PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)


	March 31,		December 31,
	2023		2022
ASSETS

Cash and cash equivalents	$	249,289	$	313,689
Available-for-sale debt securities, at fair value (amortized cost of $650,379 in 2023 and $663,003 in 2022, allowance for credit losses of $3 in 2023 and $0 in 2022)		612,948		620,365
Held-to-maturity debt securities (fair value of $111,796 in 2023 and $87,357 in 2022, allowance for credit losses of $10 in 2023 and $10 in 2022)		112,108		87,386
Equity securities with readily determinable fair value		107		111
Mortgage loans held for sale, at fair value		1,034		1,302
Consumer loans held for sale, at fair value		4,688		4,706
Consumer loans held for sale, at the lower of cost or fair value		12,744		13,169
Loans (loans carried at fair value of $0 in 2023 and $2 in 2022)		4,774,234		4,515,802
Allowance for credit losses		(96,121)		(70,413)
Loans, net		4,678,113		4,445,389
Federal Home Loan Bank stock, at cost		25,939		9,146
Premises and equipment, net		33,672		31,978
Right-of-use assets		36,245		37,017
Goodwill		41,618		16,300
Other real estate owned		1,529		1,581
Bank owned life insurance		102,322		101,687
Low-income housing tax credit investments		73,901		75,324
Other assets and accrued interest receivable		87,834		76,393

TOTAL ASSETS	$	6,074,091	$	5,835,543

LIABILITIES

Deposits:
Noninterest-bearing	$	2,013,957	$	1,908,768
Interest-bearing		2,785,711		2,629,077
Total deposits		4,799,668		4,537,845

Securities sold under agreements to repurchase and other short-term borrowings		134,412		216,956
Operating lease liabilities		37,031		37,809
Federal Home Loan Bank advances		108,000		95,000
Low-income housing tax credit obligations		42,437		43,609
Other liabilities and accrued interest payable		70,341		47,711

Total liabilities		5,191,889		4,978,930

Commitments and contingent liabilities (Footnote 10)		—		—

STOCKHOLDERS’ EQUITY

Preferred stock, no par value		—		—
Class A Common Stock, no par value, 30,000,000 shares authorized, 17,597,874 shares (2023) and 17,584,928 shares (2022) issued and outstanding; Class B Common Stock, no par value, 5,000,000 shares authorized, 2,159,495 shares (2023) and 2,159,495 shares (2022) issued and outstanding		4,648		4,648
Additional paid in capital		142,601		141,694
Retained earnings		763,027		742,250
Accumulated other comprehensive (loss) income		(28,074)		(31,979)

Total stockholders’ equity		882,202		856,613

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,074,091	$	5,835,543

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)


	Three Months Ended
	March 31,
	2023		2022
INTEREST INCOME:

Loans, including fees	$	92,609	$	61,570
Taxable investment securities		4,603		2,059
Federal Home Loan Bank stock and other		3,144		481
Total interest income		100,356		64,110

INTEREST EXPENSE:

Deposits		4,878		879
Securities sold under agreements to repurchase and other short-term borrowings		248		28
Federal Home Loan Bank advances		2,588		36
Total interest expense		7,714		943

NET INTEREST INCOME		92,642		63,167

Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities)		26,766		9,226

NET INTEREST INCOME AFTER PROVISION		65,876		53,941

NONINTEREST INCOME:

Service charges on deposit accounts		3,299		3,226
Net refund transfer fees		10,807		12,051
Mortgage banking income		800		2,657
Interchange fee income		3,051		3,070
Program fees		3,241		3,854
Increase in cash surrender value of bank owned life insurance		635		612
Net losses on other real estate owned		(53)		(53)
Contract termination fee		—		5,000
Other		901		592
Total noninterest income		22,681		31,009

NONINTEREST EXPENSE:

Salaries and employee benefits		29,961		29,312
Technology, equipment, and communication		7,228		7,214
Occupancy		3,406		3,440
Marketing and development		1,574		1,348
FDIC insurance expense		637		419
Interchange related expense		1,499		1,117
Legal and professional fees		1,061		1,365
Merger expense		2,073		—
Other		5,004		4,366
Total noninterest expense		52,443		48,581

INCOME BEFORE INCOME TAX EXPENSE		36,114		36,369
INCOME TAX EXPENSE		8,022		8,019
NET INCOME	$	28,092	$	28,350

BASIC EARNINGS PER SHARE:
Class A Common Stock	$	1.42	$	1.42
Class B Common Stock		1.30		1.29

DILUTED EARNINGS PER SHARE:
Class A Common Stock	$	1.42	$	1.42
Class B Common Stock		1.29		1.29

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended
	March 31,
	2023		2022

Net income	$	28,092	$	28,350

OTHER COMPREHENSIVE INCOME (LOSS)

Unrealized gain (loss) on AFS debt securities		5,205		(21,249)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		5		24
Total other comprehensive loss before income tax		5,210		(21,225)
Tax effect		(1,305)		5,308
Total other comprehensive loss, net of tax		3,905		(15,917)

COMPREHENSIVE INCOME	$	31,997	$	12,433

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


	Three Months Ended March 31, 2023
	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, 2023	17,585	2,160	$	4,648	$	141,694	$	742,250	$	(31,979)	$	856,613

Net income	—	—		—		—		28,092		—		28,092
Net change in AOCI	—	—		—		—		—		3,905		3,905
Dividends declared on Common Stock:
Class A Shares ($0.374 per share)	—	—		—		—		(6,581)		—		(6,581)
Class B Shares ($0.340 per share)	—	—		—		—		(734)		—		(734)
Stock options exercised, net of shares withheld	—	—		—		(84)		—		—		(84)
Conversion of Class B to Class A Common Shares	—	—		—		—		—		—		—
Repurchase of Class A Common Stock	—	—		—		—		—		—		—
Net change in notes receivable on Class A Common Stock	—	—		—		84		—		—		84
Deferred compensation - Class A Common Stock:
Directors	—	—		—		110		—		—		110
Designated key employees	7	—		—		221		—		—		221
Employee stock purchase plan - Class A Common Stock	4	—		—		162		—		—		162
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		39		—		—		39
Restricted stock	2	—		—		173		—		—		173
Stock options	—	—		—		202		—		—		202

Balance, March 31, 2023	17,598	2,160	$	4,648	$	142,601	$	763,027	$	(28,074)	$	882,202


	Three Months Ended March 31, 2022
	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, 2022	17,816	2,165	$	4,702	$	139,956	$	688,522	$	1,874	$	835,054

Net income	—	—		—		—		28,350		—		28,350
Net change in AOCI	—	—		—		—		—		(15,917)		(15,917)
Dividends declared on Common Stock:
Class A Shares ($0.341 per share)	—	—		—		—		(6,081)		—		(6,081)
Class B Shares ($0.310 per share)	—	—		—		—		(671)		—		(671)
Stock options exercised, net of shares withheld	1	—		—		(48)		—		—		(48)
Conversion of Class B to Class A Common Shares	—	—		—		—		—		—		—
Repurchase of Class A Common Stock	—	—		—		—		—		—		—
Net change in notes receivable on Class A Common Stock	—	—		—		60		—		—		60
Deferred compensation - Class A Common Stock:
Directors	6	—		—		129		—		—		129
Designated key employees	—	—		—		179		—		—		179
Employee stock purchase plan - Class A Common Stock	4	—		1		162		—		—		163
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		38		—		—		38
Restricted stock	7	—		—		163		—		—		163
Stock options	—	—		—		156		—		—		156

Balance, March 31, 2022	17,834	2,165	$	4,703	$	140,795	$	710,120	$	(14,043)	$	841,575

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Three Months Ended
	March 31,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	28,092	$	28,350
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization on investment securities and low-income housing investments		1,438		1,391
Net accretion and amortization on loans		(618)		(1,256)
Unrealized and realized losses on equity securities with readily determinable fair value		4		118
Depreciation of premises and equipment		1,594		2,038
Amortization of mortgage servicing rights		490		668
Provision for on-balance sheet exposures		26,766		9,226
Provision for off-balance sheet exposures		210		(12)
Net gain on sale of mortgage loans held for sale		(420)		(2,460)
Origination of mortgage loans held for sale		(15,942)		(100,661)
Proceeds from sale of mortgage loans held for sale		16,630		119,212
Net gain on sale of consumer loans held for sale		(2,534)		(3,117)
Origination of consumer loans held for sale		(207,222)		(245,214)
Proceeds from sale of consumer loans held for sale		210,199		256,280
Writedowns of other real estate owned		52		52
Deferred compensation expense - Class A Common Stock		331		308
Stock-based awards and ESPP expense - Class A Common Stock		438		381
Increase in cash surrender value of bank owned life insurance		(635)		(612)
Net change in other assets and liabilities:
Accrued interest receivable		(2,502)		451
Accrued interest payable		103		33
Other assets		(3,858)		795
Other liabilities		18,120		14,897
Net cash provided by operating activities		70,736		80,868
INVESTING ACTIVITIES:
Net cash proceeds paid in acquisition		(40,970)		—
Purchases of available-for-sale debt securities		(25,000)		(115,777)
Purchases of held-to-maturity debt securities		(25,000)		—
Proceeds from calls, maturities and paydowns of equity and available-for-sale debt securities		54,066		15,944
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities		278		5,508
Net change in outstanding warehouse lines of credit		(53,805)		160,350
Net change in other loans		10,939		(54,869)
Purchase of Federal Home Loan Bank stock		(16,793)		—
Investments in low-income housing tax partnerships		(1,172)		(3,645)
Net purchases of premises and equipment		(1,688)		(323)
Net cash (used in) provided by investing activities		(99,145)		7,188
FINANCING ACTIVITIES:
Net change in deposits		40,145		246,688
Net change in securities sold under agreements to repurchase and other short-term borrowings		(82,544)		(3,149)
Payments of Federal Home Loan Bank advances		—		(25,000)
Proceeds from Federal Home Loan Bank advances		13,000		20,000
Net proceeds from Class A Common Stock purchased through employee stock purchase plan		138		139
Net proceeds from option exercises and equity awards vested - Class A Common Stock		(84)		(48)
Cash dividends paid		(6,646)		(6,075)
Net cash (used in) provided by financing activities		(35,991)		232,555

NET CHANGE IN CASH AND CASH EQUIVALENTS		(64,400)		320,611
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		313,689		756,971
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	249,289	$	1,077,582
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	7,611	$	910
Income taxes		471		470
SUPPLEMENTAL NONCASH DISCLOSURES:
Mortgage servicing rights capitalized	$	127	$	974
Right-of-use assets recorded		772		4,538

See accompanying footnotes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –MARCH 31, 2023 and 2022 AND DECEMBER 31, 2022 (UNAUDITED)

1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The consolidated financial statements include the accounts of Republic Bancorp, Inc. (the “Parent Company”) and its wholly owned subsidiaries, Republic Bank & Trust Company and Republic 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 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 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.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in Republic’s Form 10-K for the year ended December 31, 2022.

As of March 31, 2023, the Company was divided into five reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute RPG operations.

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Core Bank

Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of March 31, 2023, Republic had 45 banking centers with locations as follows:

●

Kentucky — 29

●

Metropolitan Louisville — 18

●

Central Kentucky — 7

●

Georgetown — 1

●

Lexington — 5

●

Shelbyville — 1

●

Northern Kentucky — 4

●

Bellevue — 1

●

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 — 4

●

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 of salaries and employee benefits; technology, equipment, and communication; occupancy; interchange related expense; marketing and development; FDIC insurance 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 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. 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 advance during the time the advance 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. 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.

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”). The majority of all the business generated by the TRS business occurs during the first half of each year. During the second half of each year, TRS generates limited revenue and incurs costs preparing for the next year’s tax season. TRS also originated $98 million of ERAs during December 2022 related to estimated tax returns that were 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 RA credit product is a loan made in conjunction with the filing of a taxpayer’s federal tax return, which allows the taxpayer to borrow funds as an advance of a portion of their tax refund. The RA product had the following features during the first quarters of 2023 and 2022:

●

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 disbursement methods were available with most Tax Providers, including direct deposit, prepaid card, or check, based on the taxpayer-customer’s election;

●

Repayment of the RA to the Bank is deducted from the taxpayer’s tax refund proceeds; and

●

If an insufficient refund to repay the RA occurs:

o

there is no recourse to the taxpayer,

o

no negative credit reporting on the taxpayer, and

o

no collection efforts against the taxpayer.

The ERA credit product is also a loan that allows a taxpayer to borrow funds as an advance of a portion of their tax refund. Unlike the RA product described immediately above, however, which is originated in conjunction with the filing of the taxpayer’s federal tax return, an ERA is originated prior to the filing of the taxpayer’s federal tax return and prior to the taxpayer receiving their year-end

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taxable income documentation, e.g., W-2. As such, the Company generally uses paystub information to estimate the potential tax refund and 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 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 federal tax return through a Republic Tax Provider:

o

there is no recourse to the taxpayer,

o

no negative credit reporting on the taxpayer, and

o

no collection efforts against the taxpayer.

