shares

Grant Date Fair Value

Outstanding, January 1, 2019

 

46,000

$

23.08

Granted

 

 

Forfeited

 

 

Earned and issued

 

(23,000)

 

23.08

Outstanding, December 31, 2019

 

23,000

$

23.08

Outstanding, January 1, 2020

23,000

$

23.08

Granted

 

 

Forfeited

 

 

Earned and issued

 

(23,000)

 

23.08

Outstanding, December 31, 2020

 

$

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Performance Stock Units

Performance stock units are earned within one year of issuance and vest within three years of issuance, with accelerated vesting due to “change in control” or “death or disability of a participant” as defined and outlined in the 2015 Plan.

The following table summarizes all PSU activity from January 1, 2021 through December 31, 2022:

Performance

Stock Units

Weighted-Average

Class A Shares

Grant Date Fair Value

Outstanding, January 1, 2021

 

$

Granted

 

10,667

 

36.29

Forfeited

 

(10,667)

 

36.29

Earned and issued

 

 

Outstanding, December 31, 2021

 

$

Outstanding, January 1, 2022

$

Granted

 

8,874

 

51.39

Forfeited

 

(8,874)

 

51.39

Earned and issued

 

 

Outstanding, December 31, 2022

 

$

Expense Related to Stock Incentive Plans

The Company recorded expense related to stock incentive plans for the years ended December 31, 2020, 2019,2022, 2021, and 20182020 as follows:

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

2022

    

2021

    

2020

Stock option expense

$

463

$

364

$

265

$

560

$

574

$

463

Restricted stock award expense

396

728

630

937

738

396

Performance stock unit expense

(57)

106

152

129

Total expense

$

859

$

1,035

$

1,001

$

1,649

$

1,441

$

859

Unrecognized expenses related to unvested awards under stock incentive plans are estimated as follows:

    

Stock

    

Restricted

 

    

Stock

    

Restricted

    

 

Year (in thousands)

Options

Stock Awards

Total

 

Options

Stock Awards

Total

 

2021

$

538

$

277

$

815

2022

 

501

 

253

 

754

2023

 

376

 

135

 

511

$

622

$

565

$

1,187

2024

 

97

 

40

 

137

 

267

 

273

 

540

2025

 

15

 

 

15

 

38

 

54

 

92

2026 and beyond

 

 

 

2026

 

18

 

27

 

45

2027

 

5

 

8

 

13

Total

$

1,527

$

705

$

2,232

$

950

$

927

$

1,877

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Deferred Compensation

On April 19, 2019,2018, the shareholders of Republic approved an amendment and restatement of the Non-Employee Director and Key Employee Deferred Compensation Plan (the “Plan”). Prior to the Plan’s 20192018 amendment and restatement, only directors participated in the plan, with the 20192018 amendment and restatement initiating key-employee participation. The Plan provides non-employee directors and designated key employees the ability to defer compensation and have those deferred amounts paid later in the form of Company Class A Common shares based on the shares that could have been acquired as the deferrals were made. The Company maintains a bookkeeping account for each director or key-employee participant, and at the end of each fiscal quarter, deferred compensation is converted to “stock units” equal to the amount of compensation deferred during the quarter divided by the quarter-end fair market value of the Company’s Class A Common stock. Stock units for each participant’s account are also credited with an amount equal to the cash dividends that would have been paid on the number of stock units in the account if the stock units were deemed to be outstanding shares of stock. Any dividends credited are converted into additional stock units at the end of the fiscal quarter in which the dividends were paid.

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Table of Contents

DIRECTORS

Members of the Board of Directors may defer board and committee fees from two to five years, with each director participant retaining a nonforfeitable interest in his or her deferred compensation account.

The following table presents information on director deferred compensation under the Plan for the periods presented:

Outstanding

Weighted-Average

Outstanding

Weighted-Average

Stock

Market Price

Stock

Market Price

    

Units

    

at Date of Deferral

    

Units

    

at Date of Deferral

Outstanding, January 1, 2019

 

66,144

$

25.45

Outstanding, January 1, 2022

86,800

$

29.98

Deferred fees and dividend equivalents converted to stock units

 

6,397

 

46.76

 

18,241

 

46.58

Stock units converted to Class A Common Shares

 

(5,178)

 

23.18

 

(5,814)

 

49.51

Outstanding, December 31, 2019

 

67,363

$

27.65

Outstanding, January 1, 2020

67,363

$

27.65

Deferred fees and dividend equivalents converted to stock units

 

13,930

 

32.20

Stock units converted to Class A Common Shares

 

(4,967)

 

44.58

Outstanding, December 31, 2020

 

76,326

$

27.38

Outstanding, December 31, 2022

 

99,227

$

31.43

Vested

 

76,326

$

27.38

 

99,227

$

31.43

Director deferred compensation has been expensed as follows:

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

2022

    

2021

    

2020

Director deferred compensation expense

$

352

$

213

$

214

$

503

$

417

$

352

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KEY EMPLOYEES

Designated key employees may defer a portion of their base salaries on a pre-tax basis under the Plan, with the Company matching employee deferrals up to a prescribed limit. With limited exception, the Company match amount remains unvested until December 31st of the year that is five years from the beginning of the year that the Company match is made.

The following table presents information on key-employee deferred compensation under the Plan for the periods presented:

Outstanding

Weighted-Average

Outstanding

Weighted-Average

Weighted-Average

Stock

Market Price

Stock

Market Price

Remaining Contractual

Units

at Date of Deferral

Units

at Date of Deferral

Term (years)

Outstanding, January 1, 2019

 

9,260

$

43.09

Outstanding, January 1, 2022

65,318

$

40.57

Deferred base salaries and dividend equivalents converted to stock units

 

7,059

 

45.84

 

9,389

 

43.08

Matching stock units credited

7,059

45.84

9,315

43.08

Matching stock units forfeited

(1,151)

48.25

Stock units converted to Class A Common Shares

 

 

 

 

Outstanding, December 31, 2019

 

23,378

$

41.75

Outstanding, January 1, 2020

23,378

$

41.75

Deferred base salaries and dividend equivalents converted to stock units

 

12,754

 

32.17

Matching stock units credited

12,754

32.17

Matching stock units forfeited

Stock units converted to Class A Common Shares

 

 

Outstanding, December 31, 2020

 

48,886

$

37.37

Outstanding, December 31, 2022

 

82,871

$

41.03

3.13

Vested

 

32,595

$

37.37

 

47,742

$

41.47

Unvested

 

16,291

$

37.37

 

35,129

$

40.43

3.13

The following presents key-employee deferred compensation expense for the period presented:

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

2022

    

2021

    

2020

Key-employee - base salary

$

408

$

319

$

215

$

408

$

429

$

408

Key-employee - employer match

158

49

215

317

178

158

Total

$

566

$

368

$

430

$

725

$

607

$

566

Employee Stock Purchase Plan

On April 19, 2019,2018, the shareholders of Republic approved the ESPP. Under the ESPP, participating employees may purchase shares of the Company Class A Common Stock through payroll withholdings at a purchase price that cannot be less than 85% of the lower of the fair market value of the Company’s Class A Common Stock on the first trading day of each offering period, or on the last trading day of each offering period. Participating employees were able purchase the Company’s Class A Common Stock through the ESPP at:

90% of its fair market value on the last day of the three-month offering periods ended March 31, 2019, June 30, 2019, September 30, 2019, and December 31, 2019; and
85% of fair market value on the last day of the three-month offering periods ended March 31, 2020, June 30, 2020, September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022, June 30, 2022, September 30, 2022, and December 31, 2020.2022.

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The following presents expense under the ESPP for the period presented:

Years Ended December 31, (in thousands)

2020

    

2019

    

2018

2022

    

2021

    

2020

ESPP expense

$

94

$

49

$

23

$

104

$

104

$

94

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18.

BENEFIT PLANS

401(k) Plan

Republic maintains a 401(k) plan for eligible employees. All eligible employees are automatically enrolled at 6% of their eligible compensation within 30 days of their date of hire unless the eligible employee elects to enroll sooner. Participants in the plan have the option to contribute from 1% to 75% of their annual eligible compensation, up to the maximum allowed by the IRS. The Company matches 100% of participant contributions up to 1% and an additional 75% for participant contributions between 2% and 5% of each participant’s annual eligible compensation. Participants are fully vested after two years of employment.

Republic may also contribute discretionary matching contributions in addition to the matching contributions if the Company achieves certain operating goals. Normal and discretionary contributions for each of the periods ended were as follows:

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Employer matching contributions

$

3,205

$

3,185

$

2,890

$

3,096

$

3,373

$

3,205

Discretionary employer bonus matching contributions

117

207

392

117

Supplemental Executive Retirement Plan

In association with its May 17, 2016 Cornerstone acquisition, the Company inherited a SERP. The SERP requires the Company to pay monthly benefits following retirement of the SERP’s 4four participants. The Company accrues the present value of such benefits monthly. The SERP liability was approximately $2 million and $2 million atas of December 31, 20202022 and 2019.2021. Expense under the SERP was $34,000, $97,000$0, $232,000, and $102,000$34,000 for the years ended December 31, 2020, 2019,2022, 2021, and 2018.2020.

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19.

INCOME TAXES

Allocation of federal and state income tax between current and deferred portion is as follows:

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

Current expense:

Federal

$

25,762

$

18,906

$

10,638

State

 

2,450

 

1,751

 

1,532

Deferred expense:

SAB 118 related discrete items

(2,762)

Federal

(7,249)

1,880

6,815

State

 

(1,576)

 

(1,043)

 

188

Total

$

19,387

$

21,494

$

16,411

Effective tax rates differ from federal statutory rate applied to income before income taxes due to the following:

2020

    

2019

    

2018

    

Federal corporate tax rate

21.00

%  

21.00

%  

21.00

%

Effect of:

SAB 118 related discrete items*

(2.93)

State taxes, net of federal benefit

1.43

1.43

1.44

General business tax credits

(2.01)

(1.14)

(1.44)

Nontaxable income

(0.75)

(0.85)

(0.99)

Reversal of valuation allowance/establishment of net operating loss DTA

(0.04)

(0.74)

Tax benefit of vesting employee benefits

(0.15)

(0.42)

(0.20)

Deferred tax asset due to KY HB354

(0.97)

(0.20)

Other, net

0.38

(0.09)

0.53

Effective tax rate

18.89

18.99

17.41

*Discrete items include the impact of a cost-segregation study, a research and development tax-credit study, and a tax-accounting-method change related to the immediate recognition of loan origination costs.

The following items provided $2.8 million in federal income tax benefits during 2018 and primarily drove the Total Company’s effective tax rate for that period lower than the federal corporate tax rate of 21%:

During the third quarter of 2018 the Company completed a cost-segregation study and assigned revised tax lives to select fixed assets resulting from a detailed engineering-based analysis. The more detailed classification of fixed assets allowed the Company a large one-time recognition of additional depreciation expense for its 2017 federal tax return at a 35% income tax rate, as opposed to the TCJA rate of 21% it previously expected to receive for these deductions in the future. The TCJA was enacted on December 22, 2017 and reduced the federal corporate tax rate from 35% to 21%, effective January 1, 2018. Tax benefits related to the cost-segregation study were primarily attributed to the Company’s Traditional Banking segment.

The Company adopted an automatic tax-accounting-method change related to loan origination costs during the third quarter of 2018, as it was preparing its 2017 federal tax return. This tax-accounting-method change related to the immediate recognition of loan origination costs for income tax purposes, as opposed to the amortization of those costs over the life of the loan. The change in tax-accounting-method resulted in a further impact from the

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TCJA, as it affected the Company’s 2017 federal tax return due October 15, 2018. Tax benefits related to the tax-accounting-method change were 100% attributed to the Company’s Traditional Banking segment.

The Company completed an R&D tax-credit study during the third quarter of 2018, which resulted in the recognition of R&D credits dating back to 2014. Tax benefits related to the R&D tax-credit study were attributed to the Company’s Traditional Banking, TRS, and RCS segments.

The following items provided $2.8 million in federal income tax benefits during 2019 and drove the Total Company’s effective tax rate for that period lower than the federal corporate tax rate of 21%:

As a financial institution doing business in Kentucky, the Bank is subject to a capital-based Kentucky bank franchise tax and exempt from Kentucky corporate income tax. In March 2019, however, Kentucky enacted HB354, which will transition the Bank from the bank franchise tax to a corporate income tax beginning January 1, 2021. The current Kentucky corporate income tax rate is 5%. As of December 31, 2019, the Company recorded a deferred tax asset, net of the federal benefit, of $224,000 due to the enactment of HB354, with the majority of this benefit attributed to the Company’s Traditional Banking segment.

In April 2019, Kentucky enacted HB458, which allows for sharing of certain tax attributes between Republic Bancorp and the Bank, including net operating losses. Republic Bancorp had previously filed a separate company income tax return for Kentucky and generated net operating losses, for which it had maintained a valuation allowance against the related deferred tax asset. HB458 also allows for certain net operating losses to be utilized on a combined return. Republic Bancorp expects to file a consolidated return beginning in 2021 and to utilize these previously generated net operating losses. The tax benefit to reverse the valuation allowance and record the deferred tax asset for these losses is approximately $840,000 and is fully attributed to the Company’s Traditional Banking segment.

The Company recognized $480,000 in income tax benefits associated with equity compensation during 2019. Substantially all of this benefit was attributed to the Company’s Traditional Banking segment.

The Company recognized $1.3 million in income tax benefits for low-income-housing investments and R&D credits during 2019. The low-income-housing investments were attributable to the Company’s Traditional Banking segment, while the R&D credits were attributed to the Traditional Banking, TRS, and RCS segments.

The following items provided $3.1 million in federal income tax benefits during 2020 and drove the Total Company’s effective tax rate for that period lower than the federal corporate tax rate of 21%:

As a financial institution doing business in Kentucky, the Bank is subject to a capital-based Kentucky bank franchise tax and exempt from Kentucky corporate income tax. In March 2019, however, Kentucky enacted HB354, which will transition the Bank from the bank franchise tax to a corporate income tax beginning January 1, 2021. The current Kentucky corporate income tax rate is 5%. In 2020, the Company recorded an additional deferred tax asset, net of the federal benefit, of $1 million due to the enactment of HB354, with the majority of this benefit attributed to the Company’s Traditional Banking segment.

The Company recognized $2.1 million in income tax benefits for low-income-housing investments and R&D credits during 2020. The low-income-housing investments were attributable to the Company’s Traditional Banking segment, while the R&D credits were attributed to the Traditional Banking, TRS, and RCS segments.