The Company reports fees paid for the RAs, including ERAs, as interest income on loans. RAs that were originated related to the first quarter 2022 tax season were repaid, on average, within 32 days after the taxpayer’s tax return was submitted to the applicable taxing authority. RAs do not have a contractual due date but the Company considered a RA, related to the first quarter 2022 tax season, delinquent if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. Provisions on RAs are estimated when advances are made. Unpaid RAs, including ERAs, related to the first quarter tax season of a given year are charged-off by June 30th of that year, with RAs collected during the second half of that year recorded as recoveries of previously charged-off loans.

Related to the overall credit losses on 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 RA approval model is based primarily on the prior-year’s tax refund payment patterns. Because the substantial majority of the RA 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 RA, including the ERA, product parameters. Further changes in the RA product parameters do not ensure positive results and could have an overall material negative impact on the performance of all RA product offerings and therefore on the Company’s financial condition and results of operations.

Cancelled Sale Transaction – As previously disclosed, Green Dot paid RB&T a contract termination fee of $5.0 million during the first quarter of 2022 related to the cancelled Sale Transaction.

Republic Payment Solutions division

RPS is currently managed and operated within the TRS segment. The RPS division offers 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. Until the operating results of the RPS division are material to the Company’s overall results of operations, they will be reported as part of the TRS segment. The Company does not expect to report the RPS division as a separate reportable segment until such time, if any, that it meets quantitative reporting 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.”

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 that 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

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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 products – Using separate third-party service providers, the Bank originates two line-of-credit products to generally subprime borrowers in multiple states.

o

RCS’s LOC I represented the substantial majority of RCS activity during 2022 and 2023. Elastic Marketing, LLC and Elevate Decision Sciences, LLC, are third-party service providers for the product and are subject to the Bank’s oversight and supervision. Together, these companies provide the Bank with certain marketing, servicing, technology, and support services, while a separate third-party provides customer support, servicing, and other services on the Bank’s behalf. The Bank is the lender for this product and is marketed as such, up to a maximum amount of $3,500. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of the product.

The Bank sells participation interests in this 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 LOC I account with each borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.

o

One of RCS’s 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, up to a maximum advance amount of $10,000. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this product.

The Bank 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 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 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 – Through RCS, the Bank offers installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. The 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 a 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 three different third-party service providers.

o

For two of the programs, the Bank retains 100% of the receivables, with recourse in the event of default.

o

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

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Recently Adopted Accounting Standards

The following ASUs were adopted by the Company during the three months ended March 31, 2023:


				Method of	Financial
ASU. No.	Topic	Nature of Update	Date Adopted	Adoption	Statement Impact
2022-02	Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures	This ASU eliminates the TDR recognition and measurement guidance and, instead, requires the Company to evaluate (consistent with the accounting 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 and introduces new requirements related to certain 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 the Company disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. (see Note 5 in this section of the filing)	January 1, 2023	Prospectively	Immaterial

2022-06	Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848	This ASU extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included 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 June 30, 2023.	January 1, 2023	Prospectively	Immaterial. The Company ceased making new loans and renewing loans indexed to LIBOR on January 1, 2022.

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Accounting Standards Update

The following not-yet-effective ASUs were issued since the Company’s most recently filed Form 10-K and are considered relevant to the Company’s financial statements.


			Date Adoption	Adoption	Expected
ASU. No.	Topic	Nature of Update	Required	Method	Financial Impact
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

2023-02	Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)	This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.	January 1, 2024	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

2023-01	Leases (Topic 842): Common Control Arrangements	This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions).	January 1, 2024	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

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2. ACQUISITION OF CBANK

OVERVIEW

On March 15, 2023, the Company completed its acquisition of CBank (“CBank”), and its wholly owned bank subsidiary Commercial Industrial Finance (“CIF”), for approximately $51 million in cash. The primary reason for the acquisition of CBank was to expand the Company’s footprint in the Cincinnati, Ohio metropolitan statistical area.

ACQUISITION SUMMARY

The following table provides a summary of the assets acquired and liabilities assumed as recorded by CBank, the preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, and the preliminary fair values of those assets and liabilities as recorded by the Company. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. The preliminary fair value adjustments and the preliminary resultant fair values shown in the following table continue to be evaluated by management and may be subject to further adjustment.


	March 15, 2023
	As Recorded		Fair Value			As Recorded
(in thousands)	by CBank		Adjustments (1)			by Republic (1)

Assets acquired:

Cash and cash equivalents	$	10,030	$	—		$	10,030
Investment securities		16,463		(4)	a		16,459
Loans		221,707		(4,219)	b		217,488
Allowance for loan and lease losses		(2,953)		1,353	c		(1,600)
Loans, net		218,754		(2,866)			215,888
Goodwill		954		(954)	d		—
Core deposit intangible		—		2,844	e		2,844
Premises and equipment, net		162		35	f		197
Other assets and accrued interest receivable		7,067		(320)	g		6,747

Total assets acquired	$	253,430	$	(1,265)		$	252,165

Liabilities assumed:

Deposits:
Noninterest-bearing	$	42,160	$	—		$	42,160
Interest-bearing		179,487		31	h		179,518
Total deposits		221,647		31			221,678

Other liabilities and accrued interest payable		4,709		96	i		4,805

Total liabilities assumed		226,356		127			226,483

Net assets acquired	$	27,074	$	(1,392)			25,682

Cash consideration paid							(51,000)

Goodwill						$	25,318

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(1)

The Company’s acquisition of CBank closed on March 15, 2023. Accordingly, the fair value adjustments shown are preliminary estimates of the purchase accounting adjustments. Management is continuing to evaluate each of these fair value adjustments and may revise one or more of such fair value adjustments in future periods based on this continuing evaluation. To the extent that any of these preliminary fair value adjustments are revised in future periods, the resultant fair values and the amount of goodwill recorded by the Company will change.

Explanation of preliminary fair value adjustments:

a.

Adjustment reflects the fair value adjustment based on the Company’s evaluation of the investment securities.

b.

Adjustments to loans to reflect estimated fair value adjustments, include the following:


	Fair Value
(in thousands)	Adjustments

Fair value adjustment - acquired non PCD loans	$	(4,251)
Fair value adjustment - acquired PCD loans		75
Eliminate unrecognized loan fees on acquired loans		(43)
Net loan fair value adjustments	$	(4,219)

c.

The net adjustment to the allowance for credit losses includes the following:


	Fair Value
(in thousands)	Adjustments

Reversal of historical CBank allowance for credit losses on loans	$	2,953
Estimate of lifetime credit losses for PCD loans		(1,600)
Net change in allowance for credit losses	$	1,353

d.

Adjustment reflects the fair value adjustment to eliminate the recorded goodwill.

e.

Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.

f.

Adjustment reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment, net.

g.

Adjustment reflects the fair value adjustment based on the Company’s evaluation of the other assets and accrued interest receivable.

h.

Adjustment reflects the fair value adjustment based on the Company’s evaluation of the assumed time deposits.

i.

Adjustment reflects the fair value adjustment based on the Company’s evaluation of the other liabilities and accrued interest payable.

Goodwill of approximately $25 million, which is the excess of the merger consideration over the fair value of net assets acquired, is expected to be recorded in the CBank acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to the Company’s Traditional Banking segment and is expected to be deductible for tax purposes. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded in the CBank acquisition will change.

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CBANK CONTRIBUTION FOR THE REPORTING PERIOD

The Company’s consolidated statements of income include the impact of the Company’s CBank acquisition for the three months ended March 31, 2023. Because the current levels of revenue and net earnings for CBank are not material to the Company’s consolidated statements of income, supplemental pro forma disclosures have been omitted. The results of operations of the assets acquired and liabilities assumed in the Company’s CBank acquisition, inclusive of any pre-acquisition related costs, are summarized in the following table:


	Three Months Ended March 31, 2023

	Non-Acquisition		Acquisition
(in thousands)	Related		Related			Total

INTEREST INCOME:

Loans, including fees	$	625	$	—		$	625
Taxable investment securities		47		—			47
Federal Home Loan Bank stock and other		13		—			13
Total interest income		685		—			685

INTEREST EXPENSE:

Deposits		295		—			295
Total interest expense		295		—			295

NET INTEREST INCOME		390		—			390

Provision for expected credit loss expense		—		2,684	a		2,684

NET INTEREST INCOME AFTER PROVISION		390		(2,684)			(2,294)

NONINTEREST INCOME:

Service charges on deposit accounts		8		—			8
Other		32		—			32
Total noninterest income		40		—			40

NONINTEREST EXPENSE:

Salaries and employee benefits		76		106	c		182
Technology, equipment, and communication		51		—			51
Occupancy		55		—			55
FDIC insurance expense		8		—			8
Interchange related expense		12		—			12
Legal and professional fees		—		(81)	b		(81)
Other		31		2,199	b,d		2,230
Total noninterest expense		233		2,224			2,457

INCOME BEFORE INCOME TAX EXPENSE		197		(4,908)			(4,711)
INCOME TAX EXPENSE		7		(171)			(164)

NET INCOME	$	190	$	(4,737)		$	(4,547)

Explanation of acquisition-related items:

a.

The initial recognition of the allowance for credit losses on non-PCD loans through an increase to the Provision for expected credit loss expense.

b.

Includes legal, audit, tax and other acquisition related consulting costs.

c.

Retention bonuses for CBank employees.

d.

Core systems conversion-related costs.

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3.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
	Amortized		Unrealized		Unrealized		for		Fair
March 31, 2023 (in thousands)	Cost		Gains		Losses		Credit Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	416,388	$	—	$	(21,771)	$	—	$	394,617
Private label mortgage-backed security		721		1,289		—		—		2,010
Mortgage-backed securities - residential		192,614		134		(16,066)		—		176,682
Collateralized mortgage obligations		24,884		69		(1,302)		—		23,651
Corporate bonds		12,017		—		(27)		(3)		11,987
Trust preferred security		3,755		246		—		—		4,001
Total available-for-sale debt securities	$	650,379	$	1,738	$	(39,166)	$	(3)	$	612,948


			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
December 31, 2022 (in thousands)	Cost		Gains		Losses		Credit Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	436,333	$	1	$	(25,193)	$	—	$	411,141
Private label mortgage-backed security		843		1,284		—		—		2,127
Mortgage-backed securities - residential		189,312		16		(17,455)		—		171,873
Collateralized mortgage obligations		22,774		21		(1,427)		—		21,368
Corporate bonds		10,000		1		—		—		10,001
Trust preferred security		3,741		114		—		—		3,855
Total available-for-sale debt securities	$	663,003	$	1,437	$	(44,075)	$	—	$	620,365

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
	Amortized		Unrecognized		Unrecognized		Fair		for
March 31, 2023 (in thousands)	Cost		Gains		Losses		Value		Credit Losses

U.S. Treasury securities and U.S. Government agencies	$	100,000	$	6	$	(234)	$	99,772	$	—
Mortgage-backed securities - residential		27		—		(1)		26		—
Collateralized mortgage obligations		6,989		58		(133)		6,914		—
Corporate bonds		4,977		—		(18)		4,959		(10)
Obligations of state and political subdivisions		125		—		—		125		—
Total held-to-maturity debt securities	$	112,118	$	64	$	(386)	$	111,796	$	(10)


			Gross		Gross				Allowance
	Amortized		Unrecognized		Unrecognized		Fair		for
December 31, 2022 (in thousands)	Cost		Gains		Losses		Value		Credit Losses

U.S. Treasury securities and U.S. Government agencies	$	75,000	$	106	$	—	$	75,106	$	—
Mortgage-backed securities - residential		27		—		(1)		26		—
Collateralized mortgage obligations		7,270		54		(148)		7,176		—
Corporate bonds		4,974		—		(49)		4,925		(10)
Obligations of state and political subdivisions		125		—		(1)		124		—
Total held-to-maturity debt securities	$	87,396	$	160	$	(199)	$	87,357	$	(10)

Sales of Available-for-Sale Debt Securities

During the three months ended March 31, 2023 and 2022, there were no gains or losses on sales or calls of AFS debt securities.

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Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity as of March 31, 2023 follow. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.


	Available-for-Sale				Held-to-Maturity
	Debt Securities				Debt Securities
	Amortized		Fair		Amortized		Fair
March 31, 2023 (in thousands)	Cost		Value		Cost		Value

Due in one year or less	$	50,468	$	49,327	$	125	$	125
Due from one year to five years		377,937		357,277		104,977		104,731
Due from five years to ten years		—		—		—		—
Due beyond ten years		3,755		4,001		—		—
Private label mortgage-backed security		721		2,010		—		—
Mortgage-backed securities - residential		192,614		176,682		27		26
Collateralized mortgage obligations		24,884		23,651		6,989		6,914
Total debt securities	$	650,379	$	612,948	$	112,118	$	111,796

Unrealized-Loss Analysis on Debt Securities

The following tables summarize AFS debt securities in an unrealized loss position for which an ACLS had not been recorded as of March 31, 2023 and December 31, 2022, aggregated by investment category and length of time in a continuous unrealized loss position:


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
March 31, 2023 (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	$	204,723	$	(6,741)	$	189,895	$	(15,030)	$	394,618	$	(21,771)
Mortgage-backed securities - residential		62,400		(6,174)		101,703		(9,892)		164,103		(16,066)
Collateralized mortgage obligations		11,444		(750)		8,151		(552)		19,595		(1,302)
Corporate bonds		1,986		(27)		—		—		1,986		(27)
Total available-for-sale debt securities	$	280,553	$	(13,692)	$	299,749	$	(25,474)	$	580,302	$	(39,166)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2023 (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	$	229,372	$	(7,139)	$	171,676	$	(18,054)	$	401,048	$	(25,193)
Mortgage-backed securities - residential		105,274		(7,434)		65,520		(10,021)		170,794		(17,455)
Collateralized mortgage obligations		20,418		(1,426)		6		(1)		20,424		(1,427)
Total available-for-sale debt securities	$	355,064	$	(15,999)	$	237,202	$	(28,076)	$	592,266	$	(44,075)

As of March 31, 2023, the Bank’s security portfolio consisted of 198 securities, 162 of which were in an unrealized loss position.

As of December 31, 2022, the Bank’s security portfolio consisted of 179 securities, 163 of which were in an unrealized loss position.

As of March 31, 2023 and December 31, 2022, 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.

Private Label Mortgage-Backed Security

The Bank owns one private label mortgage-backed security with a total carrying value of $2 million as of March 31, 2023. 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-

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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-backed security under Footnote 11 “Fair Value” in this section of the filing.

Mortgage-Backed Securities and Collateralized Mortgage Obligations

As of March 31, 2023, with the exception of the $2 million private label mortgage-backed security, all other mortgage-backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FHLMC and FNMA. As of March 31, 2023 and December 31, 2022, there were gross unrealized losses of $17.4 million and $18.9 million related to AFS mortgage-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.

Roll-forward of the Allowance for Credit Losses on Debt Securities

The table below presents a roll-forward for the three months ended March 31, 2023 and 2022 of the ACLS on AFS and HTM debt securities:


	ACLS Roll-forward
	Three Months Ended March 31,
	2023										2022
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance

Available-for-Sale Securities:
Corporate Bonds	$	—	$	3	$	—	$	—	$	3	$	—	$	—	$	—	$	—	$	—
Held-to-Maturity Securities:
Corporate Bonds		10		—		—		—		10		47		(7)		—		—		40

Total	$	10	$	3	$	—	$	—	$	13	$	47	$	(7)	$	—	$	—	$	40

The Company’s ACLS on its HTM corporate bonds during the three months ended March 31, 2023 remains unchanged from December 31, 2022.

There were no HTM debt securities on nonaccrual or past due 90 days or more as of March 31, 2023 and December 31, 2022. All of the Company’s HTM corporate bonds were rated investment grade as of March 31, 2023 and December 31, 2022.

There were no HTM debt securities considered collateral dependent as of March 31, 2023 and December 31, 2022.

Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet and is excluded from the ACLS. Accrued interest on AFS debt securities totaled $3 million and $2 million as of March 31, 2023 and December 31, 2022. Accrued interest receivable on HTM debt securities totaled $1 million and $92,000 as of March 31, 2023 and December 31, 2022.

Pledged Debt Securities

Debt securities pledged to secure public deposits, securities sold under agreements to repurchase, and debt securities held for other purposes, as required or permitted by law, were as follows:


(in thousands)	March 31, 2023		December 31, 2022

Amortized cost	$	146,011	$	236,047
Fair value		133,652		217,562
Carrying amount		133,652		217,562

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Equity Securities

The carrying value, gross unrealized gains and losses, and fair value of equity securities with readily determinable fair values were as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2023 (in thousands)	Cost		Gains		Losses		Value

Freddie Mac preferred stock	$	—	$	107	$	—	$	107
Total equity securities with readily determinable fair values	$	—	$	107	$	—	$	107


			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

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
	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total

Freddie Mac preferred stock	$	—	$	(4)	$	(4)	$	—	$	(6)	$	(6)
Community Reinvestment Act mutual fund		—		—		—		—		(112)		(112)
Total equity securities with readily determinable fair value	$	—	$	(4)	$	(4)	$	—	$	(118)	$	(118)

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4. 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 12 “Mortgage Banking Activities” of this section of the filing.

Consumer Loans Held for Sale, at Fair Value

The Bank offers 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:


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Balance, beginning of period	$	4,706	$	19,747
Origination of consumer loans held for sale		22,797		96,732
Proceeds from the sale of consumer loans held for sale		(23,560)		(106,648)
Net gain on sale of consumer loans held for sale		745		1,878
Balance, end of period	$	4,688	$	11,709

Consumer Loans Held for Sale, at the Lower of Cost or Fair Value

RCS originates for sale 90% or 95% of the balances from its line-of-credit products and 100% for some of its healthcare receivables products. 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:


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Balance, beginning of period	$	13,169	$	2,937
Origination of consumer loans held for sale		184,425		148,482
Proceeds from the sale of consumer loans held for sale		(186,639)		(149,632)
Net gain on sale of consumer loans held for sale		1,789		1,239
Balance, end of period	$	12,744	$	3,026

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5.LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:


(in thousands)	March 31, 2023		December 31, 2022

Traditional Banking:
Residential real estate:
Owner occupied	$	972,214	$	911,427
Nonowner occupied		328,529		321,358
Commercial real estate		1,682,573		1,599,510
Construction & land development		167,829		153,875
Commercial & industrial		478,101		413,387
Lease financing receivables		73,270		10,505
Aircraft		184,344		179,785
Home equity		250,050		241,739
Consumer:
Credit cards		16,775		15,473
Overdrafts		775		726
Automobile loans		5,267		6,731
Other consumer		5,450		626
Total Traditional Banking		4,165,177		3,855,142
Warehouse lines of credit*		457,365		403,560
Total Core Banking		4,622,542		4,258,702

*Republic Processing Group:**
Tax Refund Solutions:
Refund Advances		31,665		97,505
Other TRS commercial & industrial loans		8,327		51,767
Republic Credit Solutions		111,700		107,828
Total Republic Processing Group		151,692		257,100

Total loans**		4,774,234		4,515,802
Allowance for credit losses		(96,121)		(70,413)

Total loans, net	$	4,678,113	$	4,445,389

*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:


(in thousands)	March 31, 2023		December 31, 2022

Contractually receivable	$	4,781,284	$	4,519,136
Unearned income		(714)		(835)
Unamortized premiums		169		99
Unaccreted discounts		(4,100)		(479)
PPP net unamortized deferred origination (fees) and costs		(84)		(91)
Other net unamortized deferred origination (fees) and costs		(2,321)		(2,028)
Carrying value of loans	$	4,774,234	$	4,515,802

24

Table of Contents

Credit Quality Indicators

The following tables include loans by segment, risk category, and, for non-revolving loans, origination year. Loan segments and risk categories as of March 31, 2023 remain unchanged from those defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Regarding origination year, loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a loan modification (formerly TDR.) Loan extensions and renewals classified as loan modifications (formerly 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 March 31, 2023	2023		2022		2021		2020		Prior		Cost Basis		to Term		Total

Residential real estate owner occupied:
Risk Rating
Pass or not rated	$	71,391	$	221,178	$	189,378	$	186,685	$	280,428	$	—	$	749	$	949,809
Special Mention		47		—		—		—		7,002		—		—		7,049
Substandard		—		1,297		1,361		1,160		11,538		—		—		15,356
Doubtful		—		—		—		—		—		—		—		—
Total	$	71,438	$	222,475	$	190,739	$	187,845	$	298,968	$	—	$	749	$	972,214
YTD Gross Charge-offs	$	—	$	—	$	6	$	—	$	—	$	—	$	—	$	6

Residential real estate nonowner occupied:
Risk Rating
Pass or not rated	$	19,017	$	74,848	$	88,212	$	51,821	$	86,161	$	—	$	8,364	$	328,423
Special Mention		—		—		—		—		30		—		—		30
Substandard		—		—		27		—		49		—		—		76
Doubtful		—		—		—		—		—		—		—		—
Total	$	19,017	$	74,848	$	88,239	$	51,821	$	86,240	$	—	$	8,364	$	328,529
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate:
Risk Rating
Pass or not rated	$	57,928	$	457,789	$	389,353	$	213,912	$	377,754	$	22,947	$	113,157	$	1,632,840
Special Mention		586		10,897		4,000		—		30,808		142		—		46,433
Substandard		—		—		—		—		3,300		—		—		3,300
Doubtful		—		—		—		—		—		—		—		—
Total	$	58,514	$	468,686	$	393,353	$	213,912	$	411,862	$	23,089	$	113,157	$	1,682,573
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction and land development:
Risk Rating
Pass or not rated	$	28,475	$	106,203	$	29,978	$	1,958	$	642	$	275	$	298	$	167,829
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	28,475	$	106,203	$	29,978	$	1,958	$	642	$	275	$	298	$	167,829
YTD Gross Charge-offs		—		—		—		—		—		—		—		—

Commercial and industrial:
Risk Rating
Pass or not rated	$	47,157	$	112,078	$	89,610	$	20,170	$	73,499	$	115,529	$	3,707	$	461,750
Special Mention		—		508		12,817		—		1,752		255		—		15,332
Substandard		—		—		—		—		1,019		—		—		1,019
Doubtful		—		—		—		—		—		—		—		—
Total	$	47,157	$	112,586	$	102,427	$	20,170	$	76,270	$	115,784	$	3,707	$	478,101
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Lease financing receivables:
Risk Rating
Pass or not rated	$	12,346	$	31,683	$	14,896	$	7,298	$	6,229	$	—	$	—	$	72,452
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		818		—		—		818
Doubtful		—		—		—		—		—		—		—		—
Total	$	12,346	$	31,683	$	14,896	$	7,298	$	7,047	$	—	$	—	$	73,270
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Aircraft:
Risk Rating
Pass or not rated	$	13,640	$	62,951	$	51,083	$	33,033	$	23,432	$	—	$	—	$	184,139
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		205		—		—		205
Doubtful		—		—		—		—		—		—		—		—
Total	$	13,640	$	62,951	$	51,083	$	33,033	$	23,637	$	—	$	—	$	184,344
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	248,978	$	—	$	248,978
Special Mention		—		—		—		—		—		106		—		106
Substandard		—		—		—		—		—		966		—		966
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	250,050	$	—	$	250,050
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

25

Table of Contents


											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted
As of March 31, 2023	2023		2022		2021		2020		Prior		Cost Basis		to Term		Total

Consumer:
Risk Rating
Pass or not rated	$	563	$	1,864	$	868	$	133	$	5,272	$	19,528	$	—	$	28,228
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		10		—		29		—		—		39
Doubtful		—		—		—		—		—		—		—		—
Total	$	563	$	1,864	$	878	$	133	$	5,301	$	19,528	$	—	$	28,267
YTD Gross Charge-offs	$	—	$	9	$	7	$	—	$	4	$	305	$	—	$	325

Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	457,365	$	—	$	457,365
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	457,365	$	—	$	457,365
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	39,992	$	—	$	39,992
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	39,992	$	—	$	39,992
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

RCS:
Risk Rating
Pass or not rated	$	10,577	$	18,530	$	1,668	$	1,059	$	29,120	$	49,864	$	—	$	110,818
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		882		—		882
Doubtful		—		—		—		—		—		—		—		—
Total	$	10,577	$	18,530	$	1,668	$	1,059	$	29,120	$	50,746	$	—	$	111,700
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	3,099	$	—	$	3,099

Grand Total:
Risk Rating
Pass or not rated	$	261,094	$	1,087,124	$	855,046	$	516,069	$	882,537	$	954,478	$	126,275	$	4,682,623
Special Mention		633		11,405		16,817		—		39,592		503		—		68,950
Substandard		—		1,297		1,398		1,160		16,958		1,848		—		22,661
Doubtful		—		—		—		—		—		—		—		—
Grand Total	$	261,727	$	1,099,826	$	873,261	$	517,229	$	939,087	$	956,829	$	126,275	$	4,774,234
YTD Gross Charge-offs	$	—	$	9	$	13	$	—	$	4	$	3,404	$	—	$	3,430