Years Ended December 31, (in thousands)

    

2022

    

2021

    

2020

 

Current expense:

Federal

$

24,537

$

19,348

$

25,762

State

 

5,939

 

4,169

 

2,450

Deferred expense:

Federal

(4,273)

(246)

(7,249)

State

 

(464)

 

560

 

(1,576)

Total

$

25,739

$

23,831

$

19,387

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Effective tax rates differ from federal statutory rate applied to income before income taxes due to the following:

Years Ended December 31, 

    

2022

    

2021

    

2020

    

Federal corporate tax rate

 

21.00

%  

21.00

%  

21.00

%

Effect of:

State taxes, net of federal benefit

 

3.70

3.32

1.43

General business tax credits

 

(1.88)

(1.76)

(2.01)

Nontaxable income

 

(1.00)

(1.06)

(0.75)

Reversal of valuation allowance/establishment of net operating loss DTA

(0.04)

Tax benefit of vesting employee benefits

(0.01)

(0.20)

(0.15)

Deferred tax asset due to KY HB354

(0.97)

Other, net

 

0.22

0.08

0.38

Effective tax rate

 

22.03

21.38

18.89

Year-end DTAs and DTLs were due to the following:

December 31, (in thousands)

    

2020

    

2019

    

2022

    

2021

Deferred tax assets:

Allowance for credit losses

$

14,999

$

9,672

$

17,427

$

16,071

Operating lease liabilities

10,911

8,186

9,362

9,884

Accrued expenses

 

5,062

 

3,332

 

5,901

 

5,721

Net operating loss carryforward(1)

 

2,577

 

2,705

 

1,371

 

1,550

Acquisition fair value adjustments

181

443

101

124

Other-than-temporary impairment

 

448

 

397

 

567

 

402

Paycheck Protection Program Fees

 

2,159

 

 

31

 

337

Fair value of cash flow hedges

 

 

26

R&D Capitalization

 

2,271

 

Unrealized investment security losses

10,657

Other

 

1,655

 

1,495

 

2,217

 

2,079

Total deferred tax assets

 

37,992

 

26,256

 

49,905

 

36,168

Deferred tax liabilities:

Right of use assets - operating leases

(10,667)

(7,889)

(9,166)

(9,673)

Depreciation and amortization

(3,612)

(4,018)

(2,835)

(3,682)

Federal Home Loan Bank dividends

 

(1,161)

 

(2,667)

 

(745)

 

(709)

Deferred loan costs

 

(2,235)

 

(2,068)

 

(2,153)

 

(2,275)

Lease Financing Receivables

(2,154)

(2,245)

(1,996)

(2,094)

Mortgage servicing rights

 

(1,746)

 

(1,319)

 

(2,172)

 

(2,291)

Unrealized investment securities gains

 

(2,836)

 

(1,058)

 

 

(625)

Bargain purchase gain

 

(659)

 

(648)

Total deferred tax liabilities

 

(25,070)

 

(21,912)

 

(19,067)

 

(21,349)

Less: Valuation allowance

 

 

 

 

Net deferred tax asset

$

12,922

$

4,344

$

30,838

$

14,819

(1)The Company has federal and state net operating loss carryforwards (acquired in its 2016 Cornerstone acquisition) of $7.35.9 million (federal) and $4.53.2 million (state). These carryforwards begin to expire in 2030 for both federal and state purposes. The use of these federal and state carryforwards is each limited under IRC Section 382 to $722,000 annually for federal and $634,000 annually for state. The Company also has a Kentucky net operating loss carryforward of $22.4 million, which the Company expects to begin utilizing in 2021 due to the passage of Kentucky HB354 and HB458. The Company expects to file a consolidated Kentucky income tax return beginning in 2021 and to utilize these previously generated net operating losses. The Company previously maintained a valuation allowance as it did not anticipate generating taxable income in Kentucky to utilize this carryforward prior to expiration. Finally, the Company has state AMT credit carryforwards of $15,000 with no expiration date.

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Unrecognized Tax Benefits

The following table shows a reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Balance, beginning of period

$

1,707

$

1,327

$

912

$

2,191

$

1,941

$

1,707

Additions based on tax related to the current period

 

455

 

364

 

306

 

950

 

433

 

455

Additions for tax positions of prior periods

 

24

 

55

 

339

 

 

253

 

24

Reductions for tax positions of prior periods

 

(72)

 

 

(34)

 

 

 

(72)

Reductions due to the statute of limitations

 

(82)

 

(39)

 

(196)

 

(275)

 

(436)

 

(82)

Settlements

 

(91)

 

 

 

 

 

(91)

Balance, end of period

$

1,941

$

1,707

$

1,327

$

2,866

$

2,191

$

1,941

Of the 20202022 total, $1.7$2.4 million representsrepresented the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. 

It is the Company’s policy to recognize interest and penalties as a component of income tax expense related to its unrecognized tax benefits. Amounts related to interest and penalties recorded in the income statements for the years ended December 31, 2020, 2019,2022, 2021, and 20182020, and accrued on the balance sheets as of December 31, 2020, 2019,2022, 2021, and 20182020 are presented below:

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Interest and penalties recorded in the income statement as a component of income tax expense

$

57

$

173

$

42

$

72

$

267

$

57

Interest and penalties accrued on balance sheet

 

510

 

514

 

341

 

849

 

777

 

510

The Company files income tax returns in the U.S. federal jurisdiction. The Company is no longer subject to U.S. federal income tax examinations by taxing authorities for all years prior to and including 2013.2018.

Low IncomeLow-Income Housing Tax Credits Investments and Obligations

The Company is a limited partner in several low-income housing partnerships whose purpose is to invest in qualified affordable housing. The Company expects to recover its remaining investments in these partnerships through the use of tax credits that are generated by the investments.

The following table summarizes information related to the Company’s qualified low-income housing investments and commitments:obligations:

December 31, (in thousands)

    

2020

    

2019

    

2022

    

2021

Unfunded

Unfunded

Unfunded

Unfunded

Investment

Accounting Method

Investment

Commitment

Investment

Commitment

Accounting Method

Investments

Obligations

Investments

Obligations

Low income housing tax credit investments - Gross

Proportional amortization

$

18,909

$

27,891

$

11,912

$

24,888

Low-income housing tax credit - Gross

Proportional amortization

$

42,306

$

43,609

$

33,417

$

23,383

Life-to-date amortization

(2,701)

NA

(1,218)

NA

(10,591)

NA

(6,181)

NA

Low income housing tax credit investments - Net

$

16,208

$

27,891

$

10,694

$

24,888

Low-income housing tax credit - Net

$

31,715

$

43,609

$

27,236

$

23,383

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20.

EARNINGS PER SHARE

The Company calculates earnings per share under the two-class method. Under the two-class method, earnings available to common shareholders for the period are allocated between Class A Common Stock and Class B Common Stock according to dividends declared (or accumulated) and participation rights in undistributed earnings. The difference in earnings per share between the two classes of common stock results from the 10% per share cash dividend premium paid on Class A Common Stock over that paid on Class B Common Stock. See Footnote 14, “Stockholders’ Equity and Regulatory Capital Matters” of this section of the filing.

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)

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Net income

$

83,246

$

91,699

$

77,852

$

91,106

$

87,611

$

83,246

Dividends declared on Common Stock:

Class A Shares

(21,433)

(19,771)

(18,076)

(24,122)

(22,451)

(21,433)

Class B Shares

(2,288)

(2,121)

(1,955)

(2,679)

(2,435)

(2,288)

Undistributed net income for basic earnings per share

59,525

69,807

57,821

64,305

62,725

59,525

Weighted average potential dividends on Class A shares upon exercise of dilutive options

(35)

(118)

(102)

(87)

(100)

(35)

Undistributed net income for diluted earnings per share

$

59,490

$

69,689

$

57,719

$

64,218

$

62,625

$

59,490

Weighted average shares outstanding:

Class A Shares

 

18,838

 

18,813

 

18,736

 

17,876

 

18,497

 

18,838

Class B Shares

2,201

2,210

2,224

2,161

2,178

2,201

Effect of dilutive securities on Class A Shares outstanding

 

30

 

112

 

105

 

64

 

82

 

30

Weighted average shares outstanding including dilutive securities

 

21,069

 

21,135

 

21,065

 

20,101

 

20,757

 

21,069

Basic earnings per share:

Class A Common Stock:

Per share dividends distributed

$

1.14

$

1.06

$

0.97

$

1.36

$

1.23

$

1.14

Undistributed earnings per share*

2.86

3.35

2.79

3.24

3.06

2.86

Total basic earnings per share - Class A Common Stock

$

4.00

$

4.41

$

3.76

$

4.60

$

4.29

$

4.00

Class B Common Stock:

Per share dividends distributed

$

1.04

$

0.96

$

0.88

$

1.24

$

1.12

$

1.04

Undistributed earnings per share*

2.60

3.05

2.53

2.95

2.78

2.60

Total basic earnings per share - Class B Common Stock

$

3.64

$

4.01

$

3.41

$

4.19

$

3.90

$

3.64

Diluted earnings per share:

Class A Common Stock:

Per share dividends distributed

$

1.14

$

1.06

$

0.97

$

1.36

$

1.23

$

1.14

Undistributed earnings per share*

2.85

3.33

2.77

3.23

3.05

2.85

Total diluted earnings per share - Class A Common Stock

$

3.99

$

4.39

$

3.74

$

4.59

$

4.28

$

3.99

Class B Common Stock:

Per share dividends distributed

$

1.04

$

0.96

$

0.88

$

1.24

$

1.12

$

1.04

Undistributed earnings per share*

2.59

3.03

2.52

2.93

2.77

2.59

Total diluted earnings per share - Class B Common Stock

$

3.63

$

3.99

$

3.40

$

4.17

$

3.89

$

3.63

Graphic

*To arrive at undistributed earnings per share, undistributed net income is first pro rated between Class A and Class B Common Shares, with Class A Common Shares receiving a 10% premium. The resulting pro-rated, undistributed net income for each class is then divided by the weighted average shares for each class.

Stock options excluded from the detailed earnings per share calculation because their impact was antidilutive are as follows:

As of and for the Years Ended December 31,

2020

    

2019

    

2018

 

Years Ended December 31,

2022

    

2021

    

2020

 

Antidilutive stock options

338,995

 

154,750

 

165,000

178,000

 

144,000

 

338,995

Average antidilutive stock options

282,489

 

151,260

 

47,712

128,000

 

142,625

 

282,489

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21.

TRANSACTIONS WITH RELATED PARTIES AND THEIR AFFILIATES

Republic leases office facilities under operating leases from limited liability companies in which Republic’s Chairman/Executive Chair/Chief Executive Officer and Vice Chair are partners. Rent expense and obligations under these leases are presented in Footnote 6 in this section of the filing.

Loans made to executive officers and directors of Republic and their related interests during 20202022 were as follows:

    

(in thousands)

 

    

(in thousands)

 

Beginning balance

$

43,398

$

7,448

Effect of changes in composition of related parties

 

(26,147)

 

(740)

New loans

 

11,402

 

3,728

Repayments

 

(12,933)

 

(3,609)

Ending balance

$

15,720

$

6,827

Deposits from executive officers, directors, and their affiliates totaled $124$126 million and $97$123 million atas of December 31, 20202022 and 2019.2021.

By an agreement dated December 14, 1989, as amended August 8, 1994, the Company entered into a split-dollar insurance agreement with a trust established by the Company’s deceased former Chairman,Chair, Bernard M. Trager. Pursuant to the agreement, from 1989 through 2002 the Company paid $690,000 in total annual premiums on the insurance policies held in the trust. The policies are joint-life policies payable upon the death of Mrs. Jean Trager, as the survivor of her husband Bernard M. Trager. The cash surrender value of the policies was approximately $2 million and $2 million as of December 31, 20202022 and 2019.2021.

Pursuant to the terms of the trust, the beneficiaries of the trust will each receive the proceeds of the policies after the repayment of any unreimbursed portion of the $690,000 annual premiums paid by the Company. The unreimbursed portion constitutes indebtedness from the trust to the Company and is secured by a collateral assignment of the policies. As of December 31, 20202022 and 2019,2021, the unreimbursed portion was $440,000$240,000 and $540,000,$340,000, and the net death benefit under the policies was approximately $5 million. Upon the termination of the agreement, whether by the death of Mrs. Trager or earlier cancellation, the Company is entitled to be repaid by the trust the amount of indebtedness outstanding at that time.

22.

OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

Available-for-Sale Debt Securities:

Change in unrealized gain on AFS debt securities

$

7,147

$

5,689

$

(1,548)

Adjustment for accounting standard update

(428)

Change in unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings

 

(35)

 

(79)

 

(20)

Net unrealized (losses) gains

 

7,112

 

5,610

 

(1,996)

Tax effect

 

(1,778)

 

(1,348)

 

420

Net of tax

 

5,334

 

4,262

 

(1,576)

Cash Flow Hedges:

Change in fair value of derivatives used for cash flow hedges

 

(177)

 

(199)

 

178

Reclassification amount for net derivative losses (gains) realized in income

 

281

 

(20)

 

28

Net unrealized (losses) gains

 

104

 

(219)

 

206

Tax effect

 

(27)

 

52

 

(43)

Net of tax

 

77

 

(167)

 

163

Total other comprehensive (loss) income components, net of tax

$

5,411

$

4,095

$

(1,413)

    

Years Ended December 31, (in thousands)

2022

    

2021

    

2020

Available-for-Sale Debt Securities:

Unrealized losses on AFS debt securities

$

(45,109)

$

(8,908)

$

7,147

Unrealized (loss) gain on AFS debt security for which a portion of OTTI has been recognized in earnings

 

(29)

 

63

 

(35)

Net gains (losses)

 

(45,138)

 

(8,845)

 

7,112

Tax effect

 

11,285

 

2,210

 

(1,778)

Net of tax

 

(33,853)

 

(6,635)

 

5,334

Cash Flow Hedges:

Change in fair value of derivatives used for cash flow hedges

 

 

 

(177)

Reclassification amount for net derivative losses realized in income

 

 

 

281

Net gains (losses)

 

 

 

104

Tax effect

 

 

 

(27)

Net of tax

 

 

 

77

Total other comprehensive (loss) income components, net of tax

$

(33,853)

$

(6,635)

$

5,411

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Amounts reclassified out of each component of accumulated OCI for the years ended December 31, 2020, 2019,2022, 2021, and 2018:2020:

 

Amounts Reclassified From

 

Amounts Reclassified From

Affected Line Items

Accumulated Other 

Affected Line Items

Accumulated Other 

in the Consolidated

Comprehensive Income (Loss)

in the Consolidated

Comprehensive Income (Loss)

Years Ended December 31, (in thousands)

  

Statements of Income

  

    

2020

    

2019

    

2018

 

  

Statements of Income

  

    

2022

    

2021

    

2020

Cash Flow Hedges:

Interest rate swap on money market deposits

 

Interest benefit (expense) on deposits

 

(138)

 

10

 

(18)

 

Interest expense on deposits

 

 

 

(138)

Interest rate swap on FHLB advance

 

Interest benefit (expense) on FHLB advances

 

(143)

 

10

 

(10)

 

Interest expense on FHLB advances

 

 

 

(143)

Total derivative gains (losses) on cash flow hedges

 

Total interest benefit (expense)

 

(281)

 

20

 

(28)

Total derivative losses on cash flow hedges

 

Total interest expense

 

 

 

(281)

Tax effect

 

Income tax (benefit) expense

 

70

 

(5)

 

6

 

Income tax expense

 

 

 

70

Net of tax

 

Net income (loss)

 

(211)

 

15

 

(22)

 

Net income

 

 

 

(211)

The following is a summary of the accumulated OCI balances, net of tax:

    

    

2020

    

 

    

    

2022

    

 

(in thousands)

December 31, 2019

Change

December 31, 2020

 

December 31, 2021

Change

December 31, 2022

 

Unrealized gain on AFS debt securities

$

2,211

$

5,360

$

7,571

Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings

 

964

 

(26)

 

938

Unrealized gain (loss) on cash flow hedges

 

(77)

 

77

 

Total unrealized gain

$

3,098

$

5,411

$

8,509

Unrealized gain (loss) on AFS debt securities

$

890

$

(33,824)

$

(32,934)

Unrealized (loss) gain on AFS debt security for which a portion of OTTI has been recognized in earnings

 

984

 

(29)

 

955

Total unrealized gain (loss)

$

1,874

$

(33,853)

$

(31,979)

    

    

2019

    

 

    

    

2021

    

 

(in thousands)

December 31, 2018

Change

December 31, 2019

 

December 31, 2020

Change

December 31, 2021

 

Unrealized gain (loss) on AFS debt securities

$

(2,165)

$

4,376

$

2,211

$

7,571

$

(6,681)

$

890

Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings

 

1,078

 

(114)

 

964

Unrealized gain (loss) on cash flow hedges

 

90

 

(167)

 

(77)

Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings

 

938

 

46

 

984

Total unrealized gain (loss)

$

(997)

$

4,095

$

3,098

$

8,509

$

(6,635)

$

1,874

23.