											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
YTD Gross Charge-offs	$	21	$	—	$	—	$	—	$	—	$	—	$	—	$	21

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
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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
YTD Gross Charge-offs	$	—	$	9	$	—	$	—	$	—	$	—	$	—	$	9

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
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

26

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

Commercial and industrial:
Risk Rating
Pass or not rated	$	116,483	$	82,431	$	17,944	$	36,254	$	36,367	$	103,257	$	4,865	$	397,601
Special Mention		536		13,239		—		—		1,756		255		—		15,786
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	117,019	$	95,670	$	17,944	$	36,254	$	38,123	$	103,512	$	4,865	$	413,387
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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
YTD Gross Charge-offs	$	—	$	5	$	—	$	11	$	—	$	1,274	$	—	$	1,290

Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	403,560	$	—	$	403,560
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	403,560	$	—	$	403,560
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	149,272	$	—	$	149,272
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	149,272	$	—	$	149,272
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	11,659	$	—	$	11,659

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
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	11,390	$	—	$	11,390

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
YTD Gross Charge-offs	$	21	$	14	$	—	$	11	$	—	$	24,323	$	—	$	24,369

27

Table of Contents

Allowance for Credit Losses on Loans

The following table presents the activity in the ACLL by portfolio class:


	ACLL Roll-forward
	Three Months Ended March 31,
	2023												2022
	Beginning			CBank			Charge-				Ending				Beginning			Charge-				Ending
(in thousands)	Balance			Adjustment*	Provision		offs		Recoveries		Balance				Balance	Provision		offs		Recoveries		Balance

Traditional Banking:
Residential real estate:
Owner occupied	$	8,909	$	—	$	(120)	$	(6)	$	15	$	8,798		$	8,647	$	(331)	$	—	$	42	$	8,358
Nonowner occupied		2,831		—		64		—		—		2,895			2,700		45		—		1		2,746
Commercial real estate		23,739		—		1,041		—		47		24,827			23,769		854		—		1		24,624
Construction & land development		4,123		—		329		—		—		4,452			4,128		(235)		—		—		3,893
Commercial & industrial		3,976		1,008		602		—		90		5,676			3,487		(84)		—		9		3,412
Lease financing receivables		110		592		648		—		—		1,350			91		18		—		—		109
Aircraft		449		—		12		—		—		461			357		21		—		—		378
Home equity		4,628		—		31		—		1		4,660			4,111		(70)		—		3		4,044
Consumer:
Credit cards		996		—		112		(40)		12		1,080			934		32		(39)		17		944
Overdrafts		726		—		52		(247)		64		595			683		188		(214)		59		716
Automobile loans		87		—		(16)		(7)		2		66			186		(36)		—		1		151
Other consumer		135		—		229		(31)		23		356			314		(75)		(10)		12		241
Total Traditional Banking		50,709		1,600		2,984		(331)		254		55,216			49,407		327		(263)		145		49,616
Warehouse lines of credit		1,009		—		135		—		—		1,144			2,126		(401)		—		—		1,725
Total Core Banking		51,718		1,600		3,119		(331)		254		56,360			51,533		(74)		(263)		145		51,341

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		3,797		—		21,715		—		285		25,797			—		8,315		—		—		8,315
Other TRS commercial & industrial loans		91		—		93		—		—		184			96		(403)		—		362		55
Republic Credit Solutions		14,807		—		1,839		(3,099)		233		13,780			12,948		1,395		(2,673)		275		11,945
Total Republic Processing Group		18,695		—		23,647		(3,099)		518		39,761			13,044		9,307		(2,673)		637		20,315

Total	$	70,413	$	1,600	$	26,766	$	(3,430)	$	772	$	96,121		$	64,577	$	9,233	$	(2,936)	$	782	$	71,656

* The net fair value adjustment to ACLL includes an estimate of lifetime credit losses for Purchased Credit Deteriorated loans.

The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of March 31, 2023 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 2023, supplemented by qualitative factor adjustments for current and forecasted conditions. The Company employs one-year forecasts of unemployment and CRE values within its ACLL model, with reversion to long-term averages following the forecasted period. The cumulative loss rate within the Company’s ACLL also includes estimated losses based on an individual evaluation of loans which are either collateral dependent or which do not share risk characteristics with pooled loans, e.g., Loan Modifications.

For its CRE loan pool, the Company employed a one-year forecast of CRE vacancy rates through March 31, 2022 but discontinued use of this forecast during the second quarter of 2022 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.

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Nonperforming Loans and Nonperforming Assets

Detail of nonperforming loans, nonperforming assets, and select credit quality ratios follows:


(dollars in thousands)	March 31, 2023			December 31, 2022

Loans on nonaccrual status*	$	15,833		$	15,562
Loans past due 90-days-or-more and still on accrual**		777			756
Total nonperforming loans		16,610			16,318
Other real estate owned		1,529			1,581
Total nonperforming assets	$	18,139		$	17,899

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans		0.35	%		0.36	%
Nonperforming assets to total loans (including OREO)		0.38			0.40
Nonperforming assets to total assets		0.30			0.31

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans		0.34	%		0.37	%
Nonperforming assets to total loans (including OREO)		0.38			0.40
Nonperforming assets to total assets		0.32			0.32

*	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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The following tables present 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
	Nonaccrual				and Still Accruing Interest*
(in thousands)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022

Traditional Banking:
Residential real estate:
Owner occupied	$	13,046	$	13,388	$	—	$	—
Nonowner occupied		76		117		—		—
Commercial real estate		1,568		1,001		—		—
Construction & land development		—		—		—		—
Commercial & industrial		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—				—		—
Home equity		904		815		—		—
Consumer:
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Automobile loans		33		31		—		—
Other consumer		206		210		—		—
Total Traditional Banking		15,833		15,562		—		—
Warehouse lines of credit		—		—		—		—
Total Core Banking		15,833		15,562		—		—

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—		—		—		—
Other TRS commercial & industrial loans		—		—		—		—
Republic Credit Solutions		—		—		777		756
Total Republic Processing Group		—		—		777		756

Total	$	15,833	$	15,562	$	777	$	756

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


							Three Months Ended
	As of March 31, 2023						March 31, 2023
	Nonaccrual		Nonaccrual			Total	Interest Income
	Loans with		Loans without			Nonaccrual	Recognized
(in thousands)	ACLL		ACLL			Loans	on Nonaccrual Loans*

Residential real estate:
Owner occupied	$	222	$	12,824	$	13,046	$	181
Nonowner occupied		24		52		76		1
Commercial real estate		966		602		1,568		23
Construction & land development		—		—		—		—
Commercial & industrial		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—		—		—		—
Home equity		1		903		904		23
Consumer		—		239		239		3
Total	$	1,213	$	14,620	$	15,833	$	231

* Includes interest income for loans on nonaccrual as of the beginning of the period that were paid off during the period.

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							Three Months Ended
	As of December 31, 2022						December 31, 2022
	Nonaccrual		Nonaccrual			Total	Interest Income
	Loans with		Loans without			Nonaccrual	Recognized
(in thousands)	ACLL		ACLL			Loans	on Nonaccrual Loans*

Residential real estate:
Owner occupied	$	2,252	$	11,136	$	13,388	$	230
Nonowner occupied		56		61		117		1
Commercial real estate		1,001		—		1,001		630
Construction & land development		—		—		—		—
Commercial & industrial		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—		—		—		—
Home equity		—		815		815		44
Consumer		15		226		241		46
Total	$	3,324	$	12,238	$	15,562	$	951

* 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 both 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. Loan Modifications (formerly TDRs prior to the adoption of ASU 2022-02) 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
March 31, 2023	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner occupied	$	2,587		$	1,195		$	929		$	4,711		$	967,503	$	972,214
Nonowner occupied		—			—			—			—			328,529		328,529
Commercial real estate		—			—			602			602			1,681,971		1,682,573
Construction & land development		—			—			—			—			167,829		167,829
Commercial & industrial		—			—			—			—			478,101		478,101
Lease financing receivables		—			—			—			—			73,270		73,270
Aircraft		—			—			—			—			184,344		184,344
Home equity		59			—			4			63			249,987		250,050
Consumer:
Credit cards		24			6			—			30			16,745		16,775
Overdrafts		109			1			2			112			663		775
Automobile loans		—			—			13			13			5,254		5,267
Other consumer		5			1			—			6			5,444		5,450
Total Traditional Banking		2,784			1,203			1,550			5,537			4,159,640		4,165,177
Warehouse lines of credit		—			—			—			—			457,365		457,365
Total Core Banking		2,784			1,203			1,550			5,537			4,617,005		4,622,542

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		18,450			—			—			18,450			13,215		31,665
Other TRS commercial & industrial loans		406			—			—			406			7,921		8,327
Republic Credit Solutions		7,685			3,269			777			11,731			99,969		111,700
Total Republic Processing Group		26,541			3,269			777			30,587			121,105		151,692

Total	$	29,325		$	4,472		$	2,327		$	36,124		$	4,738,110	$	4,774,234
Delinquency ratio***		0.61	%		0.09	%		0.05	%		0.76	%

* 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.

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	30 - 59			60 - 89			90 or More
December 31, 2022	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner occupied	$	2,382		$	1,185		$	1,267		$	4,834		$	906,593	$	911,427
Nonowner occupied		—			—			—			—			321,358		321,358
Commercial real estate		604			—			—			604			1,598,906		1,599,510
Construction & land development		—			—			—			—			153,875		153,875
Commercial & industrial		177			—			—			177			413,210		413,387
Lease financing receivables		—			—			—			—			10,505		10,505
Aircraft		—			—			—			—			179,785		179,785
Home equity		56			93			26			175			241,564		241,739
Consumer:
Credit cards		50			5			—			55			15,418		15,473
Overdrafts		158			1			1			160			566		726
Automobile loans		8			—			3			11			6,720		6,731
Other consumer		43			1			—			44			582		626
Total Traditional Banking		3,478			1,285			1,297			6,060			3,849,082		3,855,142
Warehouse lines of credit		—			—			—			—			403,560		403,560
Total Core Banking		3,478			1,285			1,297			6,060			4,252,642		4,258,702

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—			—			—			—			97,505		97,505
Other TRS commercial & industrial loans		—			—			—			—			51,767		51,767
Republic Credit Solutions		6,488			1,956			756			9,200			98,628		107,828
Total Republic Processing Group		6,488			1,956			756			9,200			247,900		257,100

Total	$	9,966		$	3,241		$	2,053		$	15,260		$	4,500,542	$	4,515,802
Delinquency ratio***		0.22	%		0.07	%		0.05	%		0.34	%

* All loans past due 90-days-or-more, excluding smaller 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.

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Collateral-Dependent Loans

The following table presents the amortized cost basis of collateral-dependent loans by class of loans:


	March 31, 2023				December 31, 2022
	Secured		Secured		Secured		Secured
	by Real		by Personal		by Real		by Personal
(in thousands)	Estate		Property		Estate		Property

Traditional Banking:
Residential real estate:
Owner occupied	$	17,011	$	—	$	18,057	$	—
Nonowner occupied		77		—		150		—
Commercial real estate		1,602		—		1,041		—
Construction & land development		—		—		—		—
Commercial & industrial		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—		205		—		210
Home equity		967		—		967		—
Consumer		—		38		—		26
Total Traditional Banking	$	19,657	$	243	$	20,215	$	236

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 costs, when selling costs are applicable. Selling costs range from 10% to 13%, with those percentages based on annual studies performed by the Company.

Loan Modification Disclosures Pursuant to ASU 2022-02

The following table shows the amortized cost of loans and leases as of March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, segregated by portfolio segment and type of modification. The following tables shows the amortized cost of loans and leases modified by type.


	Amortized Cost Basis of Modified Financing Receivables
March 31, 2023 (dollars in thousands)	Loans (#)	Rate Reduction ($)		Loans (#)	Term Extension ($)		Loans (#)	Principal Deferral ($)
Residential real estate:
Owner occupied	—	$	—	2	$	265	4	$	344
Nonowner occupied	—		—	—		—	—		—
Home equity	—		—	—		—	1		72
Republic Processing Group	—		—	—		—	537		105
Total Loan Modifications	—	$	—	2	$	265	542	$	521


	Total Loan Modification by Type
	Accruing			Nonaccruing
March 31, 2023 (dollars in thousands)	Loans (#)	Recorded investment ($)		Loans (#)	Recorded investment ($)
Term extension	—	$	—	2	$	265
Principal deferral	537		105	5		416
Total Loan Modifications	537	$	105	7	$	681

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The following tables show the percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financing receivable.


	Accruing Loan Modifications
	Three Months Ended March 31, 2023
				% of Total
		Amortized		of Financing
(dollars in thousands)	Loans (#)	Cost Basis ($)		Receivable
Republic Processing Group	537	$	105	0.07	%
Total Accruing Loan Modifications	537	$	105	NM


	Nonaccruing Loan Modifications
	Three Months Ended March 31, 2023
				% of Total
		Amortized		of Financing
(dollars in thousands)	Loans (#)	Cost Basis ($)		Receivable
Residential real estate:
Owner occupied	6	$	609	0.06	%
Home equity	1		72	0.03
Total Nonaccruing Loan Modifications	7	$	681	0.01	%

There were no commitments to lend additional amounts to the borrowers included in the previous table.

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the three months ended March 31, 2023.


	Accruing Loan Modifications
	Three Months Ended March 31, 2023
			30-89 Days		90+ Days
(in thousands)	Current		Past Due		Past Due
Republic Processing Group	$	105	$	—	$	—
Total Accruing Loan Modifications	$	105	$	—	$	—


	Nonaccruing Loan Modifications
	Three Months Ended March 31, 2023
			30-89 Days		90+ Days
(in thousands)	Current		Past Due		Past Due
Residential real estate:
Owner occupied	$	609	$	—	$	—
Nonowner occupied		—		—		—
Home equity		72		—		—
Total Nonaccruing Loan Modifications	$	681	$	—	$	—

There were no modified loans and leases that had a payment default during the three months ended March 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

Upon the Company’s determination that a modified loan or lease has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for loan and lease losses is adjusted by the same amount.

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Troubled Debt Restructuring (TDR) Disclosures Prior to the Adoption of ASU 2022-02

A summary of the categories of TDR loan modifications by respective performance as of March 31, 2022 that were modified during the three months ended March 31, 2022 follows:


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
March 31, 2022 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Legal modification	6	$	772	—	$	—	6	$	772
Total residential TDRs	6		772	—		—	6		772

Consumer loans:
Principal deferral	258		42	—		—	258		42
Total consumer TDRs	258		42	—		—	258		42

Total troubled debt restructurings	264	$	814	—	$	—	264	$	814

The classification between nonperforming and performing was determined at the time of modification. Modification programs focus on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions. Modifications do not result in the contractual forgiveness of principal or interest. There were no modifications during the three months ended March 31, 2022 that resulted in an interest rate below market rate.

There were no TDRs which had a payment default within the twelve months following modification during the three months ended March 31, 2022. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.

The following table shows the recorded investment of loans and leases classified as troubled debt restructurings as of December 31, 2022.


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
December 31, 2022 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Rate reduction	67	$	6,305	3	$	242	70	$	6,547
Principal deferral	7		699	—		—	7		699
Legal modification	67		3,149	6		377	73		3,526
Total residential TDRs	141		10,153	9		619	150		10,772

Commercial related and construction/land development loans:
Rate reduction	1		847	—		—	1		847
Principal deferral	1		1	—		—	1		1
Total commercial TDRs	2		848	—		—	2		848

Consumer loans:
Principal deferral	2,320		393	—		—	2,320		393
Legal modification	3		13	—		—	3		13
Total consumer TDRs	2,323		406	—		—	2,323		406

Total troubled debt restructurings	2,466	$	11,407	9	$	619	2,475	$	12,026

There was no significant change between the pre and post modification loan balances for the three months ending March 31, 2022.

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There were no loans modified as troubled debt restructurings within the previous 12 months of March 31, 2022 for which there was a payment default during the three months ended March 31, 2022.

Foreclosures

The following table presents the carrying amount of foreclosed properties held as a result of the Bank obtaining physical possession of such properties:


(in thousands)	March 31, 2023		December 31, 2022

Commercial real estate	$	1,529	$	1,581

Total other real estate owned	$	1,529	$	1,581

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 requirements of the applicable jurisdiction:

Refund Advances

The Company’s TRS segment offered its RA product during the first two months of 2023 and 2022, along with its ERA product which was offered during December 2022 and the first two weeks of 2023. The ERA originations during December 2022 and the first two weeks of 2023 were made in relation to estimated tax returns that were anticipated to be filed during the first quarter 2023 tax season. Each year, all unpaid RAs, including ERAs, are charged off by June 30^th, and each quarter thereafter, any credits to the Provision for RAs, including ERAs, match the recovery of previously charged-off accounts.

Information regarding RAs follows:


	Three Months Ended
	March 31,
(dollars in thousands)	2023			2022

Refund Advances originated	$	737,047		$	311,207
Net charge to the Provision for RAs, including ERAs		21,715			8,315
Provision as a percentage of RAs, including ERAs, originated during the first quarter		2.95	%		2.67	%

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6.DEPOSITS

The composition of the deposit portfolio follows:


(in thousands)	March 31, 2023		December 31, 2022

Core Bank:
Demand	$	1,272,086	$	1,336,082
Money market accounts		794,710		707,272
Savings		316,947		323,015
Reciprocal money market		123,486		28,635
Individual retirement accounts (1)		36,334		38,640
Time deposits, $250 and over (1)		46,687		54,855
Other certificates of deposit (1)		176,257		129,324
Reciprocal time deposits (1)		13,273		7,405
Total Core Bank interest-bearing deposits		2,779,780		2,625,228
Total Core Bank noninterest-bearing deposits		1,471,180		1,464,493
Total Core Bank deposits		4,250,960		4,089,721

Republic Processing Group:
Money market accounts		5,931		3,849
Total RPG interest-bearing deposits		5,931		3,849

Brokered prepaid card deposits		390,052		328,655
Other noninterest-bearing deposits		152,725		115,620
Total RPG noninterest-bearing deposits		542,777		444,275
Total RPG deposits		548,708		448,124

Total deposits	$	4,799,668	$	4,537,845

(1)	Includes time deposit.

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7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS

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 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 two percent more in securities than the associated repurchase agreements. All such securities are under the Bank’s control.

As of March 31, 2023 and December 31, 2022, all securities sold under agreements to repurchase had overnight maturities. Additional information regarding securities sold under agreements to repurchase follows:


(dollars in thousands)	March 31, 2023			December 31, 2022

Outstanding balance at end of period	$	134,412		$	216,956
Weighted average interest rate at end of period		0.45	%		0.41	%

Fair value of securities pledged:
U.S. Treasury securities and U.S. Government agencies	$	133,652		$	254,296
Total securities pledged	$	133,652		$	254,296


	Three Months Ended
	March 31,
(dollars in thousands)	2023			2022

Average outstanding balance during the period	$	202,910		$	300,169
Weighted average interest rate during the period		0.49	%		0.04	%
Maximum outstanding at any month end during the period	$	224,067		$	299,376

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8.RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

The Company records 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 records right-of-use assets for the underlying leased property.

As of March 31, 2023, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 36 of its offices, with 12 such operating leases contracted with a related party of the Company. As of March 31, 2023, payments on 22 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 a renewal to one of its third-party leases during the first quarter of 2023 with a total right-of-use asset value of $772,000.

The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three months ended March 31, 2023 and 2022:


	Three Months Ended
	March 31,
(dollars in thousands)	2023		2022

Operating lease expense:
Related Party:
Variable lease expense	$	1,224	$	1,265
Fixed lease expense		59		35
Third-Party:
Variable lease expense		311		197
Fixed lease expense		389		345
Total operating lease expense	$	1,983	$	1,842

Other information concerning operating leases:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,730	$	1,705
Cash paid for variable rent payments not included in measurement of operating lease liabilities		151		151
Short-term lease payments not included in the measurement of lease liabilities		—		—

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 March 31, 2023 and December 31, 2022:


	March 31, 2023			December 31, 2022

Weighted average remaining term in years		8.19			8.44
Weighted average discount rate		2.13	%		2.10	%

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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 March 31, 2023:


Year (in thousands)	Related Party		Third-Party		Total

2023	$	2,988	$	1,932	$	4,920
2024		3,726		2,316		6,042
2025		3,570		1,782		5,352
2026		3,640		1,483		5,123
2027		3,680		1,160		4,840
Thereafter		11,751		3,630		15,381
Total undiscounted cash flows	$	29,355	$	12,303	$	41,658
Discount applied to cash flows		(3,143)		(1,484)		(4,627)
Total discounted cash flows reported as operating lease liabilities	$	26,212	$	10,819	$	37,031

9.FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:


(in thousands)	March 31, 2023		December 31, 2022

Overnight advances	$	88,000	$	75,000
Fixed interest rate advances		20,000		20,000
Total FHLB advances	$	108,000	$	95,000

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. FHLB advances are collateralized by a blanket pledge of eligible real estate loans. As of March 31, 2023 and December 31, 2022, Republic had available borrowing capacity of $930 million and $899 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million available through various other financial institutions as of March 31, 2023 and December 31, 2022.

Aggregate future principal payments on FHLB advances based on contractual maturity and the weighted average cost of such advances are detailed below:


			Weighted
			Average
Year (dollars in thousands)	Principal		Rate

2023	$	88,000	4.86	%
2024		—	—
2025		—	—
2026		—	—
2027		20,000	1.89
Total	$	108,000	4.31	%

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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:


	Three Months Ended
	March 31,
(dollars in thousands)	2023			2022

Average outstanding balance during the period	$	225,344		$	1,711
Weighted average interest rate during the period		4.43	%		0.15	%
Maximum outstanding at any month end during the period	$	485,000		$	25,000

The following table illustrates real estate loans pledged to collateralize advances and letters of credit with the FHLB:


(in thousands)	March 31, 2023		December 31, 2022

First lien, single family residential real estate	$	1,159,090	$	1,106,287
Home equity lines of credit		223,472		219,644

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10.OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

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 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 period ended:


(in thousands)	March 31, 2023		December 31, 2022

Unused warehouse lines of credit	$	540,135	$	733,940
Unused home equity lines of credit		419,814		410,057
Unused loan commitments - other		1,027,617		951,021
Standby letters of credit		8,819		9,735
FHLB letter of credit		233		643
Total commitments	$	1,996,618	$	2,105,396

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third-party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. 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 roll-forward of the ACLC for the three months ended March 31, 2023 and 2022:


	ACLC Roll-forward
	Three Months Ended March 31,
	2023										2022
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance

Loan Commitments
Unused warehouse lines of credit	$	190	$	8	$	—	$	—	$	198	$	154	$	(24)	$	—	$	—	$	130
Unused home equity lines of credit		332		9		—		—		341		247		9		—		—		256
Unused construction lines of credit		384		163		—		—		547		383		(16)		—		—		367
Unused loan commitments - other		344		30		—		—		374		268		19		—		—		287

Total	$	1,250	$	210	$	—	$	—	$	1,460	$	1,052	$	(12)	$	—	$	—	$	1,040

The Company increased its ACLC during the three months ended March 31, 2023 based on an increase in the expected loss rate for its unused commitments.

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11.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-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-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 3 “Investment Securities” for additional discussion regarding the Bank’s private label mortgage-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 as of March 31, 2023. 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: The 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 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 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. Information as of March 31, 2023 is presented net of any applicable ACL.


	Fair Value Measurements at
	March 31, 2023 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	174,871	$	219,746	$	—	$	394,617
Private label mortgage-backed security		—		—		2,010		2,010
Mortgage-backed securities - residential		—		176,682		—		176,682
Collateralized mortgage obligations		—		23,651		—		23,651
Corporate bonds		—		11,987		—		11,987
Trust preferred security		—		—		4,001		4,001
Total available-for-sale debt securities	$	174,871	$	432,066	$	6,011	$	612,948

Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	107	$	—	$	107
Total equity securities with readily determinable fair value	$	—	$	107	$	—	$	107

Mortgage loans held for sale	$	—	$	1,034	$	—	$	1,034
Consumer loans held for sale		—		—		4,688		4,688
Rate lock loan commitments		—		96		—		96
Mandatory forward contracts		—		19		—		19
Interest rate swap agreements		—		6,852		—		6,852

Financial liabilities:
Interest rate swap agreements		—		6,852		—		6,852

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	Fair Value Measurements at
	December 31, 2022 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	193,385	$	217,756	$	—	$	411,141
Private label mortgage-backed security		—		—		2,127		2,127
Mortgage-backed securities - residential		—		171,873		—		171,873
Collateralized mortgage obligations		—		21,368		—		21,368
Corporate bonds		—		10,001		—		10,001
Trust preferred security		—		—		3,855		3,855
Total available-for-sale debt securities	$	193,385	$	420,998	$	5,982	$	620,365

Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	111	$	—	$	111
Total equity securities with readily determinable fair value	$	—	$	111	$	—	$	111

Mortgage loans held for sale	$	—	$	1,302	$	—	$	1,302
Consumer loans held for sale		—		—		4,706		4,706
Consumer loans held for investment		—		—		2		2
Rate lock loan commitments		—		2		—		2
Mandatory forward contracts		—		—		—		—
Interest rate swap agreements		—		8,127		—		8,127

Financial liabilities:
Mandatory forward contracts	$	—	$	67	$	—	$	67
Interest rate swap agreements		—		8,127		—		8,127

All transfers between levels are generally recognized at the end of each quarter. There were no transfers into or out of Level 1, 2, or 3 assets during the three months ended March 31, 2023 and 2022.