PARENT COMPANY CONDENSED FINANCIAL INFORMATION

BALANCE SHEETS

December 31, (in thousands)

    

2020

    

2019

 

    

2022

    

2021

 

Assets:

Cash and cash equivalents

$

100,524

$

101,003

$

36,436

$

16,881

Security available for sale

3,800

4,000

3,855

3,847

Investment in bank subsidiary

 

761,929

 

699,906

 

819,144

 

818,092

Investment in non-bank subsidiaries

 

3,518

 

3,631

 

2,773

 

2,409

Other assets

 

3,203

 

4,749

 

2,465

 

3,741

Total assets

$

872,974

$

813,289

$

864,673

$

844,970

Liabilities and Stockholders’ Equity:

Subordinated note

$

41,240

$

41,240

$

$

Other liabilities

 

8,411

 

7,805

 

8,060

 

9,916

Stockholders’ equity

 

823,323

 

764,244

 

856,613

 

835,054

Total liabilities and stockholders’ equity

$

872,974

$

813,289

$

864,673

$

844,970

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STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Income and expenses:

Dividends from subsidiary

$

25,980

$

24,249

$

22,385

$

59,460

$

28,300

$

25,980

Interest income

 

182

 

250

 

231

 

229

 

143

 

182

Other income

 

57

 

54

 

45

 

54

 

53

 

57

Less: Interest expense

 

1,000

 

1,620

 

1,508

 

 

507

 

1,000

Less: Other expenses

 

691

 

511

 

469

 

819

 

760

 

691

Income before income tax benefit

 

24,528

 

22,422

 

20,684

 

58,924

 

27,229

 

24,528

Income tax benefit

 

344

 

1,213

 

348

 

124

 

245

 

344

Income before equity in undistributed net income of subsidiaries

 

24,872

 

23,635

 

21,032

 

59,048

 

27,474

 

24,872

Equity in undistributed net income of subsidiaries

 

58,374

 

68,064

 

56,820

 

32,058

 

60,137

 

58,374

Net income

$

83,246

$

91,699

$

77,852

$

91,106

$

87,611

$

83,246

Comprehensive income

$

88,657

$

95,794

$

76,439

$

57,253

$

80,976

$

88,657

STATEMENTS OF CASH FLOWS

Years Ended December 31, (in thousands)

    

2020

    

2019

    

2018

 

    

2022

    

2021

    

2020

 

Operating activities:

Net income

$

83,246

$

91,699

$

77,852

$

91,106

$

87,611

$

83,246

Adjustments to reconcile net income to net cash provided by operating activities:

Accretion of investment security

(56)

(42)

(40)

(56)

(53)

(56)

Equity in undistributed net income of subsidiaries

 

(58,374)

 

(68,064)

 

(56,820)

 

(32,058)

 

(60,137)

 

(58,374)

Director deferred compensation - Parent Company

 

181

 

139

 

117

 

427

 

347

 

181

Change in other assets

 

1,609

 

(25)

 

605

 

4,571

 

(736)

 

1,609

Change in other liabilities

 

54

 

842

 

(976)

 

(5,428)

 

1,694

 

54

Net cash provided by operating activities

 

26,660

 

24,549

 

20,738

 

58,562

 

28,726

 

26,660

Investing activities:

Investment in venture capital fund

 

(337)

 

 

Investment in subsidiary bank

(533)

(494)

(230)

(590)

(591)

(533)

Net cash used in investing activities

 

(533)

 

(494)

 

(230)

 

(927)

 

(591)

 

(533)

Financing activities:

Common Stock repurchases

 

(3,935)

 

(1,418)

 

(827)

 

(12,577)

(47,528)

 

(3,935)

Net proceeds from Class A Common Stock purchased through employee stock purchase plan

533

494

230

590

591

533

Net proceeds from Common Stock options exercised

 

 

(191)

 

83

 

52

 

(142)

 

Payoff of subordinated note, net of common security interest

(40,000)

Cash dividends paid

 

(23,204)

 

(21,377)

 

(19,497)

 

(26,145)

 

(24,699)

 

(23,204)

Net cash used in financing activities

 

(26,606)

 

(22,492)

 

(20,011)

 

(38,080)

 

(111,778)

 

(26,606)

Net change in cash and cash equivalents

 

(479)

 

1,563

 

497

 

19,555

 

(83,643)

 

(479)

Cash and cash equivalents at beginning of period

 

101,003

 

99,440

 

98,943

 

16,881

 

100,524

 

101,003

Cash and cash equivalents at end of period

$

100,524

$

101,003

$

99,440

$

36,436

$

16,881

$

100,524

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24. REVENUE FROM CONTRACTS WITH CUSTOMERS

The following tables present the Company’s net revenue by reportable segment for the years ended December 31, 2020, 20192022, 2021, and 2018:2020:

Year Ended December 31, 2020

 

Year Ended December 31, 2022

 

Core Banking

Republic Processing Group

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Total

Tax

Republic

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income(1)

$

159,381

$

25,957

$

1,362

   

$

186,700

$

22,972

$

22,643

$

45,615

$

232,315

Net interest income (1)

$

171,543

$

13,729

$

519

   

$

185,791

$

21,715

$

29,185

$

50,900

$

236,691

Noninterest income:

Service charges on deposit accounts

11,571

63

11,634

(19)

(19)

11,615

13,388

50

13,438

(12)

(12)

13,426

Net refund transfer fees

 

 

 

 

 

20,297

 

 

20,297

 

20,297

 

 

 

 

 

17,080

 

 

17,080

 

17,080

Mortgage banking income(1)

 

 

 

31,847

 

31,847

 

 

 

 

31,847

Mortgage banking income (1)

 

 

 

6,196

 

6,196

 

 

 

 

6,196

Interchange fee income

10,978

10,978

210

210

11,188

12,943

12,943

182

182

13,125

Program fees(1)

2,193

4,902

7,095

7,095

Increase in cash surrender value of BOLI(1)

1,585

1,585

1,585

Net gains (losses) on OREO

(40)

(40)

(40)

Program fees (1)

2,872

13,300

16,172

16,172

Increase in cash surrender value of BOLI (1)

2,526

2,526

2,526

Net losses on OREO

(211)

(211)

(211)

Contract termination fee

5,000

5,000

5,000

Legal settlement

13,000

13,000

13,000

Other

 

3,310

 

(39)

 

103

 

3,374

 

92

 

 

92

 

3,466

 

3,002

 

 

136

 

3,138

 

358

 

 

358

 

3,496

Total noninterest income

 

27,404

 

24

 

31,950

 

59,378

 

22,773

 

4,902

 

27,675

 

87,053

 

31,648

 

50

 

6,332

 

38,030

 

38,480

 

13,300

 

51,780

 

89,810

Total net revenue

$

186,785

$

25,981

$

33,312

$

246,078

$

45,745

$

27,545

$

73,290

$

319,368

$

203,191

$

13,779

$

6,851

$

223,821

$

60,195

$

42,485

$

102,680

$

326,501

Net-revenue concentration(2)

59

%  

8

%  

10

%  

77

%  

14

%  

9

%  

23

%  

100

%  

Net-revenue concentration (2)

63

%  

4

%  

2

%  

69

%  

18

%  

13

%  

31

%  

100

%  

(1)This revenue is not subject to ASC 606.
(2)Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.

Years Ended December 31, 2019

 

Years Ended December 31, 2021

 

Core Banking

Republic Processing Group

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Total

Tax

Republic

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income(1)

$

168,076

$

15,801

$

697

   

$

184,574

$

21,626

$

29,926

$

51,552

$

236,126

Net interest income (1)

$

157,249

$

25,218

$

1,081

   

$

183,548

$

15,837

$

23,355

$

39,192

$

222,740

Noninterest income:

Service charges on deposit accounts

14,153

44

14,197

14,197

12,506

57

12,563

(10)

(10)

12,553

Net refund transfer fees

 

 

 

 

 

21,158

 

 

21,158

 

21,158

 

 

 

 

 

20,248

 

 

20,248

 

20,248

Mortgage banking income(1)

 

 

 

9,499

 

9,499

 

 

 

 

9,499

Mortgage banking income (1)

 

 

 

19,994

 

19,994

 

 

 

 

19,994

Interchange fee income

11,600

11,600

259

259

11,859

12,777

12,777

285

285

13,062

Program fees(1)

437

4,275

4,712

4,712

Increase in cash surrender value of BOLI(1)

1,550

1,550

1,550

Net gains (losses) on OREO

540

540

540

Net gain on branch divestiture(1)

7,829

7,829

7,829

Program fees (1)

3,171

11,066

14,237

14,237

Increase in cash surrender value of BOLI (1)

2,242

2,242

2,242

Net losses on OREO

(160)

(160)

(160)

Other

 

2,881

 

(90)

 

213

 

3,004

 

1

 

659

 

660

 

3,664

 

4,127

 

 

191

 

4,318

 

81

 

 

81

 

4,399

Total noninterest income

 

38,553

 

(46)

 

9,712

 

48,219

 

21,855

 

4,934

 

26,789

 

75,008

 

31,492

 

57

 

20,185

 

51,734

 

23,775

 

11,066

 

34,841

 

86,575

Total net revenue

$

206,629

$

15,755

$

10,409

$

232,793

$

43,481

$

34,860

$

78,341

$

311,134

$

188,741

$

25,275

$

21,266

$

235,282

$

39,612

$

34,421

$

74,033

$

309,315

Net-revenue concentration(2)

67

%  

5

%  

3

%  

75

%  

14

%  

11

%  

25

%  

100

%  

Net-revenue concentration (2)

61

%  

8

%  

7

%  

76

%  

13

%  

11

%  

24

%  

100

%  

(1)This revenue is not subject to ASC 606.
(2)Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.

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Year Ended December 31, 2018

 

Year Ended December 31, 2020

 

Core Banking

Republic Processing Group

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Total

Tax

Republic

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income(1)

$

160,398

$

15,726

$

402

   

$

176,526

$

19,203

$

30,329

$

49,532

$

226,058

Net interest income (1)

$

159,381

$

25,957

$

1,362

   

$

186,700

$

22,972

$

22,643

$

45,615

$

232,315

Noninterest income:

Service charges on deposit accounts

14,233

40

14,273

14,273

11,571

63

11,634

(19)

(19)

11,615

Net refund transfer fees

 

 

 

 

 

20,029

 

 

20,029

 

20,029

 

 

 

 

 

20,297

 

 

20,297

 

20,297

Mortgage banking income(1)

 

 

 

4,825

 

4,825

 

 

 

 

4,825

Mortgage banking income (1)

 

 

 

31,847

 

31,847

 

 

 

 

31,847

Interchange fee income

10,868

10,868

226

65

291

11,159

10,978

10,978

210

210

11,188

Program fees(1)

295

5,930

6,225

6,225

Increase in cash surrender value of BOLI(1)

1,527

1,527

1,527

Net gains (losses) on OREO

729

729

729

Program fees (1)

2,193

4,902

7,095

7,095

Increase in cash surrender value of BOLI (1)

1,585

1,585

1,585

Net losses on OREO

(40)

(40)

(40)

Gain on branch divestiture(1)

Other

 

2,608

 

 

550

 

3,158

 

1,003

 

497

 

1,500

 

4,658

 

3,310

 

(39)

��

 

103

 

3,374

 

92

 

 

92

 

3,466

Total noninterest income

 

29,965

 

40

 

5,375

 

35,380

 

21,553

 

6,492

 

28,045

 

63,425

 

27,404

 

24

 

31,950

 

59,378

 

22,773

 

4,902

 

27,675

 

87,053

Total net revenue

$

190,363

$

15,766

$

5,777

$

211,906

$

40,756

$

36,821

$

77,577

$

289,483

$

186,785

$

25,981

$

33,312

$

246,078

$

45,745

$

27,545

$

73,290

$

319,368

Net-revenue concentration(2)

66

%  

5

%  

2

%  

73

%  

14

%  

13

%  

27

%  

100

%  

Net-revenue concentration (2)

59

%  

8

%  

10

%  

77

%  

14

%  

9

%  

23

%  

100

%  

(1)This revenue is not subject to ASC 606.
(2)Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.

The following represents information for significant revenue streams subject to ASC 606:

Service charges on deposit accounts – The Company earns revenue for account-based and event-driven services on its retail and commercial deposit accounts. Contracts for these services are generally in the form of deposit agreements, which disclose fees for deposit services. Revenue for event-driven services is recognized in close proximity or simultaneously with service performance. Revenue for certain account-based services may be recognized at a point in time or over the period the service is rendered, typically no longer than a month. Examples of account-based and event-driven service charges on deposits include per item fees, paper-statement fees, check-cashing fees, and analysis fees.