Private Label Mortgage-Backed Security

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):


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Balance, beginning of period	$	2,127	$	2,731
Total gains or losses included in earnings:
Net change in unrealized gain		5		24
Principal paydowns		(122)		(153)
Balance, end of period	$	2,010	$	2,602

The fair value of the Bank’s single private label mortgage-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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Quantitative information about recurring Level 3 fair value measurement inputs for the Bank’s single private label mortgage-backed security follows:


	Fair		Valuation
March 31, 2023 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage-backed security	$	2,010	Discounted cash flow	(1) Constant prepayment rate	4.5% - 4.7%

				(2) Probability of default	1.8% - 9.3%

				(3) Loss severity	25% - 35%


	Fair		Valuation
December 31, 2022 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage-backed security	$	2,127	Discounted cash flow	(1) Constant prepayment rate	4.5% - 4.7%

				(2) Probability of default	1.8% - 9.3%

				(3) Loss severity	25% - 35%

Trust Preferred Security

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):


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Balance, beginning of period	$	3,855	$	3,847
Total gains or losses included in earnings:
Discount accretion		14		14
Net change in unrealized gain		132		(136)
Balance, end of period	$	4,001	$	3,725

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.

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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 loans and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2023 and December 31, 2022.

The aggregate fair value, contractual balance, and unrealized gain were as follows:


(in thousands)	March 31, 2023		December 31, 2022

Aggregate fair value	$	1,034	$	1,302
Contractual balance		1,005		1,265
Unrealized (loss) gain		29		37

The total amount of gains and losses from changes in fair value included in earnings for the three months ended March 31, 2023 and 2022 for mortgage loans held for sale are presented in the following table:


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Interest income	$	61	$	204
Change in fair value		(8)		(706)
Total included in earnings	$	53	$	(502)

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. None of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2023 and December 31, 2022.

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
March 31, 2023 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	4,688	Contract Terms	(1) Net Premium	0.15%

				(2) Discounted Sales	10.00%


	Fair		Valuation
December 31, 2022 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	4,706	Contract Terms	(1) Net Premium	0.15%

				(2) Discounted Sales	10.00%

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The aggregate fair value, contractual balance, and unrealized gain on consumer loans held for sale, at fair value, were as follows:


(in thousands)	March 31, 2023		December 31, 2022

Aggregate fair value	$	4,688	$	4,706
Contractual balance		4,713		4,734
Unrealized (loss) gain		(25)		(28)

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:


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Interest income	$	765	$	2,890
Change in fair value		3		(37)
Total included in earnings	$	768	$	2,853

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Assets measured at fair value on a non-recurring basis are summarized below:


	Fair Value Measurements at
	March 31, 2023 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	1,270	$	1,270
Commercial real estate		—		—		879		879
Total collateral-dependent loans*	$	—	$	—	$	2,149	$	2,149

Other real estate owned:
Commercial real estate	$	—	$	—	$	1,529	$	1,529
Total other real estate owned	$	—	$	—	$	1,529	$	1,529


	Fair Value Measurements at
	December 31, 2022 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	1,456	$	1,456
Commercial real estate		—		—		906		906
Total collateral-dependent loans*	$	—	$	—	$	2,362	$	2,362

Other real estate owned:
Residential real estate	$	—	$	—	$	1,581	$	1,581
Total other real estate owned	$	—	$	—	$	1,581	$	1,581

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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:


					Range
	Fair		Valuation	Unobservable	(Weighted
March 31, 2023 (dollars in thousands)	Value		Technique	Inputs	Average)

Collateral-dependent loans - residential real estate owner occupied	$	1,270	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 22% (5%)

Collateral-dependent loans - commercial real estate	$	879	Sales comparison approach	Adjustments determined for differences between comparable sales	16% (16%)

Other real estate owned - commercial real estate	$	1,529	Sales comparison approach	Adjustments determined for differences between comparable sales	39% (39%)


					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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Collateral-Dependent Loans

Collateral-dependent 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 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 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.

Collateral-dependent loans are as follows:


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Provision on collateral-dependent loans	$	(19)	$	(4)

Other Real Estate Owned

Details of other real estate owned carrying value and write downs follows:



(in thousands)	March 31, 2023		December 31, 2022

Other real estate owned carried at fair value	$	1,529	$	1,581
Total carrying value of other real estate owned	$	1,529	$	1,581
Other real estate owned write-downs during the years ended	$	52	$	211


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Other real estate owned write-downs during the period	$	52	$	52

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The carrying amounts and estimated exit price fair values of all financial instruments follow:


			Fair Value Measurements at
			March 31, 2023:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	249,289	$	249,289	$	—	$	—	$	249,289
Available-for-sale debt securities		612,948		174,871		432,066		6,011		612,948
Held-to-maturity debt securities		112,108		—		111,796		—		111,796
Equity securities with readily determinable fair values		107		—		107		—		107
Mortgage loans held for sale, at fair value		1,034		—		1,034		—		1,034
Consumer loans held for sale, at fair value		4,688		—		—		4,688		4,688
Consumer loans held for sale, at the lower of cost or fair value		12,744		—		—		12,744		12,744
Loans, net		4,678,113		—		—		4,488,620		4,488,620
Federal Home Loan Bank stock		25,939		—		—		—		NA
Accrued interest receivable		16,074		—		5,316		10,758		16,074
Mortgage servicing rights		8,406		—		16,554		—		16,554
Rate lock loan commitments		96		—		96		—		96
Mandatory forward contracts		19		—		19		—		19
Interest rate swap agreements		6,852		—		6,852		—		6,852

Liabilities:
Noninterest-bearing deposits	$	2,013,957	$	—	$	2,013,957	$	—	$	2,013,957
Transaction deposits		2,513,160		—		2,513,160		—		2,513,160
Time deposits		272,551		—		259,421		—		259,421
Securities sold under agreements to repurchase and other short-term borrowings		134,412		—		134,412		—		134,412
Federal Home Loan Bank advances		108,000		—		106,490		—		106,490
Accrued interest payable		342		—		342		—		342
Rate lock loan commitments		96		—		96		—		96
Mandatory forward contracts		19		—		19		—		19
Interest rate swap agreements		6,852		—		6,852		—		6,852

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			Fair Value Measurements at
			December 31, 2022:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	313,689	$	313,689	$	—	$	—	$	313,689
Available-for-sale debt securities		620,365		193,385		420,998		5,982		620,365
Held-to-maturity debt securities		87,386		—		87,357		—		87,357
Equity securities with readily determinable fair values		111		—		111		—		111
Mortgage loans held for sale, at fair value		1,302		—		1,302		—		1,302
Consumer loans held for sale, at fair value		4,706		—		—		4,706		4,706
Consumer loans held for sale, at the lower of cost or fair value		13,169		—		—		13,169		13,169
Loans, net		4,445,389		—		—		4,276,423		4,276,423
Federal Home Loan Bank stock		9,146		—		—		—		NA
Accrued interest receivable		13,572		—		2,462		11,110		13,572
Mortgage servicing rights		8,769		—		17,592		—		17,592
Rate lock loan commitments		2		—		2		—		2
Interest rate swap agreements		8,127		—		8,127		—		8,127

Liabilities:
Noninterest-bearing deposits	$	1,908,768	$	—	$	1,908,768	$	—	$	1,908,768
Transaction deposits		2,398,853		—		2,398,853		—		2,398,853
Time deposits		230,224		—		223,912		—		223,912
Securities sold under agreements to repurchase and other short-term borrowings		216,956		—		216,956		—		216,956
Federal Home Loan Bank advances		95,000		—		93,044		—		93,044
Accrued interest payable		239		—		239		—		239
Interest rate swap agreements		8,127		—		8,127		—		8,127

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12.MORTGAGE BANKING ACTIVITIES

Mortgage Banking activities primarily include residential mortgage originations and servicing.

Activity for mortgage loans held for sale, at fair value, was as follows:


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Balance, beginning of period	$	1,302	$	29,393
Origination of mortgage loans held for sale		15,942		100,661
Proceeds from the sale of mortgage loans held for sale		(16,630)		(119,212)
Net gain on sale of mortgage loans held for sale		420		2,460
Balance, end of period	$	1,034	$	13,302

The following table presents the components of Mortgage Banking income:


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Net gain realized on sale of mortgage loans held for sale	$	248	$	2,733
Net change in fair value recognized on loans held for sale		(8)		(706)
Net change in fair value recognized on rate lock loan commitments		94		(962)
Net change in fair value recognized on forward contracts		86		1,395
Net gain recognized		420		2,460

Loan servicing income		870		865
Amortization of mortgage servicing rights		(490)		(668)
Change in mortgage servicing rights valuation allowance		—		—
Net servicing income recognized		380		197
Total Mortgage Banking income	$	800	$	2,657

Activity for capitalized mortgage servicing rights was as follows:


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Balance, beginning of period	$	8,769	$	9,196
Additions		127		974
Amortized to expense		(490)		(668)
Change in valuation allowance		—		—
Balance, end of period	$	8,406	$	9,502

There was no valuation allowance for capitalized mortgage servicing rights for the three months ended March 31, 2023 and 2022.

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Other information relating to mortgage servicing rights follows:


(dollars in thousands)	March 31, 2023			December 31, 2022

Fair value of mortgage servicing rights portfolio	$	16,554		$	17,145
Monthly weighted average prepayment rate of unpaid principal balance*		125	%		127	%
Discount rate		10.22	%		10.21	%
Weighted average foreclosure rate		0.08	%		0.10	%
Weighted average life in years		7.64			7.54

*	Rates are applied to individual tranches with similar characteristics.

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 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.

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:


	March 31, 2023				December 31, 2022
	Notional				Notional
(in thousands)	Amount		Fair Value		Amount		Fair Value

Included in Mortgage loans held for sale:
Mortgage loans held for sale, at fair value	$	1,005	$	1,034	$	1,265	$	1,302

Included in other assets:
Rate lock loan commitments	$	5,174	$	96	$	4,118	$	2
Mandatory forward contracts		2,936		19		—		—

Included in other liabilities:
Mandatory forward contracts		—		—		4,009		67

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13.INTEREST RATE SWAPS

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, 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 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 therefore, has no credit risk.

A summary of the Bank’s interest rate swaps related to clients is included in the following table:


		March 31, 2023				December 31, 2022
		Notional				Notional
(in thousands)	Bank Position	Amount		Fair Value		Amount		Fair Value

Interest rate swaps with Bank clients - Assets	Pay variable/receive fixed	$	50,941	$	2,131	$	40,032	$	1,386
Interest rate swaps with Bank clients - Liabilities	Pay variable/receive fixed		77,830		(4,721)		91,636		(6,742)
Interest rate swaps with Bank clients - Total	Pay variable/receive fixed	$	128,771	$	(2,590)	$	131,668	$	(5,356)

Offsetting interest rate swaps with institutional swap dealer - Assets	Pay fixed/receive variable		77,830		4,721		91,636		6,742
Offsetting interest rate swaps with institutional swap dealer - Liabilities	Pay fixed/receive variable		50,941		(2,131)		40,032		(1,386)
Offsetting interest rate swaps with institutional swap dealer - Total	Pay fixed/receive variable	$	128,771	$	2,590	$	131,668	$	5,356

Total		$	257,542	$	—	$	263,336	$	—

The Bank is required to pledge securities 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 $590,000 and $560,000 as of March 31, 2023 and December 31, 2022.

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14.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.