Net refund transfer fees – An RT is a fee-based product offered by the Bank through third-party tax preparers located throughout the United States, as well as tax-preparation software providers (collectively, the “Tax Providers”), with the Bank acting as an independent contractor of the Tax Providers. An RT allows a taxpayer to pay any applicable tax preparation and filing related fees directly from his federal or state government tax refund, with the remainder of the tax refund disbursed directly to the taxpayer. RT fees and all applicable tax preparation, transmitter, audit, and any other taxpayer authorized amounts are deducted from the tax refund by either the Bank or the Bank’s service provider and automatically forwarded to the appropriate party as authorized by the taxpayer. RT fees generally receive first priority when applying fees against the taxpayer’s refund, with the Bank’s share of RT fees generally superior to the claims of other third-party service providers, including the Tax Providers. The remainder of the refund is disbursed to the taxpayer by a Bank check printed at a tax office, direct deposit to the taxpayer’s personal bank account, or loaded to a Net Spend Visa® Prepaid Card or Walmart Direct2Cash.prepaid card.

The Company executes contracts with individual Tax Providers to offer RTs to their taxpayer customers. RT revenue is recognized by the Bank immediately after the taxpayer’s refund is disbursed in accordance with the RT contract with the taxpayer customer. The fee paid by the taxpayer for the RT is shared between the Bank and the Tax Providers based on contracts executed between the parties.

The Company presents RT revenue net of any amounts shared with the Tax Providers. The Bank’s share of RT revenue is generally based on the obligations undertaken by the Tax Provider for each individual RT program, with more obligations generally corresponding to higher RT revenue share. The significant majority of net RT revenue is recognized and obligations under RT contracts fulfilled by the Bank during the first half of each year. Incremental expenses associated with the fulfilment of RT contracts are generally expensed during the first half of the year.

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Interchange fee income – As an “issuing bank” for card transactions, the Company earns interchange fee income on transactions executed by its cardholders with various third-party merchants. Through third-party intermediaries, merchants compensate the

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Company for each transaction for the ability to efficiently settle the transaction, and for the Company’s willingness to accept certain risks inherent in the transaction. There is no written contract between the merchant and the Company, but a contract is implied between the two parties by customary business practices. Interchange fee income is recognized almost simultaneously by the Company upon the completion of a related card transaction.

The Company compensates its cardholders by way of cash or other “rewards” for generating card transactions. These rewards are disclosed in cardholder agreements between the Company and its cardholders. Reward costs are accrued over time based on card transactions generated by the cardholder. Interchange fee income is presented net of reward costs within noninterest income.

Net gains/(losses) on other real estate – The Company routinely sells OREO it has acquired through loan foreclosure. Net gains/(losses) on OREO reflect both 1) the gain or loss recognized upon an executed deed and 2) mark-to-market write-downs the Company takes on its OREO inventory.

The Company generally recognizes gains or losses on OREO at the time of an executed deed, although gains may be recognized over a financing period if the Company finances the sale. For financed OREO sales, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant financing component is present.

Mark-to-market write-downs taken by the Company during the property’s holding period are generally at least 10% per year but may be higher based on updated real estate appraisals or BPOs. Incremental expenditures to bring OREO to salable condition are generally expensed as-incurred.

Capital commitment fee (within other income) – The Company received and recorded a $1.0 million nonrefundable capital commitment fee during the first quarter of 2018. The fee was paid by a third party upon the Company’s completion of its contractual obligations to build the infrastructure and disburse funds for a new collaborative credit product offered to the third party’s customers through the Bank. The completion of the infrastructure and the first disbursement of funds were made for this new credit product during the first quarter of 2018. Incremental expenses incurred by the Company to fulfil its obligation under this contract were expensed as-incurred.

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25.

SEGMENT INFORMATION

Reportable segments are determined by the type of products and services offered and the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business (such as banking centers and business units), which are then aggregated if operating performance, products/services, and clients are similar.

As of December 31, 2020,2022, the Company was divided into 5five reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS and RCS. Management considers the first 3three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last 2two segments collectively constitute RPG operations. The Company’s national branchless banking platform, MemoryBank, is considered part of the Traditional Banking segment.

The nature of segment operations and the primary drivers of net revenues by reportable segment are provided below:

Reportable Segment:

Nature of Operations:

Primary Drivers of Net Revenue:

Core Banking:

Traditional Banking

Provides traditional banking products to clients in its market footprint primarily via its network of banking centers and to clients outside of its market footprint primarily via its digital delivery channels.

Loans, investments, and deposits.deposits

Warehouse Lending

Provides short-term, revolving credit facilities to mortgage bankers across the United States.

Mortgage warehouse lines of credit.credit

Mortgage Banking

Primarily originates, sells, and services long-term, single-family, first-lien residential real estate loans primarily to clients in the Bank's market footprint.

Loan sales and servicing.servicing

Republic Processing Group:

Tax Refund Solutions

TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax refunds through Refund Transfer products. The RPS division of TRS offers general-purpose reloadable cards. TRS and RPS products are primarily provided to clients outside of the Bank’s market footprint.

Loans, refund transfers, and prepaid cards.

Republic Credit Solutions

Offers consumer credit products. RCS products are primarily provided to clients outside of the Bank’s market footprint, with a substantial portion of RCS clients considered subprime or near-prime borrowers.

Unsecured, consumer loans.loans

The accounting policies used for Republic’s reportable segments are the same as those described in the summary of significant accounting policies. Segment performance is evaluated using operating income. Goodwill is allocated to the Traditional Banking segment. Income taxes are generally allocated based on income before income tax expense unless specific segment allocations can be reasonably made. Transactions among reportable segments are made at carrying value.

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Segment information for the years ended December 31, 2020, 2019,2022, 2021, and 20182020 is as follows:

Year Ended December 31, 2020

 

Year Ended December 31, 2022

 

Core Banking

Republic Processing Group

 

Core Banking

Republic Processing Group

 

    

    

    

    

    

Total

    

    

Tax

Republic

    

    

 

    

    

    

    

    

Total

    

    

Tax

Republic

    

    

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income

$

159,381

$

25,957

$

1,362

$

186,700

$

22,972

$

22,643

$

45,615

$

232,315

$

171,543

$

13,729

$

519

$

185,791

$

21,715

$

29,185

$

50,900

$

236,691

Provision for expected credit loss expense

 

16,257

 

613

 

 

16,870

 

13,189

 

1,219

 

14,408

 

31,278

 

1,429

 

(1,117)

 

 

312

 

9,955

 

12,081

 

22,036

 

22,348

Net refund transfer fees

 

 

 

 

 

20,297

 

 

20,297

 

20,297

 

 

 

 

 

17,080

 

 

17,080

 

17,080

Mortgage banking income

 

 

 

31,847

 

31,847

 

 

 

 

31,847

 

 

 

6,196

 

6,196

 

 

 

 

6,196

Program fees

2,193

4,902

7,095

7,095

2,872

13,300

16,172

16,172

Contract termination fee

5,000

5,000

5,000

Legal settlement

13,000

13,000

13,000

Other noninterest income

 

27,404

 

24

 

103

 

27,531

 

283

 

 

283

 

27,814

 

31,648

 

50

 

136

 

31,834

 

528

 

 

528

 

32,362

Total noninterest income

 

27,404

 

24

 

31,950

 

59,378

 

22,773

 

4,902

 

27,675

 

87,053

 

31,648

 

50

 

6,332

 

38,030

 

38,480

 

13,300

 

51,780

 

89,810

Total noninterest expense

 

149,061

 

4,387

 

10,760

 

164,208

 

17,514

 

3,735

 

21,249

 

185,457

 

149,681

 

3,604

 

9,912

 

163,197

 

15,717

 

8,394

 

24,111

 

187,308

Income before income tax expense

 

21,467

 

20,981

 

22,552

 

65,000

 

15,042

 

22,591

 

37,633

 

102,633

Income tax expense

1,395

4,721

4,736

10,852

3,323

5,212

8,535

19,387

Net income

$

20,072

$

16,260

$

17,816

$

54,148

$

11,719

$

17,379

$

29,098

$

83,246

Income (loss) before income tax expense

 

52,081

 

11,292

 

(3,061)

 

60,312

 

34,523

 

22,010

 

56,533

 

116,845

Income tax expense (benefit)

11,104

2,539

(673)

12,970

7,847

4,922

12,769

25,739

Net income (loss)

$

40,977

$

8,753

$

(2,388)

$

47,342

$

26,676

$

17,088

$

43,764

$

91,106

Period-end assets

$

4,750,460

$

962,692

$

62,400

$

5,775,552

$

285,612

$

107,161

$

392,773

$

6,168,325

$

4,894,773

$

405,052

$

13,938

$

5,313,763

$

409,259

$

112,521

$

521,780

$

5,835,543

Net interest margin

 

3.42

%  

 

3.19

%  

 

NM

 

3.39

%  

 

NM

 

NM

 

NM

 

4.10

%  

 

3.38

%  

 

2.69

%  

 

NM

 

3.32

%  

 

NM

 

NM

 

NM

 

4.12

%  

Net-revenue concentration*

59

%  

8

%  

10

%  

77

%  

14

%  

9

%  

23

%  

100

%  

63

%  

4

%  

2

%  

69

%  

18

%  

13

%  

31

%  

100

%  

Year Ended December 31, 2019

 

Year Ended December 31, 2021

 

Core Banking

Republic Processing Group

 

Core Banking

Republic Processing Group

 

    

    

    

    

    

Total

    

    

Tax

Republic

    

    

 

    

    

    

    

    

Total

    

    

Tax

Republic

    

    

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income

$

168,076

$

15,801

$

697

$

184,574

$

21,626

$

29,926

$

51,552

$

236,126

$

157,249

$

25,218

$

1,081

$

183,548

$

15,837

$

23,355

$

39,192

$

222,740

Provision for expected credit loss expense

 

2,444

 

622

 

 

3,066

 

11,249

 

11,443

 

22,692

 

25,758

 

(38)

 

(281)

 

 

(319)

 

6,683

 

8,444

 

15,127

 

14,808

Net refund transfer fees

 

 

 

 

 

21,158

 

 

21,158

 

21,158

 

 

 

 

 

20,248

 

 

20,248

 

20,248

Mortgage banking income

 

 

 

9,499

 

9,499

 

 

 

 

9,499

 

 

 

19,994

 

19,994

 

 

 

 

19,994

Program fees

437

4,275

4,712

4,712

3,171

11,066

14,237

14,237

Net gain on branch divestiture

7,829

7,829

7,829

Other noninterest income

 

30,724

 

(46)

 

213

 

30,891

 

260

 

659

 

919

 

31,810

 

31,492

 

57

 

191

 

31,740

 

356

 

 

356

 

32,096

Total noninterest income

 

38,553

 

(46)

 

9,712

 

48,219

 

21,855

 

4,934

 

26,789

 

75,008

 

31,492

 

57

 

20,185

 

51,734

 

23,775

 

11,066

 

34,841

 

86,575

Total noninterest expense

 

143,671

 

3,268

 

6,112

 

153,051

 

16,539

 

2,593

 

19,132

 

172,183

 

145,376

 

4,210

 

12,356

 

161,942

 

16,344

 

4,779

 

21,123

 

183,065

Income before income tax expense

 

60,514

 

11,865

 

4,297

 

76,676

 

15,693

 

20,824

 

36,517

 

113,193

 

43,403

 

21,346

 

8,910

 

73,659

 

16,585

 

21,198

 

37,783

 

111,442

Income tax expense

 

9,651

 

2,670

 

902

 

13,223

 

3,454

 

4,817

 

8,271

 

21,494

 

7,685

 

4,962

 

1,960

 

14,607

 

3,964

 

5,260

 

9,224

 

23,831

Net income

$

50,863

$

9,195

$

3,395

$

63,453

$

12,239

$

16,007

$

28,246

$

91,699

$

35,718

$

16,384

$

6,950

$

59,052

$

12,621

$

15,938

$

28,559

$

87,611

Period-end assets

$

4,684,116

$

717,994

$

26,469

$

5,428,579

$

86,849

$

104,891

$

191,740

$

5,620,319

$

4,717,836

$

850,703

$

43,929

$

5,612,468

$

371,647

$

109,517

$

481,164

$

6,093,632

Net interest margin

 

3.76

%  

 

2.42

%  

 

NM

 

3.61

%  

 

NM

 

NM

 

NM

 

4.46

%  

 

3.18

%  

 

3.37

%  

 

NM

 

3.20

%  

 

NM

 

NM

 

NM

 

3.79

%  

Net-revenue concentration*

67

%  

5

%  

3

%  

75

%  

14

%  

11

%  

25

%  

100

%  

61

%  

8

%  

7

%  

76

%  

13

%  

11

%  

24

%  

100

%  

179

Table of Contents

Year Ended December 31, 2018

 

Core Banking

Republic Processing Group

 

    

    

    

    

    

Total

    

    

Tax

    

Republic

    

    

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income

$

160,398

$

15,726

$

402

$

176,526

$

19,203

$

30,329

$

49,532

$

226,058

Provision for expected credit loss expense

 

3,710

 

(142)

 

 

3,568

 

10,919

 

16,881

 

27,800

 

31,368

Net refund transfer fees

 

 

 

 

 

20,029

 

 

20,029

 

20,029

Mortgage banking income

 

 

 

4,825

 

4,825

 

 

 

 

4,825

Program fees

295

5,930

6,225

6,225

Other noninterest income

 

29,965

 

40

 

550

 

30,555

 

1,229

 

562

 

1,791

 

32,346

Total noninterest income

 

29,965

 

40

 

5,375

 

35,380

 

21,553

 

6,492

 

28,045

 

63,425

Total noninterest expense

 

136,439

 

3,367

 

4,356

 

144,162

 

14,686

 

5,004

 

19,690

 

163,852

Income before income tax expense

 

50,214

 

12,541

 

1,421

 

64,176

 

15,151

 

14,936

 

30,087

 

94,263

Income tax expense

 

6,819

 

2,869

 

298

 

9,986

 

3,033

 

3,392

 

6,425

 

16,411

Net income

$

43,395

$

9,672

$

1,123

$

54,190

$

12,118

$

11,544

$

23,662

$

77,852

Period-end assets

$

4,647,037

$

470,126

$

14,246

$

5,131,409

$

20,288

$

88,707

$

108,995

$

5,240,404

Net interest margin

 

3.76

%  

 

3.18

%  

 

NM

 

3.70

%  

 

NM

 

NM

 

NM

 

4.62

%  

Net-revenue concentration*

66

%  

5

%  

2

%  

73

%  

14

%  

13

%  

27

%  

100

%  

*Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.

NM -Not Meaningful

26.

BRANCH DIVESTITURE

In July 2019, the Bank entered into a definitive agreement to sell its 4 banking centers located in the Kentucky cities of Owensboro, Elizabethtown, and Frankfort to Limestone Bank (“Limestone”), a subsidiary of Limestone Bancorp, Inc. The agreement provided that Limestone acquire loans with balances of approximately $128 million as of November 15, 2019 (the “Closing Date”) and assume deposits with balances of approximately $132 million as of the Closing Date, associated with the 4 banking centers.

In addition to the sale of loans and assumption of deposits, Limestone also acquired substantially all of the fixed assets of these locations, which had a book value of $1.3 million as of the Closing Date. Based on the Closing Date deposits, the all-in blended premium for the transaction was 6.1% of the total deposits transferred. The final calculated premium was based on the trailing 10-day average amount of the deposits as of the Closing Date, as well as the branch location for the deposits.

The Company operated its divested branches for 10.5 and 12 months, respectively during 2019 and 2018.

180172

Table of Contents

Year Ended December 31, 2020

 

Core Banking

Republic Processing Group

 

    

    

    

    

    

Total

    

    

Tax

    

Republic

    

    

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income

$

159,381

$

25,957

$

1,362

$

186,700

$

22,972

$

22,643

$

45,615

$

232,315

Provision for expected credit loss expense

 

16,257

 

613

 

 

16,870

 

13,189

 

1,219

 

14,408

 

31,278

Net refund transfer fees

 

 

 

 

 

20,297

 

 

20,297

 

20,297

Mortgage banking income

 

 

 

31,847

 

31,847

��

 

 

 

 

31,847

Program fees

2,193

4,902

7,095

7,095

Gain on branch divestiture

Other noninterest income

 

27,404

 

24

 

103

 

27,531

 

283

 

 

283

 

27,814

Total noninterest income

 

27,404

 

24

 

31,950

 

59,378

 

22,773

 

4,902

 

27,675

 

87,053

Total noninterest expense

 

149,061

 

4,387

 

10,760

 

164,208

 

17,514

 

3,735

 

21,249

 

185,457

Income before income tax expense

 

21,467

 

20,981

 

22,552

 

65,000

 

15,042

 

22,591

 

37,633

 

102,633

Income tax expense

 

1,395

 

4,721

 

4,736

 

10,852

 

3,323

 

5,212

 

8,535

 

19,387

Net income

$

20,072

$

16,260

$

17,816

$

54,148

$

11,719

$

17,379

$

29,098

$

83,246

Period-end assets

$

4,750,460

$

962,692

$

62,400

$

5,775,552

$

285,612

$

107,161

$

392,773

$

6,168,325

Net interest margin

 

3.42

%  

 

3.19

%  

 

NM

 

3.39

%  

 

NM

 

NM

 

NM

 

4.10

%  

Net-revenue concentration*

59

%  

8

%  

10

%  

77

%  

14

%  

9

%  

23

%  

100

%  

*Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.

NM -Not Meaningful

27.26.

SUMMARYACQUISITION OF QUARTERLY FINANCIAL DATACBANK (UNAUDITED)

Presented below is a summaryOn October 26, 2022, the Company, RB&T, and CBank entered into the CBank Agreement. Upon completion of the consolidated quarterly financial data fortransaction, CBank will be merged with and into RB&T, with RB&T as the years ended December 31, 2020 and 2019.survivor of the merger. CBank is headquartered in Cincinnati, Ohio.

2020

    

Fourth

    

Third

    

Second

    

First

 

(dollars in thousands, except per share data)

Quarter

Quarter

Quarter

Quarter (1)

 

Interest income

$

57,970

$

56,038

$

57,091

$

81,159

Interest expense

 

2,850

 

3,786

 

4,886

 

8,421

Net interest income

 

55,120

 

52,252

 

52,205

 

72,738

Provision for loan and lease losses (2)

 

484

 

1,500

 

6,534

 

22,760

Net interest income after provision

 

54,636

 

50,752

 

45,671

 

49,978

Noninterest income

 

17,136

 

20,597

 

18,751

 

30,569

Noninterest expense (4)

 

48,140

 

45,523

 

44,825

 

46,969

Income before income taxes

 

23,632

 

25,826

 

19,597

 

33,578

Income tax expense (5)

 

3,276

 

5,437

 

3,793

 

6,881

Net income

$

20,356

$

20,389

$

15,804

$

26,697

Basic earnings per share:

Class A Common Stock

$

0.98

$

0.98

$

0.77

$

1.29

Class B Common Stock

 

0.89

 

0.89

 

0.69

 

1.17

Diluted earnings per share:

Class A Common Stock

$

0.98

$

0.98

$

0.76

$

1.28

Class B Common Stock

 

0.89

 

0.89

 

0.69

 

1.16

Dividends declared per common share:

Class A Common Stock

$

0.286

$

0.286

$

0.286

$

0.286

Class B Common Stock

 

0.260

 

0.260

 

0.260

 

0.260

Under the terms of the CBank Agreement, the Company will acquire all of CBank’s outstanding common stock in an all-cash direct merger of CBank with RB&T, resulting in a total cash payment of approximately $51 million to CBank’s existing shareholders. Republic expects to fund the cash payment through existing resources on-hand at RB&T. The completion of the transaction is subject to customary closing conditions, including regulatory approval and approval by CBank’s shareholders. The CBank Agreement also contains reciprocal termination provisions in the event the transaction does not receive the required regulatory approvals within six months of the effective date of the CBank Agreement or if certain minimum capital levels are not maintained by CBank as of the closing date.

The CBank Agreement was unanimously approved by the Republic, RB&T and CBank boards of directors on October 25, 2022.  In connection with entering into the CBank Agreement, Republic entered into customary support agreements with the members of CBank’s board of directors and other shareholders in their capacities as shareholders of CBank (the “CBank Support Agreements”). Subject to the terms and conditions, and non-termination, of the CBank Support Agreements, each such shareholder agreed, among other things, to vote his or her respective shares of CBank Common Stock in favor of the approval of the CBank Agreement and the transaction contemplated thereby, and against alternative acquisition proposals.  The CBank Support Agreements do not prevent the shareholders, in their capacity as directors, from exercising their fiduciary obligations in connection with alternative acquisition proposals. The CBank Agreement provides certain termination rights for both Republic and CBank and further provides that a termination fee of $2,040,000 will be payable by CBank to Republic upon termination of the CBank Agreement under certain circumstances, including CBank’s termination of the CBank Agreement to accept a Superior Proposal (as defined in the CBank Agreement).  The CBank Agreement was approved by its shareholders on December 13, 2022.

As of January 31, 2023, CBank had approximately $257 million in assets, consisting of approximately $221 million in gross loans, no other real estate owned, approximately $16 million of marketable securities, approximately $14 million in cash and cash equivalents and approximately $6 million in other assets. Also as of January 31, 2023, CBank had approximately $228 million of liabilities, including approximately $209 million in customer deposits and $13 million in Federal Home Loan Bank advances.

2019

    

Fourth

    

Third

    

Second

    

First

 

(dollars in thousands, except per share data)

Quarter

Quarter

Quarter

Quarter(1)

 

Interest income

$

64,527

$

68,059

$

65,664

$

82,633

Interest expense

 

10,132

 

12,573

 

11,718

 

10,334

Net interest income

 

54,395

 

55,486

 

53,946

 

72,299

Provision for loan and lease losses(2)

 

914

 

3,153

 

4,460

 

17,231

Net interest income after provision

 

53,481

 

52,333

 

49,486

 

55,068

Noninterest income (3)

 

19,655

 

12,811

 

15,125

 

27,417

Noninterest expense (4)

 

40,835

 

42,411

 

43,428

 

45,509

Income before income taxes

 

32,301

 

22,733

 

21,183

 

36,976

Income tax expense (5)

 

6,533

 

4,325

 

3,176

 

7,460

Net income

$

25,768

$

18,408

$

18,007

$

29,516

Basic earnings per share:

Class A Common Stock

$

1.23

$

0.88

$

0.86

$

1.42

Class B Common Stock

 

1.13

 

0.80

 

0.79

 

1.29

Diluted earnings per share:

Class A Common Stock

$

1.23

$

0.88

$

0.86

$

1.41

Class B Common Stock

 

1.12

 

0.80

 

0.78

 

1.28

Dividends declared per common share:

Class A Common Stock

$

0.264

$

0.264

$

0.264

$

0.264

Class B Common Stock

 

0.240

 

0.240

 

0.240

 

0.240

(1)The first quarters of 2020 and 2019 were significantly impacted by the TRS segment of RPG.

(2)Provision expense:

The relatively higher levels of Provision expense during the first quarters of 2020 and 2019 were driven by the TRS segment’s EA product. Provision expense for EAs during the first quarters of 2020 and 2019 was $15.2 million and $13.4 million.

Provision expense during 2020 was negatively impacted by economic conditions created by the COVID-19 pandemic.

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Table of Contents

27.CORRECTION OF PRIOR PERIOD ERROR

The relatively low Provision expense duringCompany identified a prior period accounting error substantially in the fourth quarterform of 2019 is partially attributablean immaterial understatement of revenue, solely related to one RCS line of credit product. In general, three business days following the Bank’s funding of the associated advances for this RCS line of credit product, the Bank sells a 95% participation interest in the advances. The error that was identified related to the releaseunder-recording of $900,000 in reserves associated with divested loans upon final settlementrevenue during this first three business day period after each advance was made when the Bank owned 100% of the Bank’s branch divestiture. See Footnote 26 inadvance.

The financial reporting periods affected by this sectionerror include the Company’s previously reported audited consolidated financial statements for the fiscal year ended December 31, 2021, and the Company’s previously reported interim unaudited consolidated financial statements for each of the filingquarterly and fiscal year-to-date periods ended June 30, 2021; September 30, 2021; March 31, 2022; June 30, 2022; and September 30, 2022; and the unaudited consolidated quarterly financial data for additional informationthe quarter ending December 31, 2021 (collectively the “previously reported financial statements”). The three month period ended December 31, 2021 and year ended December 31, 2021 also reflected certain immaterial revisions to reclassify certain gains and losses on the sale of the same RCS line of credit product.  These reclassifications impact noninterest income, noninterest expense and interest income with no impact to net income.

Based on the Company’s branch divestiture.

(3)Noninterest income:

The fourth quarterevaluation of 2019 included a $7.9 million net gain on the final settlementthis error in consideration of the Bank’s branch divestiture. See Footnote 26Financial Accounting Standards Board (“FASB) Accounting Standards Codification (“ASC”) 250 and the SEC Staff’s Accounting Bulletins Nos. 99 (“SAB 99”) and 108 (“SAB 108”) and interpretations therewith, the Company concluded this error was not material, on an individual or aggregate basis, to the Company’s previously reported financial statements and correction of the error would not be material to the current year financial statements, including any interim periods. However, the Company corrected this error as a voluntary immaterial revision to the accompanying financial statements in this sectionAnnual Report on Form 10-K, as of and for the fiscal years ended December 31, 2022, and 2021, in the periods in which the error occurred. In addition, the Company expects to present the corrected interim 2022 amounts in its 2023 consolidated interim financial statements upon the filing for additional informationof its Quarterly Reports on the Company’s branch divestiture.

(4)Noninterest expense:

During the fourth quarters of 2020Form 10-Q on a quarterly basis and 2019, the Company reversed $600,000 and $1.2 million of incentive compensation accruals based on revised payout estimates.a year-to-date basis as a voluntary immaterial revision to all applicable 2022 periods.

The fourth quarterFor additional discussion of 2020 included $2.1 millionManagement’s evaluation of non-recurring FHLB advance early termination penalties.its internal control over financial reporting as a result of this error, as well as Managements plans to remediate the Company’s material weaknesses, see Item 9A of this Annual Report on Form 10-K.

(5)See Footnote 19 in this section of the filing for more information on the Company’s income taxes for 2020 and 2019.

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The following tables present the impact of correcting the accounting error to the Company’s previously reported financial statements.

Consolidated Income Statement

($ in thousands, except per share data)

Period Ended March 31, 2022 (Unaudited)

3 Months

Immaterial

3 Months

As Reported

    

Revision

    

Revised

Interest Income

$

63,555

$

555

$

64,110

Net Interest Income

62,612

555

63,167

Income before income taxes

35,814

555

36,369

Income tax expense

7,888

131

8,019

Net income

27,926

424

28,350

Basic EPS - Class A Common Stock

$

1.40

$

0.02

$

1.42

Basic EPS - Class B Common Stock

1.27

0.02

1.29

Diluted EPS - Class A Common Stock

1.40

0.02

1.42

Diluted EPS - Class B Common Stock

1.27

0.02

1.29

Consolidated Balance Sheet

($ in thousands)

Period Ended March 31, 2022 (Unaudited)

Period End Balance

Immaterial

Period End Balance

As Reported

Revision

Revised

Total Liabilities

$

5,509,540

$

(1,247)

$

5,508,293

Total Stockholders' Equity

840,329

1,247

841,576

Consolidated Income Statement

($ in thousands, except per share data)

Period Ended June 30, 2022 (Unaudited)

3 Months

Immaterial

3 Months

6 Months

Immaterial

6 Months

As Reported

    

Revision

    

Revised

    

As Reported

    

Revision

    

Revised

Interest Income

$

52,320

$

582

$

52,902

$

115,875

$

1,137

$

117,012

Net Interest Income

51,232

582

51,814

113,844

1,137

114,981

Income before income taxes

30,440

582

31,022

66,254

1,137

67,391

Income tax expense

6,539

136

6,675

14,427

267

14,694

Net income

23,901

446

24,347

51,827

870

52,697

Basic EPS - Class A Common Stock

$

1.20

$

0.03

$

1.23

$

2.60

$

0.05

$

2.65

Basic EPS - Class B Common Stock

1.09

0.03

1.12

2.37

0.04

2.41

Diluted EPS - Class A Common Stock

1.20

0.02

1.22

2.59

0.05

2.64

Diluted EPS - Class B Common Stock

1.09

0.02

1.11

2.36

0.04

2.40

Consolidated Balance Sheet

($ in thousands)

Period Ended June 30, 2022 (Unaudited)

Period End Balance

Immaterial

Period End Balance

As Reported

Revision

Revised

Total Liabilities

$

5,270,302

$

(1,692)

$

5,268,610

Total Stockholders' Equity

842,174

1,692

843,866

Consolidated Income Statement

($ in thousands, except per share data)

Period Ended September 30, 2022 (Unaudited)

3 Months

Immaterial

3 Months

9 Months

Immaterial

9 Months

As Reported

    

Revision

    

Revised

    

As Reported

    

Revision

    

Revised

Interest Income

$

60,056

$

561

$

60,617

$

175,931

$

1,698

$

177,629

Net Interest Income

58,036

561

58,597

171,880

1,698

173,578

Income before income taxes

25,405

561

25,966

91,659

1,698

93,357

Income tax expense

5,922

148

6,070

20,349

415

20,764

Net income

19,483

413

19,896

71,310

1,283

72,593

Basic EPS - Class A Common Stock

$

0.99

$

0.02

$

1.01

$

3.60

$

0.06

$

3.66

Basic EPS - Class B Common Stock

0.90

0.02

0.92

3.27

0.06

3.33

Diluted EPS - Class A Common Stock

0.99

0.02

1.01

3.58

0.07

3.65

Diluted EPS - Class B Common Stock

0.90

0.02

0.92

3.26

0.06

3.32

Consolidated Balance Sheet

($ in thousands)