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:


	Three Months Ended
	March 31,
(in thousands, except per share data)	2023		2022

Net income	$	28,092	$	28,350
Dividends declared on Common Stock:
Class A Shares		(6,581)		(6,081)
Class B Shares		(734)		(671)
Undistributed net income for basic earnings per share		20,777		21,598
Weighted average potential dividends on Class A shares upon exercise of dilutive options		(21)		(27)
Undistributed net income for diluted earnings per share	$	20,756	$	21,571

Weighted average shares outstanding:
Class A Shares		17,776		17,980
Class B Shares		2,159		2,165
Effect of dilutive securities on Class A Shares outstanding		55		80
Weighted average shares outstanding including dilutive securities		19,990		20,225

Basic earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.37	$	0.34
Undistributed earnings per share*		1.05		1.08
Total basic earnings per share - Class A Common Stock	$	1.42	$	1.42

Class B Common Stock:
Per share dividends distributed	$	0.34	$	0.31
Undistributed earnings per share*		0.96		0.98
Total basic earnings per share - Class B Common Stock	$	1.30	$	1.29

Diluted earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.37	$	0.34
Undistributed earnings per share*		1.05		1.08
Total diluted earnings per share - Class A Common Stock	$	1.42	$	1.42

Class B Common Stock:
Per share dividends distributed	$	0.34	$	0.31
Undistributed earnings per share*		0.95		0.98
Total diluted earnings per share - Class B Common Stock	$	1.29	$	1.29

*

To arrive at undistributed earnings per share, undistributed net income is first prorated 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:


	Three Months Ended
	March 31,
	2023	2022

Antidilutive stock options	245,898	186,000
Average antidilutive stock options	245,898	175,000

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15. OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:


	Three Months Ended
	March 31,
(in thousands)	2023		2022

Available-for-Sale Debt Securities:
Unrealized gain (loss) on AFS debt securities	$	5,205	$	(21,249)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		5		24
Net gains (losses)		5,210		(21,225)
Tax effect		(1,305)		5,308
Net of tax	$	3,905	$	(15,917)

The following is a summary of the AOCI balances, net of tax:


			2023
(in thousands)	December 31, 2022		Change		March 31, 2023

Unrealized gain (loss) on AFS debt securities	$	(32,934)	$	3,900	$	(29,034)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		955		5		960
Total unrealized gain (loss)	$	(31,979)	$	3,905	$	(28,074)


			2022
(in thousands)	December 31, 2021		Change		March 31, 2022

Unrealized gain (loss) on AFS debt securities	$	890	$	(15,935)	$	(15,045)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		984		18		1,002
Total unrealized gain (loss)	$	1,874	$	(15,917)	$	(14,043)

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16.REVENUE FROM CONTRACTS WITH CUSTOMERS

The following tables present the Company’s net revenue and net revenue concentration by reportable segment:


	Three Months Ended March 31, 2023
	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 (1)	$	50,107		$	2,087		$	61		$	52,255		$	31,765		$	8,622		$	40,387		$	92,642

Noninterest income:
Service charges on deposit accounts		3,288			11			—			3,299			—			—			—			3,299
Net refund transfer fees		—			—			—			—			10,807			—			10,807			10,807
Mortgage banking income (1)		—			—			800			800			—			—			—			800
Interchange fee income		3,006			—			—			3,006			45			—			45			3,051
Program fees (1)		—			—			—			—			707			2,534			3,241			3,241
Increase in cash surrender value of BOLI (1)		635			—			—			635			—			—			—			635
Net losses on OREO		(53)			—			—			(53)			—			—			—			(53)
Other		778			—			17			795			81			25			106			901
Total noninterest income		7,654			11			817			8,482			11,640			2,559			14,199			22,681

Total net revenue	$	57,761		$	2,098		$	878		$	60,737		$	43,405		$	11,181		$	54,586		$	115,323

Net-revenue concentration (2)		49	%		2	%		1	%		52	%		38	%		10	%		48	%		100	%


	Three Months Ended March 31, 2022
	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 (1)	$	36,148		$	4,515		$	204		$	40,867		$	15,404		$	6,896		$	22,300		$	63,167

Noninterest income:
Service charges on deposit accounts		3,219			13			—			3,232			(6)			—			(6)			3,226
Net refund transfer fees		—			—			—			—			12,051			—			12,051			12,051
Mortgage banking income (1)		—			—			2,657			2,657			—			—			—			2,657
Interchange fee income		3,012			—			—			3,012			58			—			58			3,070
Program fees (1)		—			—			—			—			727			3,127			3,854			3,854
Increase in cash surrender value of BOLI (1)		612			—			—			612			—			—			—			612
Net losses on OREO		(53)			—			—			(53)			—			—			—			(53)
Contract termination fee		—			—			—			—			5,000			—			5,000			5,000
Other		452			—			34			486			106			—			106			592
Total noninterest income		7,242			13			2,691			9,946			17,936			3,127			21,063			31,009

Total net revenue	$	43,390		$	4,528		$	2,895		$	50,813		$	33,340		$	10,023		$	43,363		$	94,176

Net-revenue concentration (2)		46	%		5	%		3	%		54	%		35	%		11	%		46	%		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

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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, direct deposit to the taxpayer’s personal bank account, or loaded to a 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.

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 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.

Contract termination fee– During the first quarter of 2022, RB&T provided Green Dot a notice of termination for the May 2021 Purchase Agreement for the sale of substantially all of RB&T’s TRS assets and operations to Green Dot. As a result of this contract termination, Green Dot paid RB&T a contract termination fee of $5.0 million during the quarter.

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17.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 March 31, 2023, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending, Mortgage Banking, TRS, and RCS. Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute RPG operations.

The nature of segment operations and the primary drivers of net revenue 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

Warehouse Lending

Provides short-term, revolving credit facilities to mortgage bankers across the United States.

Mortgage warehouse lines of 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

Republic Processing Group:

Tax Refund Solutions

TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax ~~refund products and offers a credit product~~refunds through third-party tax preparers located throughout the United States, as well as tax-preparation software providers (collectively, the “Tax Providers”). Substantially all of the business generated by the TRS segment occurs in the first half of the year. The TRS segment traditionally operates at a loss during the second half of the year, during which time the segment incurs costs preparing for the upcoming year’s tax season.

Refund Transfers (“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 on RTs, net of rebates, are reported as noninterest income under the line item “Net refund transfer fees.”

TRS first offered its Easy Advance (“EA”) tax credit product during the first two months of 2016 and for a second successive year during the first two months of 2017. For the first quarter 2017 tax season, the Company modified the EA product offering to have more than one advance amount and a different price structure to the Tax Providers based on the amount borrowed by the taxpayer. All other features of the product remained substantially the same as those from the first quarter 2016 tax season, including the following:

·

~~No EA fee charged to the taxpayer customer;~~

·

~~All fees for the product were paid by the Tax Providers with a restriction prohibiting the Tax Providers from passing along the fees to the taxpayer customer;~~

·

~~No requirement that the taxpayer customer pay for another bank product, such as an RT;~~

·

~~Multiple funds disbursement methods, including direct deposit, prepaid card, check or Walmart Direct2Cash~~® ~~product, based on the taxpayer customer’s election;~~

·

~~Repayment of the EA to the Bank was deducted from the taxpayer customer’s tax refund proceeds; and~~

·

~~If an insufficient refund to repay the EA occurred:~~

o

~~there was no recourse to the taxpayer customer,~~

o

~~no negative credit reporting on the taxpayer customer, and~~

o

~~no collection efforts against the taxpayer customer.~~

Fees paid by the Tax Providers to the Company for the EA product are reported as interest income on loans. EAs during 2017 and 2016 were generally repaid within three weeks after the taxpayer customer’s tax return was submitted to the applicable taxing authority. EAs do not have a contractual due date but are eligible for delinquency consideration three weeks after the taxpayer customer’s tax return is submitted to the applicable taxing authority. Provisions for loan losses on EAs are estimated when advances are made, with all expected loss provisions made in the first quarter of each year. Unpaid EAs are charged-off within 81 days after the taxpayer customer’s tax return is submitted to the applicable taxing authority, with the majority of charge-offs typically recorded during the second quarter of the year.

Related to the overall credit losses on EAs, 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 EA 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 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.

10

~~Table of Contents~~

~~Republic Payment Solutions division— RPS is managed and operated within the TRS segment.~~Transfer products. The RPS division ~~is an issuing bank offering~~of TRS offers general-purpose reloadable ~~prepaid cards through third-party program managers. For the projected near-term, as the prepaid card program matures, the operating results~~cards. TRS and RPS products are primarily provided to clients outside of the ~~RPS division are expected to be immaterial to the Company’s overall results of operations~~Bank’s market footprint.

Loans, refund transfers, and ~~will be reported as part of the TRS segment. The RPS division will not be considered a separate reportable segment until such time, if any, that it meets quantitative reporting 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.”~~cards.

Republic Credit Solutions ~~segment —~~ ~~Through the RCS segment, the Bank offers~~

Offers consumer credit products. ~~In general, the credit~~RCS products are ~~unsecured, small dollar consumer loans with maturities~~primarily provided to clients outside of ~~30-days-or-more, and are dependent on various factors including~~ the ~~consumer’s ability to repay. RCS loans typically earn a higher yield but also have higher credit risk compared to loans originated through the Traditional Banking segment,~~Bank’s market footprint, with a ~~significant~~substantial portion of RCS clients considered subprime or near-prime borrowers. ~~Additional information regarding~~

Unsecured, consumer ~~loan products offered through RCS follows:~~loans

·

Line of credit – Through RCS, the Bank originates a line-of-credit product, sells 90% of the balances generated within two business days of loan origination and retains the remaining 10% interest. The line-of-credit product represented the substantial majority of RCS activity during 2017 and 2016, as RCS expanded in June 2015 beyond the pilot phase for this product. Loan balances held for sale are carried at the lower of cost or fair

The accounting policies used for Republic’s reportable segments are generally the same as those described in the summary of significant accounting policies in the Company’s 2022 Annual Report on Form 10-K. Republic evaluates segment performance using operating income. The Company allocates goodwill to the Traditional Banking segment. Republic generally allocates income taxes based on income before income tax expense unless reasonable and specific segment allocations can be made. The Company makes transactions among reportable segments at carrying value.

63

Table of Contents

Segment information follows:


	Three Months Ended March 31, 2023
	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	$	50,107		$	2,087		$	61		$	52,255		$	31,765		$	8,622		$	40,387		$	92,642

Provision for expected credit loss expense		2,984			135			—			3,119			21,808			1,839			23,647			26,766

Net refund transfer fees		—			—			—			—			10,807			—			10,807			10,807
Mortgage banking income		—			—			800			800			—			—			—			800
Program fees		—			—			—			—			707			2,534			3,241			3,241
Contract termination fee		—			—			—			—			—			—			—			—
Legal settlement		—			—			—			—			—			—			—			—
Other noninterest income		7,654			11			17			7,682			126			25			151			7,833
Total noninterest income		7,654			11			817			8,482			11,640			2,559			14,199			22,681

Total noninterest expense		40,852			968			2,554			44,374			5,648			2,421			8,069			52,443

Income (loss) before income tax expense		13,925			995			(1,676)			13,244			15,949			6,921			22,870			36,114
Income tax expense (benefit)		3,082			223			(369)			2,936			3,541			1,545			5,086			8,022

Net income (loss)	$	10,843		$	772		$	(1,307)		$	10,308		$	12,408		$	5,376		$	17,784		$	28,092

Period-end assets	$	4,974,002		$	458,675		$	13,421		$	5,446,098		$	511,150		$	116,843		$	627,993		$	6,074,091

Net interest margin		4.07	%		2.53	%		NM			3.98	%		NM			NM			NM			6.52	%

Net-revenue concentration*		49	%		2	%		1	%		52	%		38	%		10	%		48	%		100	%


	Three Months Ended March 31, 2022
	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	$	36,148		$	4,515		$	204		$	40,867		$	15,404		$	6,896		$	22,300		$	63,167

Provision for expected credit loss expense		320			(401)			—			(81)			7,912			1,395			9,307			9,226

Net refund transfer fees		—			—			—			—			12,051			—			12,051			12,051
Mortgage banking income		—			—			2,657			2,657			—			—			—			2,657
Program fees		—			—			—			—			727			3,127			3,854			3,854
Contract termination fee		—			—			—			—			5,000			—			5,000			5,000
Legal settlement		—			—			—			—			—			—			—			—
Other noninterest income		7,242			13			34			7,289			158			—			158			7,447
Total noninterest income		7,242			13			2,691			9,946			17,936			3,127			21,063			31,009

Total noninterest expense		38,227			952			2,690			41,869			5,145			1,567			6,712			48,581

Income before income tax expense		4,843			3,977			205			9,025			20,283			7,061			27,344			36,369
Income tax expense		468			904			45			1,417			4,906			1,696			6,602			8,019

Net income	$	4,375		$	3,073		$	160		$	7,608		$	15,377		$	5,365		$	20,742		$	28,350

Period-end assets	$	4,984,918		$	689,204		$	28,573		$	5,702,695		$	552,101		$	95,073		$	647,174		$	6,349,869

Net interest margin		2.90	%		3.09	%		NM			2.92	%		NM			NM			NM			4.34	%

Net-revenue concentration*		46	%		5	%		3	%		54	%		35	%		11	%		46	%		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.

64

Table of Contents

Item 2. 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 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 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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of Republic should be read in conjunction with Part I Item 1 “Financial Statements.”

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 inflation on Company operations;

·

Credit card – Through RCS, the Bank originates a credit card product, sells 90% of the balances generated within two business days of each transaction occurrence and retains the remaining 10% interest. The credit card product was first piloted in December 2015. Loan balances held for sale are carried at the lower of cost or fair value.