Period Ended September 30, 2022 (Unaudited)

Period End Balance

Immaterial

Period End Balance

As Reported

Revision

Revised

Total Liabilities

$

5,158,705

$

(2,105)

$

5,156,600

Total Stockholders' Equity

840,958

2,105

843,063

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Consolidated Income Statement

($ in thousands, except per share data)

Period Ended June 30, 2021 (Unaudited)

3 Months

Immaterial

3 Months

6 Months

Immaterial

6 Months

As Reported

    

Revision

    

Revised

    

As Reported

    

Revision

    

Revised

Interest Income

$

51,815

$

45

$

51,860

$

121,458

$

45

$

121,503

Net Interest Income

50,304

45

50,349

118,170

45

118,215

Income before income taxes

30,561

45

30,606

64,305

45

64,350

Income tax expense

6,639

9

6,648

14,330

9

14,339

Net income

23,922

36

23,958

49,975

36

50,011

Basic EPS - Class A Common Stock

$

1.16

$

$

1.16

$

2.42

$

$

2.42

Basic EPS - Class B Common Stock

1.05

0.01

1.06

2.20

2.20

Diluted EPS - Class A Common Stock

1.16

1.16

2.41

2.41

Diluted EPS - Class B Common Stock

1.05

1.05

2.19

2.19

Consolidated Balance Sheet

($ in thousands)

Period Ended June 30, 2021 (Unaudited)

Period End Balance

Immaterial

Period End Balance

As Reported

Revision

Revised

Total Liabilities

$

5,338,220

$

(36)

$

5,338,184

Total Stockholders' Equity

845,090

36

845,126

Consolidated Income Statement

($ in thousands, except per share data)

Period Ended September 30, 2021 (Unaudited)

3 Months

Immaterial

3 Months

9 Months

Immaterial

9 Months

As Reported

    

Revision

    

Revised

    

As Reported

    

Revision

    

Revised

Interest Income

$

54,469

$

497

$

54,966

$

175,927

$

542

$

176,469

Net Interest Income

53,129

497

53,626

171,299

542

171,841

Income before income taxes

26,227

497

26,724

90,532

542

91,074

Income tax expense

6,218

124

6,342

20,548

133

20,681

Net income

20,009

373

20,382

69,984

409

70,393

Basic EPS - Class A Common Stock

$

0.99

$

0.02

$

1.01

$

3.40

$

0.02

$

3.42

Basic EPS - Class B Common Stock

0.90

0.02

0.92

3.10

0.02

3.12

Diluted EPS - Class A Common Stock

0.99

0.02

1.01

3.39

0.02

3.41

Diluted EPS - Class B Common Stock

0.90

0.01

0.91

3.09

0.01

3.10

Consolidated Balance Sheet

($ in thousands)

Period Ended September 30, 2021 (Unaudited)

Period End Balance

Immaterial

Period End Balance

As Reported

Revision

Revised

Total Liabilities

$

5,348,977

$

(409)

$

5,348,568

Total Stockholders' Equity

838,657

409

839,066

Consolidated Income Statement

($ in thousands, except per share data)

Period Ended December 31, 2021 (Unaudited)

Period Ended December 31, 2021 (Unaudited)

3 Months

Immaterial

3 Months

12 Months

Immaterial

12 Months

As Reported

    

Revision

    

Revised

As Reported

    

Revision

Revised

Interest Income

$

51,379

$

558

$

51,937

$

226,260

$

2,146

$

228,406

Net Interest Income

50,341

558

50,899

220,594

2,146

222,740

Noninterest Income

16,630

449

17,079

86,859

(284)

86,575

Noninterest Expense

44,585

449

45,034

182,304

761

183,065

Income before income taxes

19,809

558

20,367

110,341

1,101

111,442

Income tax expense

3,004

145

3,149

23,552

279

23,831

Net income

16,805

413

17,218

86,789

822

87,611

Basic EPS - Class A Common Stock

$

0.84

$

0.03

$

0.87

$

4.25

$

0.04

$

4.29

Basic EPS - Class B Common Stock

0.77

0.01

0.78

3.87

0.03

3.90

Diluted EPS - Class A Common Stock

0.84

0.02

0.86

4.24

0.04

4.28

Diluted EPS - Class B Common Stock

0.76

0.02

0.78

3.85

0.04

3.89

Consolidated Balance Sheet

($ in thousands)

Period Ended December 31, 2021 (Unaudited)

Period End Balance

Immaterial

Period End Balance

As Reported

Revision

Revised

Total Liabilities

$

5,259,400

$

(822)

$

5,258,578

Total Stockholders' Equity

834,232

822

835,054

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Disclosure.

None

Item 9A. Controls and Procedures.

As of the end of the period covered byIn preparing this report, an evaluation was carried out by Republic Bancorp, Inc.’s management,the Company’s Management, under the supervision and with the participation of the Company’s Chairman/Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the effectivenessdesign and operation of the Company’s disclosure controls and procedures, (asas defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective1934 (the “Exchange Act”), as of the endlast day of the period covered by this report. In addition, no changeBased on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, due to the material weaknesses in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fourth quarter ofdescribed below, the Company’s fiscal year endeddisclosure controls and procedures were not effective as of December 31, 20202022.  However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures Management performed to ensure that has materially affected, or is reasonably likely to materially affect, internal control overthe Company’s consolidated financial reporting.statements included in this Annual Report on Form 10-K were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), Management concluded that the Company’s consolidated financial statements present fairly, in all material respects, its financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP. 

Management’sManagements Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

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

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.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the Reportpreparation of Independent Registered Public Accounting Firm onfinancial statements for external purposes in accordance with generally accepted accounting principles. 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.

Management has made its own assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, in relation to the criteria described in the report, Internal Control Over— Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

As a result of its review, Management identified material weaknesses in the Company’s internal control over financial reporting as of December 31, 2022.  Based on its assessment under the COSO, Management concluded that the Company’s system of internal control over financial reporting was not effective due to these material weaknesses, which are further described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.  

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The material weaknesses that Management identified were the following:

1)the Company did not maintain effective controls over the initial implementation of new products offered through third parties within RPG. Specifically, Management identified that an RCS product’s contractual terms were not sufficiently communicated internally, and the controls were not designed to identify and test all relevant transactional data posting to the Company’s financial statements for the product;

2)the Company did not maintain effective controls over the information and communication as it relates to the reconciliation function. Specifically, the controls were not precisely designed to identify, communicate, resolve, and timely escalate reconciliation issues to the appropriate levels within the organization; and

3)the Company did not design and maintain effective controls over the financial analysis of RCS products’ yields.  Specifically, the Company reviewed the weighted average yield of all RCS products on a segment basis rather than an individual product basis.

The material weaknesses identified above resulted in the correction of an error through a voluntary immaterial revision of revenue and net income solely related to one RCS product during 2021 and the first three quarters of 2022. This understatement could have become material to the Company’s current and historical financial statements if it had remained undetected. The Company corrected this error as a voluntary immaterial revision to the accompanying financial statements, as of and for the fiscal years ended December 31, 2022, and 2021, and in the periods in which the error occurred.

The 2022 financial statements have been audited by the independent registered public accounting firm of Crowe LLP (“Crowe”). Crowe has also issued a report on the effectiveness of internal control over financial reporting. That report has also been made a part of this Annual Report.

Remediation Plan and Status

Management believes that the material weaknesses as of December 31, 2022, are in the process of being remediated. A material weakness will not be considered fully remediated until the enhanced controls related to that material weakness are fully implemented and operate for a sufficient period and management has concluded that these controls are operating effectively.  

To remediate the material weaknesses, the Company has implemented or plans to implement the following measures as it relates to each:

Material Weakness 1:  the Company did not maintain effective controls over the initial implementation of new products offered through third parties within RPG. Specifically, Management identified that an RCS product’s contractual terms were not sufficiently communicated internally, and the controls were not designed to identify and test all relevant transactional data posting to the Company’s financial statements for the product.

The Company will evaluate and enhance its new product implementation policies and procedures for new third-party products offered through RPG to ensure proper implementation and design, as well as adequate reviews and approvals from all required stakeholders within the Company.

Material Weakness 2:the Company did not maintain effective controls over the information and communication as it relates to the reconciliation function.  Specifically, the controls were not precisely designed to identify, communicate, resolve, and timely escalate reconciliation issues to the appropriate levels within the organization.

The Company will designate a new accounting position specific to the RPG operations that will report up through the Chief Financial Officer of the Company and not to the business unit. This position will have day-to-day responsibilities overseeing the financial reporting of the RPG segment.

The Company has engaged an outside technology company to assist it in automating internal reconciliations, which will allow the Company’s personnel to more quickly identify and resolve reconciliation issues.

The Company will enhance its training, policies, and procedures to provide better guidance to reconciliation personnel for escalation requirements of reconciliation items as well as internal responsibilities for resolving reconciliation issues.

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Material Weakness 3:the Company did not design and maintain effective controls over the financial analysis of RCS products’ yields.  Specifically, the Company reviewed the weighted average yield of all RCS products on a segment basis rather than an individual product basis.

Management is enhancing its internal monthly financial reporting to provide a more detailed yield analysis at the product level for the performance of each RCS product.

Changes in Internal Control over Financial Reporting and on

There were no changes in the Financial Statements, thereonCompany’s internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are set forth under Part II Item 8 “Financial Statements and Supplementary Data.”reasonably likely to materially affect, the Company’s internal control over financial reporting. After December 31, 2022, the Company began the remediation steps described above.

Item 9B. Other Information.

None

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

None

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item appears under the headings “PROPOSAL ONE: ELECTION OF DIRECTORS,” “DELINQUENT SECTION 16(a) REPORTS” and “THE BOARD OF DIRECTORS AND ITS COMMITTEES” of the Proxy Statement of Republic for the 20202023 Annual Meeting of Shareholders (“Proxy Statement”) to be held April 22, 2021,20, 2023, all of which is incorporated herein by reference.

Set forth below is certain information with respect to the Company’s executive officers:

Name

    

Age

    

Position with the Company

   

Steven E. Trager

6062

ChairmanExecutive Chair and CEO of the Company; Executive Chair of RB&T

A. Scott Trager

6870

Vice ChairmanChair and President of the Company; Director of the Company and RB&T

Kevin Sipes

4951

EVP, CFO, and Chief Accounting Officer

Andrew Trager-Kusman

34

Director of Republicthe Company and SVP of Republic Bank & Trust CompanyRB&T

Logan Pichel

5658

Director of the Company and RB&T; President Republic Bankand CEO of RB&T

Christy Ames

50

Secretary of the Company; EVP of RB&T

John Rippy

62

Assistant Secretary of the Company; EVP of RB&T

William R. Nelson

5759

President of RB&T's Republic Processing Group

Pedro Bryant

5961

EVP Republic Bank & Trust Companyof RB&T

Steven E. DeWeese

5254

EVP Republic Bank & Trust Companyof RB&T

Juan Montano

51

EVP, Republic Bank & Trust Company

Anthony T. Powell

53

EVP Republic Bank & Trust Companyof RB&T

John RippyAnthony T. Powell

6055

EVP Republic Bank & Trust Companyof RB&T

Jeff Starke

45

EVP of RB&T

Margaret Wendler

6668

EVP Republic Bank & Trust Companyof RB&T

Executive officers of the Company are elected by the Board of Directors and serve at the pleasure of the Board of Directors. Steven E. Trager and A. Scott Trager are cousins.

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Steven E. Trager began servinghas served as ChairmanExecutive Chair (previously titled Chair) and CEO of Republic since 2012. He was named Executive Chair of the Bank in 2012 and hasSeptember 2021, prior to which he served as ChairmanChair and CEO of the Bank since 1998. From 1994 to 1997 he served as Vice ChairmanChair of the Company. From 1994 to 1998 he served as Secretary, and from 1998 to 2012 he served as President and CEO of Republic.

A. Scott Trager has served as Vice ChairmanChair of Republic and the Bank since April 2017. He has also served as Director and President of Republic since 2012. He served as President of the Bank from 1984 to 2017 and Vice ChairmanChair of Republic from 1994 to 2012.

Kevin Sipes joined the Company in 1995 and has served as EVP and Treasurer of Republic and the Company since 2002 and CFO of Republic and the Company since 2000. He began serving as Chief Accounting Officer of the Company in 2000.

Andrew Trager-Kusman has served as Managing Director of Corporate Strategies for the Bank since 2016. He was named a Director of Republic in April 2019 and a Senior Vice President of the Bank in January 2020.

Logan Pichel who has over 25 yearswas appointed CEO of the Bank effective October 1, 2021 and was elected to the boards of the Company and the Bank in the banking industry,September 2021. He joined the Company in June 2020 as the Bank’s President.President and has over 25 years in the banking industry. Prior to joining Republic, he served from 2005 to 2020 at Regions Bank, most recently as their Executive Vice President, Head of Corporate Development and Financial Planning & Analysis and Mergers and Acquisitions.

Christy Ames joined Republic Bank & Trust Company on January 2, 2018 as the Bank’s Senior Vice President, General Counsel.  She also serves as the Secretary for the Bank and the Company. Ms. Ames has represented financial institutions for over twenty years, most recently serving as a member at Stites & Harbison, PLLC and Chair of the firm’s Financial Institution Litigation Sub Group and as General Counsel for First Residential Mortgage Network, Inc. d/b/a SurePoint Lending. In January 2022, Ms. Ames was named an EVP of the Bank.

John Rippy joined the Company in 2005 as SVP and Risk Management Officer. In 2009, he was named SVP and Chief Legal and Compliance Officer. In 2013, he was named SVP and Chief Risk Management Officer. In 2018, he was named EVP and Chief Risk Officer. He also serves as assistant Secretary of the Company.

William R. Nelson has served as President of Republic Processing Group since 2007. He previously served as Director of Relationship Management of HSBC, Taxpayer Financial Services, in 2004 and was promoted to Group Director — Independent Program in 2006 through 2007. He previously served as Director of Sales, Marketing and Customer Service with the Bank from 1999 through 2004.

Pedro Bryant, who has almost 40 years in the banking industry, joined the Company in July 2020 as an EVP of the Bank and the Bank’s Managing Director of Community Lending. Prior to joining Republic, he served from 2002 to 2020 as President and CEO of Metro Bank, a Louisville-based community development bank.

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Steven E. DeWeese joined the Company in 1990 and has held various positions within the Company since then. In 2000, he was promoted to SVP. In 2003, he was promoted to Managing Director of Business Development. In 2006, he was promoted to Managing Director of Retail Banking, and in January 2010 he was promoted to EVP of the Company. In 2015,2019, he was named the Company’s Managing Director of Private and Business Banking.

Juan Montano has served as the Bank’s EVP and Chief Mortgage Banking Officer since 2018. He previously served as SVP and Managing Director of Mortgage Lending from 2015 to 2018. He joined the Company in 2009 as SVP and Managing Director of Finance. In 2015, he was named SVP and Managing Director of Mortgage Lending. In 2018, he was named EVP and Chief Mortgage Banking Officer.

Anthony T. Powell joined the Company in 1999 as VP. In 2001, he was promoted to SVP and Senior Commercial Lending Officer. In 2005, he was promoted to SVP and Managing Director of Business Banking.Lending. In 2015, he assumed responsibility for the Retail Banking division of the Company and was named SVP and Chief Credit and Retail Officer. In January 2017, he was named EVP and Chief Lending Officer.

John RippyJeff Starke joined Republic Bank & Trust Company on July 19, 2021 as the CompanyBank’s Executive Vice President, Chief Information Officer. He has held various technological and operational roles in 2005the financial services vertical for over 20 years. Prior to joining Republic, he served from 2010 to 2021 at Bank OZK, most recently as SVPChief Technology Officer and Risk Management Officer. In 2009, he was named SVP and Chief Legal and Compliance Officer. In 2013, he was named SVP and Chief Risk Management Officer. In 2018, he was named EVP and Chief Risk Officer.Chair of the Information Systems Steering Committee.

Margaret S Wendler joined the Company in 1996. She has served the Company in human resources since 2005. Most recently, in 2019 she was named Chief Human Resources Officer. In 2021, she was also named EVP.an EVP of the Bank.

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Item 11. Executive Compensation.

The compensation-related information required by this Item appears under the sub-headingheadings “COMPENSATION DISCUSSION AND ANALYSIS,” COMPENSATION COMMITTEE REPORT,”Director Compensation”DIRECTOR COMPENSATION” and under the headings CERTAIN INFORMATION AS TO MANAGEMENT and “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION” of the Proxy Statement, all of which is incorporated herein by reference.

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 equity compensation plans as of December 31, 2020.2022. Republic’s security holders approved each of the three equity compensation plans listed in the table below. There were no equity compensation plans not approved by security holders atas of December 31, 2020.2022.

    

(a) (1)  

    

(b)  

    

(c)  

    

(a) (1)  

    

(b)  

    

(c)  

Number of Securities Remaining

Number of Securities Remaining

Available for Future Issuance

Available for Future Issuance

Number of Securities to be Issued

Weighted-Average Exercise Price

Under Equity Compensation Plans

Number of Securities to be Issued

Weighted-Average Exercise Price

Under Equity Compensation Plans

Upon Exercise of Outstanding

of Outstanding Options, Warrants

(Excluding Securities Reflected in

Upon Exercise of Outstanding

of Outstanding Options, Warrants

(Excluding Securities Reflected in

Plan Category

Options, Warrants and Rights

and Rights

Column (a))

Options, Warrants and Rights

and Rights

Column (a))

 

 

2005 Stock Incentive Plan

500

$

23.50

2015 Stock Incentive Plan

 

505,445

(2)  

$

36.20

2,329,345

 

711,864

(2)  

$

38.81

1,983,383

2018 Employee Stock Purchase Plan (3)

 

$

214,296

 

$

183,562

(1)Column (a) above includes options issued for Class A Common Stock only. Options for Class B Common Stock have been authorized but are not issued.

(2)Includes 125,210182,098 shares of Class A Common Stock subject to issuance in accordance with the Republic Bancorp, Inc. Non-Employee Director and Key Employee Deferred Compensation Plan for service previously rendered. Republic’s security holders previously approved this plan. These shares are to be issued from shares available for issuance under the 2015 Stock Incentive Plan; thePlan. Also includes 64,733 restricted shares of Class A Common Stock. The weighted-average exercise price in Column (b) does not take these awards into account. For further information, see Footnote 17 “Stock Plans and Stock Based Compensation” of Part II Item 8 “Financial Statements and Supplementary Data.”

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Table of Contents

(3)The 2018 Employee Stock Purchase Plan is a qualified Employee Stock Purchase Plan under Section 423 of the Code, pursuant to which up to 250,000 shares of Class A Common Stock were authorized for issuance. Under the ESPP, employees may purchase shares at a purchase price that cannot be less than 85% of the lower of the fair market value of the Company’s Class A Common Stock on the first trading day of each offering period or on the last trading day of each offering period. No offering period may exceed 27 months in length. As of the close of business on December 31, 2020,2022, there were no shares of Class A Common Stock subject to purchase during open offering periods.

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, and Director Independence.

Information required by this Item is under the headings “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONPROPOSAL ONE: ELECTION OF DIRECTORS” and “CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS” of the Proxy Statement, all of which is incorporated herein by reference.

Item 14. Principal AccountingAccountant Fees and Services.

Information required by this Item appears under the heading “PROPOSAL TWO: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” of the Proxy Statement which is incorporated herein by reference.

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PART IV

Item 15. Exhibits, 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

Consolidated balance sheets — December 31, 20202022 and 20192021

Consolidated statements of income and comprehensive income — years ended December 31, 2020, 2019,2022, 2021, and 20182020

Consolidated statements of stockholders’ equity — years ended December 31, 2020, 2019,2022, 2021, and 20182020

Consolidated statements of cash flows — years ended December 31, 2020, 2019,2022, 2021, and 20182020

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 15(b) are noted in the Exhibit Index.

Item 16. Form 10K10-K Summary.

Not applicable.

185182

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INDEX TO EXHIBITS

No.

    

Description

3(i)

Articles of Incorporation of Registrant, as amended (Incorporated by reference to Exhibit 3(i) to the Registrant’s Form 8-K filed October 13, 2016 (Commission File Number: 0-24649))

3(ii)

Restated Bylaws (Incorporated by reference to Exhibit 3(ii) of Registrant’s Form 8-K filed March 15, 2017 (Commission File Number: 0-24649))

3(iii)

Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed November 18, 2020April 26, 2021 (Commission File Number: 0-24649))

4.1

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)

4.2

Agreement Pursuant to Item 601 (b)(4)(iii) of Regulation S-K (Incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-K for the year ended December 31, 1997 (Commission File Number: 33-77324))

4.3

Description of Securities (Incorporated by reference to Exhibit 4.3 of Registrant’s Form 10-K for the year ended December 31, 2019 (Commission File Number: 0-24649))

10.01*

Amended and Restated Officer Compensation Continuation Agreement dated as of January 12, 1995, with Steven E. Trager effective April 30, 2008 (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the quarter ended March 31, 2008 (Commission File Number: 0-24649))

10.02*

Amended and Restated Officer Compensation Continuation Agreement dated January 12, 1995, with A. Scott Trager effective April 30, 2008 (Incorporated by reference to Exhibit 10.3 of Registrant’s Form 10-Q for the quarter ended March 31, 2008 (Commission File Number: 0-24649))

10.03*

Amended and Restated Officer Compensation Continuation Agreement dated as of June 15, 2001, with Kevin Sipes effective April 30, 2008 (Incorporated by reference to Exhibit 10.4 of Registrant’s Form 10-Q for the quarter ended March 31, 2008 (Commission File Number: 0-24649))

10.04*

Agreement of Employment dated April 24, 2020, between Republic Bank & Trust Company and Logan Pichel (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed May 5, 2020 (Commission File Number: 0-24649))

10.05*10.02*

Termination of Employment Agreement dated September 15, 2021 between Republic Bank & Trust Company and Logan M. Pichel (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed September 15, 2021 (Commission File Number: 0-24649))

10.03*

Change in Control Severance Agreement dated January 27, 2021 between Republic Bank & Trust Company and William Nelson (Incorporated by reference to Exhibit 10.4 of Registrant’s Form 8-K filed February 1, 2021 (Commission File Number: 0-24649))

10.06*10.04*

Form of Executive Officer Change in Control Agreement between Republic Bank & Trust Company and designated Executive Officers (Incorporated by reference to Exhibit 10.5 of Registrant’s Form 8-K filed February 1, 2021 (Commission File Number: 0-24649))

10.0710.05

Split Dollar Insurance Policy with Citizens Fidelity Bank and Trust Company as the Trustee of the Bernard Trager Irrevocable Trust, dated December 14, 1989, as amended August 8, 1994 (Incorporated by reference to Exhibit 10.70 to Registrant’s Form 10-K for the year ended December 31, 2012 (Commission File Number: 33-77324))

10.0810.06

Right of First Offer Agreement by and among Republic Bancorp, Inc., Teebank Family Limited Partnership, Bernard M. Trager and Jean S. Trager. (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed September 19, 2007 (Commission File Number: 0-24649))

186

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No.

Description

10.0910.07

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 Form 10-Q for the quarter ended March 31, 1998 (Commission File Number: 0-24649))

10.1010.08

Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 2008, relating to 2801 Bardstown Road, Louisville (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed June 9, 2008 (Commission File Number: 0-24649))

10.1110.09

First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 2008, relating to 2801 Bardstown Road, Louisville (Incorporated by reference to Exhibit 10.23 of Registrant’s Form 10-K filed March 9, 2018 (Commission File Number: 0-24649))

183

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No.

Description

10.1210.10

Lease between Republic Bank & Trust Company and Teeco Properties, dated April 1, 1995, relating to property at 601 West Market Street (Incorporated by reference to exhibit 10.10 of Registrant’s Form 10-Q for the quarter ended March 31, 1998 (Commission File Number: 0-24649))

10.1310.11

Lease between Republic Bank & Trust Company and Teeco Properties, dated October 1, 1996, relating to property at 601 West Market Street (Incorporated by reference to exhibit 10.10 of Registrant’s Form S-1 (Commission File Number: 333-56583))

10.1410.12

Lease extension between Republic Bank & Trust Company and Teeco Properties, dated September 25, 2001, relating to property at 601 West Market Street (Incorporated by reference to exhibit 10.25 of Registrant’s Form 10-Q for the quarter ended September 30, 2001 (Commission File Number: 0-24649))

10.1510.13

First Amendment to 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 Form 10-Q for the quarter ended March 31, 2002 (Commission File Number: 0-24649))

10.1610.14

Lease between Republic Bank & Trust Company and Teeco Properties, dated October 1, 2005, relating to property at 601 West Market Street, Louisville, KY (Floor 4), amending and modifying previously filed exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended March 31, 2002 (Incorporated by reference to exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended September 30, 2005 (Commission File Number: 0-24649))

10.1710.15

Lease between Republic Bank & Trust Company and Teeco Properties, as of October 1, 2006, relating to property at 601 West Market Street, Louisville, KY. (Incorporated by reference to exhibit 10.1 of Registrant’s Form 8-K filed September 25, 2006 (Commission File Number: 0-24649))

10.1810.16

First Amendment to Lease between Republic Bank & Trust Company and Teeco Properties, as of July 8, 2008, relating to property at 601 West Market Street (Floors 1,2,3,5 and 6), Louisville, KY. (Incorporated by reference to exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended June 30, 2008 (Commission File Number: 0-24649))

10.1910.17

First Amendment to Lease between Republic Bank & Trust Company and Teeco Properties, as of July 8, 2008, relating to property at 601 West Market Street (Floor 4), Louisville, KY. (Incorporated by reference to exhibit 10.2 of Registrant’s Form 10-Q for the quarter ended June 30, 2008 (Commission File Number: 0-24649))

10.2010.18

Assignment of Lease relating to property at 601 West Market Street (Floors 1,2,3,5 and 6), Louisville, KY. (Incorporated by reference to exhibit 10.31 of Registrant’s Form 10-K for the year ended December 31, 2016 (Commission File Number: 0-24649))

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No.

Description

10.2110.19

Assignment of Lease relating to property at 601 West Market Street (Floor 4), Louisville, KY. (Incorporated by reference to exhibit 10.32 of Registrant’s Form 10-K for the year ended December 31, 2016 (Commission File Number: 0-24649))

10.2210.20

Master Office Lease between Republic Bank & Trust Company and Makbe LLC, dated August 1, 2020, relating to property at 601 West Market Street (Incorporated by reference to exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended June 30, 2020 (Commission File Number: 0-24649))

10.2310.21

Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 3, 1993, as amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.12 of Registrant’s Form 10-Q for the quarter ended March 31, 1998 (Commission File Number: 0-24649))

10.2410.22

Fifth Amendment to 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 Form 10-Q for the quarter ended June 30, 1999 (Commission File Number: 0-24649))

184

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No.

Description

10.2510.23

Sixth Amendment to 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 Form 10-K for the year ended December 31, 1999 (Commission File Number: 0-24649))

10.2610.24

Seventh Amendment to 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 10.1 of Registrant’s Form 10-Q for the quarter ended June 30, 2003 (Commission File Number: 0-24649))

10.2710.25

First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 2, 1993, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.16 of Registrant’s Form 10-K for the year ended December 31, 2003 (Commission File Number: 0-24649))

10.2810.26

Amendment to 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 Form 10-K for the year ended December 31, 2003 (Commission File Number: 0-24649))

10.2910.27

Second Amendment to 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 Form 10-K for the year ended December 31, 2003 (Commission File Number: 0-24649))

10.3010.28

Third Amendment to 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 Form 10-K for the year ended December 31, 2003 (Commission File Number: 0-24649))

10.3110.29

Fourth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated September 11, 1998, as amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by

188

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No.

Description

reference to Exhibit 10.21 of Registrant’s Form 10-K for the year ended December 31, 2003 (Commission File Number: 0-24649))

10.3210.30

Eighth Amendment to 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 Form 10-Q for the quarter ended March 31, 2004 (Commission File Number: 0-24649))

10.3310.31

Lease between Republic Bank & Trust Company and Jaytee Properties, dated September 1, 2005, relating to 661 South Hurstbourne Parkway, Louisville, KY, amending and modifying previously filed exhibit 10.12 of Registrant’s Form 10-Q for the quarter ended March 31, 1998 (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the quarter ended September 30, 2005 (Commission File Number: 0-24649))

10.34

Lease between Republic Bank & Trust Company and Jaytee Properties, dated July 1, 2008, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed June 9, 2008 (Commission File Number: 0-24649))

10.3510.31.1

First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 14, 2015, as amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10Q for the quarter ended September 30, 2015 (Commission File Number: 0-24649))

10.3610.31.2

Second Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated January 31, 2018, as amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.47 of Registrant’s Form 10-K filed March 9, 2018 (Commission File Number: 0-24649))

10.31.3

Third Amendment to Lease between Republic Bank & Trust Company and Jaytee-Hurstbourne LLC, dated January 10, 2023, as amended, relating to 661 South Hurstbourne Parkway, Louisville

10.32.1

First amendment to Lease between Republic Bank & Trust Company and Jaytee-Hurstbourne LLC, dated January 10, 2023, as amended, relating to 661 South Hurstbourne Parkway, Louisville

185

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No.

Description

10.3710.33

Lease between Republic Bank & Trust Company and Jaytee Properties, dated November 17, 1997, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.13 of Registrant’s Form 10-Q for the quarter ended March 31, 1998 (Commission File Number: 0-24649))

10.3810.34

Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 1999, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.18 of Registrant’s Form 10-Q for the quarter ended June 30, 1999 (Commission File Number: 0-24649))

10.39

Sixth Amendment to 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 10.35 of Registrant’s Form 10-K for the year ended December 31, 2019 (Commission File Number: 0-24649))

10.40

Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated October 30, 1999, as amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.20 of Registrant’s Form 10-K for the year ended December 31, 1999 (Commission File Number: 0-24649))

10.4110.36

Third Amendment to 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 10.2 of Registrant’s Form 10-Q for the quarter ended June 30, 2003 (Commission File Number: 0-24649))

10.4210.37

Lease between Republic Bank & Trust Company and Jaytee Properties, dated November 1, 2005, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.33 of Registrant’s Form 10-K for the year ended December 31, 2005 (Commission File Number: 0-24649))

189

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No.

Description

10.4310.38

Assignment and Assumption of Lease by Republic Bank & Trust Company with the consent of Jaytee Properties, dated May 1, 2006, relating to 9600 Brownsboro Road, Louisville, KY. (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the quarter ended June 30, 2006 (Commission File Number: 0-24649))

10.4410.39

First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated January 17, 2008, as amended, relating to 9600 Brownsboro Road, Louisville, KY (Incorporated by reference to Exhibit 10.40 of Registrant’s Form 10-K for the year ended December 31, 2007 (Commission File Number: 0-24649))

10.4510.40

Fourth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated January 15, 2014, as amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.47 of Registrant’s Form 10-K for the year ended December 31, 2013 (Commission File Number: 0-24649))

10.4610.41

Fifth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated March 15, 2017, as amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended March 31, 2017 (Commission File Number: 0-24649))

10.4710.42

Sixth Amendment to 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 10.35 of Registrant’s Form 10-K for the year ended December 31, 2019 (Commission File Number: 0-24649))

10.43

Seventh Amendment to Office Lease dated as of September 1, 2021 to the Office Lease dated August 1, 1999, as amended, by and between Jaytee-Springhurst, LLC and Republic Bank & Trust Company (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended September 30, 2021 (Commission Number: 0-24649))

10.44

Eighth Amendment to Office Lease dated as of November 17, 2021 to the Office Lease dated August 1, 1999, as amended, by and between Jaytee-Springhurst, LLC and Republic Bank & Trust Company (Incorporated by reference to Exhibit 10.46 of Registrant’s Form 10-K for the year ended December 31, 2021 (Commission Number: 0-24649))

10.45

Ground lease between Republic Bank & Trust Company and Jaytee Properties, relating to 9600 Brownsboro Road, dated January 17, 2008, relating to 9600 Brownsboro Road, Louisville, KY (Incorporated by reference to Exhibit 10.41 of Registrant’s Form 10-K for the year ended December 31, 2007 (Commission File Number: 0-24649))

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No.

Description

10.4810.46

Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated June 27, 2008, relating to 200 South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed July 1, 2008 (Commission File Number: 0-24649))

10.4910.47

Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated March 1, 2011, relating to 200 South Seventh Street, Louisville, KY (Incorporated by reference to Exhibit 10.66 of the Registrant’s Form 10-K for the year ended December 31, 2010 (Commission File Number: 0-24649))

10.5010.48

Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated May 1, 2013, relating to 200 South Seventh Street, Louisville, KY (Incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q for the quarter ended June 30, 2013 (Commission File Number: 0-24649))

10.5110.49

First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated January 15, 2014, as amended, relating to 200 South Seventh Street, Louisville, KY (Incorporated by reference to Exhibit 10.54 of Registrant’s Form 10-K for the year ended December 31, 2013 (Commission File Number: 0-24649))

10.5210.50

First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated March 18, 2015, as amended, relating to 200 South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended March 31, 2015 (Commission File Number: 0-24649))

10.5310.51

Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated September 30, 2015, relating to 200 South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the quarter ended September 30, 2015 (Commission File Number: 0-24649))

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No.

Description

10.5410.52

Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated March 15 2017 relating to 200 South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the quarter ended March 31, 2017 (Commission File Number: 0-24649))

10.5510.53

First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated September 20 2017, as amended, relating to 200 South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended September 30, 2017 (Commission File Number: 0-24649))

10.5610.54

Master Office Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated October 1 2020, relating to 200 South Seventh Street, Louisville, KY.

10.57*

Form of Stock Option Agreement for Directors and Executive Officers (Incorporated by reference to Exhibit 10.210.56 of Registrant’s Form 10-Q10-K for the quarteryear ended September 30, 2004December 31, 2021 (Commission File Number: 0-24649))

10.58*

2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed March 18, 2005 (Commission File Number: 0-24649))

10.59*

2005 Stock Incentive Plan Amendment Number 1 (Incorporated by reference to Exhibit 10.61 of Registrant’s Form 10- K for the year ended December 31, 2008 (Commission File Number: 0-24649))

10.60*

2005 Stock Incentive Plan Amendment, as amended November 14, 2012 (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed November 19, 2012 (Commission File Number: 0-24649))

10.61*10.55*

2015 Stock Incentive Plan (Incorporated by reference to Annex A of Registrant’s 2015 Proxy Statement (Commission File Number: 0-24649))

10.62*10.56*

Option Award Agreement for 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended June 30, 2015 (Commission File Number: 0-24649))

10.63*

10.57*

Restricted Stock Award Agreement for 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the quarter ended June 30, 2015 (Commission File Number: 0-24649))

10.64*10.58*

Performance Stock Unit Award Agreement for 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed January 27, 2016 (Commission File Number: 0-24649))

10.65*

Restricted Stock Award Agreement for 2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed November 19, 2012 (Commission File Number: 0-24649))

10.66*10.59*

Form of Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed February 1, 2021 (Commission File Number: 0-24649))

10.67*

Form of Performance Stock Unit Award (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed February 1, 2021 (Commission File Number: 0-24649))

10.68*

Form of Option Award Agreement (Incorporated by reference to Exhibit 10.3 of Registrant’s Form 8-K filed February 1, 2021 (Commission File Number: 0-24649))

10.69*

Republic Bancorp, Inc. 401(k)/Profit Sharing Plan and Trust (Incorporated by reference to Form S-8 filed December 28, 2005 (Commission File Number: 0-24649))

191187

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No.

    

Description

10.70*10.60*

Form of Performance Stock Unit Award (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed February 1, 2021 (Commission File Number: 0-24649))

10.61*

Form of Option Award Agreement (Incorporated by reference to Exhibit 10.3 of Registrant’s Form 8-K filed February 1, 2021 (Commission File Number: 0-24649))

10.62*

Form of Agreement for TRS Transaction Bonus Program (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed May 19, 2021 (Commission File Number: 0-24649))

10.63*

Republic Bancorp, Inc. 401(k)/Profit Sharing Plan and Trust (Incorporated by reference to Form S-8 filed December 28, 2005 (Commission File Number: 0-24649))

10.64*

Republic Bancorp, Inc. 401(k) Retirement Plan, as Amended and Restated, effective April 1, 2011 (Incorporated by reference to Exhibit 23.2 to Form 11-K for the year ended December 31, 2011 (Commission File Number: 0-24649))

10.71*10.65*

Republic Bancorp, Inc. 401(k) Retirement Plan, as Amended and Restated, effective January 1, 2015 (Incorporated by reference to Exhibit 23.2 of Form 11-K for the year ended December 31, 2014 (Commission File Number: 0-24649))

10.72*10.66*

Republic Bancorp, Inc. 401(k) Retirement Plan, as Amended and Restated, effective May 1, 2021 (Incorporated by reference to Exhibit 10.1 of Form 10-Q for the quarter ended June 30, 2021 (Commission File Number: 0-24649))

10.67*

Republic Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee Deferred Compensation and the Republic Bank & Trust Company Non-Employee Director and Key Employee Deferred Compensation Plan (as adopted November 18, 2004) (Incorporated by reference to Form S-8 filed November 30, 2004 (Commission File Number: 333- 120857))

10.73*10.68*

Republic Bancorp, Inc. and Subsidiaries Non-Employee Director and Key Employee Deferred Compensation Plan Post-Effective Amendment No. 1 (Incorporated by reference to Form S-8 filed April 13, 2005 (Commission File Number: 333-120857))

10.74*10.69*

Republic Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee Deferred Compensation, as amended and restated as of March 16, 2005 (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed March 18, 2005 (Commission File Number: 333-120857))

10.75*10.70*

Republic Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee Deferred Compensation as amended and restated as of March 19, 2008 (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended March 31, 2008 (Commission File Number: 0-24649))

10.76*10.71*

Republic Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee Deferred Compensation, as adopted November 18 2004 and then amended and restated as on March 16, 2005, March 19, 2008, and again on January 24, 2018 (Incorporated by reference to Annex A of Registrant’s 2018 Proxy Statement (Commission File Number: 0-24649))

10.77*10.72*

Amendment 2019-1 to the Republic Bancorp, Inc. and Subsidiaries Non-Employee Director and Key Employee Deferred Compensation Plan (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended March 31, 2020 (Commission File Number: 0-24649))

10.78*10.73*

Republic Bancorp, Inc. Employee Stock Purchase Plan (Incorporated by reference to Annex B of Registrant’s 2018 Proxy Statement (Commission File Number: 0-24649))

10.79*10.74*

Consulting Agreement dated as of July 16, 2019, between David P. Feaster and Republic Bank & Trust Company (Incorporated by reference to Exhibit 10.70 of Registrant’s Form 10-K for the year ended December 31, 2019 (Commission File Number: 0-24649))

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Description

10.80

Junior Subordinated Indenture, Amended and Restated Trust Agreement, and Guarantee Agreement (Incorporated by reference to Exhibit 4.1 of Registrant’s Form 8-K filed August 19, 2005 (Commission File Number: 0-24649))

10.81*

Cash Bonus Plan for Acquisitions, effective November 7, 2012 (Incorporated by reference to Exhibit 10.3 of Registrant’s Form 10-Q for the quarter ended September 30, 2012 (Commission File Number: 0-24649))

10.82*10.75**

Amended and Restated Joint Marketing Agreement, dated July 1, 2015, by and between Republic Bank & Trust Company and Elevate@Work, LLC (Incorporated by reference to Exhibit 10.87 of Registrant’s Form 10-K for the year ended December 31, 2018 (Commission File Number: 0-24649))

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No.

Description

10.83*10.76**

Written Consent to the Amended and Restated Joint Marketing Agreement, dated September 1, 2016, by and between Republic Bank & Trust Company and Elevate@Work, LLC (Incorporated by reference to Exhibit 10.88 of Registrant’s Form 10-K for the year ended December 31, 2018 (Commission File Number: 0-24649))

10.84*10.77**

Amended and Restated License and Support Agreement, dated July 1, 2015, by and between Republic Bank & Trust Company and Elevate Decision Sciences, LLC (Incorporated by reference to Exhibit 10.89 of Registrant’s Form 10-K for the year ended December 31, 2018 (Commission File Number: 0-24649))

10.85*10.78**

Participation Agreement, dated July 1, 2015, by and between Elastic SPV, Ltd. and Republic Bank & Trust Company (Incorporated by reference to Exhibit 10.90 of Registrant’s Form 10-K for the year ended December 31, 2018 (Commission File Number: 0-24649))

10.79

Asset Purchase Agreement dated as of May 13, 2021, between Republic Bank & Trust Company and Green Dot Corporation (Incorporated by reference to Exhibit 2.1 of Registrant’s Form 8-K filed May 19, 2021 (Commission File Number: 0-24649)) (Termination of this agreement has been disclosed in Registrant’s Form 8-K filed January 10, 2022)

21

Subsidiaries of Republic Bancorp, Inc.

23

Consent of Independent Registered Public Accounting Firm

31.1

Certification of Principal Executive Officer, pursuant to the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer, pursuant to the Sarbanes-Oxley Act of 2002

32***

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003

101

The following financial statements from the Company’s annual report on Form 10-K were formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets atas of December 31, 20202022 and 2019,2021, (ii) Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2020, 2019,2022, 2021, and 2018,2020, (iii) Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2020, 2019,2022, 2021, and 2018,2020, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019,2022, 2021, and 20182020 and (v) Notes to Consolidated Financial Statements.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

*Denotes management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K pursuant to Item 15(b).

**Confidential treatment has been requested for the redacted portions of this agreement. A complete copy of the agreement, including the redacted portions, has been filed separately with the Securities and Exchange Commission.

***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 Exchange Act of 1934.

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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.

Steve Trager sig/s/ Steven E. Trager

February 26, 2021March 3, 2023

By:

Steven E. Trager

ChairmanExecutive Chair and Chief Executive Officer

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/ Steven E. Trager

Chairman,Executive Chair, Chief Executive Officer

February 26, 2021March 3, 2023

Steven E. Trager

and Director

/s/ A. Scott Trager

Vice Chairman,Chair, President and Director

February 26, 2021March 3, 2023

A. Scott Trager

/s/ Kevin Sipes

Chief Financial Officer and

February 26, 2021March 3, 2023

Kevin Sipes

Chief Accounting Officer

/s/ Andrew Trager-Kusman

Director

February 26, 2021

Andrew Trager-Kusman

/s/ Ronald F. Barnes

Director

February 26, 2021

Ronald F. Barnes

/s/ Campbell P. Brown

Director

February 26, 2021

Campbell P. Brown

/s/ Laura M. Douglas

Director

February 26, 2021

Laura M. Douglas

/s/ David P. Feaster

Director

February 26, 2021March 3, 2023

David P. Feaster

/s/ Craig A. GreenbergJennifer N. Green

Director

February 26, 2021March 3, 2023

Craig GreenbergJennifer N. Green

/s/ Heather V. Howell

Director

February 26, 2021March 3, 2023

Heather V. Howell

/s/ Timothy S. Huval

Director

March 3, 2023

Timothy S. Huval

/s/ Ernest W. Marshall, Jr.

Director

February 26, 2021March 3, 2023

Ernest W. Marshall, Jr.

/s/ W. Patrick Mulloy, II

Director

February 26, 2021March 3, 2023

W. Patrick Mulloy, II

/s/ George Nichols III

Director

March 3, 2023

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SIGNATURES (continued)George Nichols III

/s/ W. KennethKennett Oyler, III

Director

February 26, 2021March 3, 2023

W. KennethKennett Oyler, III

/s/ Logan M. Pichel

Director

March 3, 2023

Logan M. Pichel

/s/ Michael T. Rust

Director

February 26, 2021March 3, 2023

Michael T. Rust

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SIGNATURES (continued)

/s/ Susan Stout Tamme

Director

March 3, 2023

Susan Stout Tamme

/s/ Susan Stout TammeAndrew Trager-Kusman

Director

February 26, 2021March 3, 2023

Susan Stout TammeAndrew Trager-Kusman

/s/ Mark A. Vogt

Director

February 26, 2021March 3, 2023

Mark A. Vogt

195191