●

projections of revenue, income, expenses, losses, earnings per share, capital expenditures, dividends, capital structure, loan volume, loan growth, deposit growth, or other financial items;

·

Healthcare receivables – Through RCS, the Bank originates a healthcare-receivables product through two different third party relationships. For one third party relationship the Bank retains 100% of the receivables originated. For the other third party relationship, the Bank retains 100% of the receivables originated in some instances and sells 100% of the receivables in other instances within one month of origination. The Bank began offering a healthcare-receivables products during 2014. Loan balances held for sale are carried at the lower of cost or fair value.

●

descriptions of plans or objectives for future operations, products, or services;

·

Installment loan – Through RCS, the Bank originates an installment-loan product and sells 100% of the balances generated approximately 21 days after origination. The installment-loan product was first offered during the first quarter of 2016. Unlike RCS’s other products, the Company carries these installment loans held for sale at fair value, with this portfolio marked to market on a monthly basis.

●

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 Company reports~~
● the impact of inflation on the Company’s operations and credit losses;
● litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of 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 impact of bank failures and potential bank failures to the industry, the Bank’s deposit base and the FDIC’s deposit insurance fund;
● 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 and the overall steepness of the U.S. Treasury yield 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 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.”
defaults;
● recession;

65

Table of Contents

11


Kentucky		61-0862051
(State ofor other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

601 West Market Street, Louisville, Kentucky		40202
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common	RBCAA	The Nasdaq Stock Market


Large accelerated filer ☐◻	Accelerated filer ☒⌧	Non-accelerated filer ☐◻	Smaller reporting company ☐ ◻
Emerging growth company ☐◻


	Nine Months Ended
	September 30,
	2017		2016
OPERATING ACTIVITIES:
Net income	$	40,794	$	35,903
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization on investment securities, net		231		425
Accretion on loans, deposits and core deposit intangible, net		(3,981)		(1,813)
Depreciation of premises and equipment		6,178		5,281
Amortization of mortgage servicing rights		1,104		1,200
Provision for loan and lease losses		21,633		9,489
Net gain on sale of mortgage loans held for sale		(3,221)		(5,647)
Origination of mortgage loans held for sale		(119,265)		(154,607)
Proceeds from sale of mortgage loans held for sale		130,065		154,766
Net gain on sale of consumer loans held for sale		(3,869)		(1,768)
Origination of consumer loans held for sale		(454,844)		(248,430)
Proceeds from sale of consumer loans held for sale		453,169		247,928
Net gain realized on sale of other real estate owned		(577)		(392)
Writedowns of other real estate owned		155		200
Impairment of premises held for sale		1,082		133
Deferred director compensation expense - Class A Common Stock		147		149
Stock based compensation expense		928		754
Increase in cash surrender value of bank owned life insurance		(1,178)		(1,114)
Net change in other assets and liabilities:
Accrued interest receivable		(1,001)		(83)
Accrued interest payable		(12)		(219)
Other assets		(3,367)		(3,064)
Other liabilities		3,283		(724)
Net cash provided by operating activities		67,454		38,367

INVESTING ACTIVITIES:
Net change in cash for acquisition of Cornerstone Bancorp, Inc.		—		(9,088)
Purchases of securities available for sale		(91,451)		(400,079)
Purchases of securities held to maturity		(15,460)		—
Proceeds from calls, maturities and paydowns of securities available for sale		114,930		428,649
Proceeds from calls, maturities and paydowns of securities held to maturity		3,129		4,504
Net change in outstanding warehouse lines of credit		14,279		(274,457)
Purchase of non-business-acquisition loans, including premiums paid		(4,811)		(48,876)
Net change in other loans		(166,845)		(62,932)
Proceeds from sale of mortgage loans transferred to held for sale		—		72,330
Proceeds from redemption of Federal Home Loan Bank stock		—		224
Purchase of Federal Home Loan Bank stock		(3,859)		—
Proceeds from sales of other real estate owned		2,202		2,660
Net purchases of premises and equipment		(9,236)		(5,466)
Net cash used in investing activities		(157,122)		(292,531)

FINANCING ACTIVITIES:
Net change in deposits		189,037		443,745
Net change in securities sold under agreements to repurchase and other short-term borrowings		(162)		(242,975)
Payments of Federal Home Loan Bank advances		(460,000)		(267,000)
Proceeds from Federal Home Loan Bank advances		415,000		430,000
Payoff of subordinated note, net of common security interest		—		(4,000)
Repurchase of Class A Common Stock		(558)		(1,134)
Net proceeds from Class A Common Stock options exercised		33		80
Cash dividends paid		(13,129)		(12,467)
Net cash provided by financing activities		130,221		346,249

NET CHANGE IN CASH AND CASH EQUIVALENTS		40,553		92,085
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		289,309		210,082
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	329,862	$	302,167

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	14,559	$	13,882
Income taxes		20,570		18,956

SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers from loans to real estate acquired in settlement of loans	$	556	$	3,939
Transfers from loans held for investment to held for sale		—		71,201
Loans provided for sales of other real estate owned		—		256


☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements.	34

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	6865

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	~~113~~ 101

Item 4.	Controls and Procedures.	~~113~~ 101

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	~~113~~ 101

Item 2.1A.	Risk Factors.	102

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	~~113~~ 103

Item 6.	Exhibits.	~~114~~
		104

	SIGNATURES	105


	September 30,		December 31,
	2017		2016
ASSETS

Cash and cash equivalents	$	329,862	$	289,309
Securities available for sale		458,719		481,275
Securities held to maturity (fair value of $65,949 in 2017 and $53,249 in 2016)		65,177		52,864
Mortgage loans held for sale, at fair value		4,083		11,662
Consumer loans held for sale, at fair value		3,368		2,198
Consumer loans held for sale, at the lower of cost or fair value		5,684		1,310
Loans		3,957,512		3,810,778
Allowance for loan and lease losses		(40,191)		(32,920)
Loans, net		3,917,321		3,777,858
Federal Home Loan Bank stock, at cost		32,067		28,208
Premises and equipment, net		41,649		40,462
Premises, held for sale		3,196		2,407
Goodwill		16,300		16,300
Other real estate owned		167		1,391
Bank owned life insurance		62,972		61,794
Other assets and accrued interest receivable		52,609		49,271

TOTAL ASSETS	$	4,993,174	$	4,816,309

LIABILITIES

Deposits:
Noninterest-bearing	$	1,040,414	$	971,952
Interest-bearing		2,309,315		2,188,740
Total deposits		3,349,729		3,160,692

Securities sold under agreements to repurchase and other short-term borrowings		173,311		173,473
Federal Home Loan Bank advances		757,500		802,500
Subordinated note		41,240		41,240
Other liabilities and accrued interest payable		38,107		33,998

Total liabilities		4,359,887		4,211,903

Commitments and contingent liabilities (Footnote 9)		—		—

STOCKHOLDERS’ EQUITY


Preferred stock, no par value		—		—
Class A Common Stock and Class B Common Stock, no par value		4,904		4,906
Additional paid in capital		139,314		138,192
Retained earnings		487,574		460,621
Accumulated other comprehensive income		1,495		687

Total stockholders’ equity		633,287		604,406

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,993,174	$	4,816,309


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
INTEREST INCOME:

Loans, including fees	$	50,271	$	41,597	$	153,010	$	120,772
Taxable investment securities		2,364		1,942		6,910		5,817
Federal Home Loan Bank stock and other		1,090		395		2,509		1,500
Total interest income		53,725		43,934		162,429		128,089

INTEREST EXPENSE:

Deposits		2,587		1,620		6,790		4,359
Securities sold under agreements to repurchase and other short-term borrowings		161		11		332		51
Federal Home Loan Bank advances		2,383		2,664		6,618		8,590
Subordinated note		287		241		807		680
Total interest expense		5,418		4,536		14,547		13,680

NET INTEREST INCOME		48,307		39,398		147,882		114,409

Provision for loan and lease losses		4,221		2,489		21,633		9,489

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES		44,086		36,909		126,249		104,920

NONINTEREST INCOME:

Service charges on deposit accounts		3,395		3,416		10,032		9,838
Net refund transfer fees		177		132		18,329		19,119
Mortgage banking income		1,102		3,081		3,707		5,902
Interchange fee income		2,475		2,415		7,348		6,755
Program fees		1,597		979		3,972		1,942
Increase in cash surrender value of bank owned life insurance		394		406		1,178		1,114
Net gains (losses) on other real estate owned		31		(137)		422		191
Other		1,203		1,009		3,236		2,163
Total noninterest income		10,374		11,301		48,224		47,024

NONINTEREST EXPENSE:

Salaries and employee benefits		20,505		18,068		61,731		52,965
Occupancy and equipment, net		5,841		5,573		17,594		16,026
Communication and transportation		1,239		1,029		3,450		2,974
Marketing and development		1,677		1,076		4,090		2,773
FDIC insurance expense		300		345		1,050		1,483
Bank franchise tax expense		749		846		3,974		3,944
Data processing		1,795		1,659		5,142		4,535
Interchange related expense		928		1,118		3,057		3,069
Supplies		241		280		1,029		969
Other real estate owned expense		55		159		284		355
Legal and professional fees		446		539		1,794		1,965
FHLB advance prepayment penalty		—		846		—		846
Impairment of premises held for sale		965		58		1,082		133
Other		3,285		1,938		8,422		5,904
Total noninterest expense		38,026		33,534		112,699		97,941

INCOME BEFORE INCOME TAX EXPENSE		16,434		14,676		61,774		54,003
INCOME TAX EXPENSE		5,728		4,848		20,980		18,100
NET INCOME	$	10,706	$	9,828	$	40,794	$	35,903

BASIC EARNINGS PER SHARE:
Class A Common Stock	$	0.51	$	0.47	$	1.97	$	1.73
Class B Common Stock		0.47		0.43		1.79		1.58

DILUTED EARNINGS PER SHARE:
Class A Common Stock	$	0.51	$	0.47	$	1.96	$	1.73
Class B Common Stock		0.47		0.43		1.78		1.57

DIVIDENDS DECLARED PER COMMON SHARE:
Class A Common Stock	$	0.220	$	0.209	$	0.649	$	0.616
Class B Common Stock		0.200		0.190		0.590		0.560


	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands)	Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity

Balance, January 1, 2017	18,615	2,245	$	4,906	$	138,192	$	460,621	$	687	$	604,406

Net income	—	—		—		—		40,794		—		40,794

Net change in accumulated other comprehensive income	—	—		—		—		—		808		808

Dividends declared Common Stock:
Class A Shares	—	—		—		—		(12,082)		—		(12,082)
Class B Shares	—	—		—		—		(1,324)		—		(1,324)

Stock options exercised, net of shares redeemed	2	—		—		33		—		—		33

Repurchase of Class A Common Stock	(13)	—		(2)		(121)		(435)		—		(558)

Conversion of Class B Common Stock to Class A Common Stock	2	(2)		—		—		—		—		—

Net change in notes receivable on Class A Common Stock	—	—		—		135		—		—		135

Deferred director compensation expense - Class A Common Stock	5	—		—		147		—		—		147

Stock based compensation expense - performance stock units	—	—		—		364		—		—		364

Stock based compensation expense - restricted stock	7	—		—		373		—		—		373

Stock based compensation expense - stock options	—	—		—		191		—		—		191

Balance, September 30, 2017	18,618	2,243	$	4,904	$	139,314	$	487,574	$	1,495	$	633,287


Term		Definition

ACH		Automated Clearing House
ACL		Allowance for Credit Losses
ACLC		Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
ACLL		Allowance for Credit Losses on Loans
ACLS		Allowance for Credit Losses on Securities
AFS		Available for Sale
AOCI		Accumulated Other Comprehensive Income
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Basic EPS		Basic earnings per Class A Common Share
BOLI		Bank Owned Life Insurance
BPO		Brokered Price Opinion
C&D		Construction and Development
C&I		Commercial and Industrial
CARES Act		Coronavirus Aid, Relief, and Economic Security Act
CBank Agreement		Agreement and Plan of Merger between Republic Bancorp, Inc., CBank, and RB&T
CECL		Current Expected Credit Losses
CMO		Collateralized Mortgage Obligation
Core Bank		The Traditional Banking, Warehouse Lending, and Mortgage Banking reportable segments of the Company
COVID		Coronavirus Disease of 2019
CRE		Commercial Real Estate
DDA		Demand Deposit Account
Diluted EPS		Diluted earnings per Class A Common Share
Economic Aid Act		Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
ERA		Early Season Refund Advance
ESPP		Employee Stock Purchase Plan
EVP		Executive Vice President
FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
FFTR		Federal Funds Target Rate
FHLB		Federal Home Loan Bank
FHLMC		Federal Home Loan Mortgage Corporation
FICO		Fair Isaac Corporation
FNMA		Federal National Mortgage Association
FOMC		Federal Open Market Committee
FRB		Federal Reserve Bank
FTE		Full Time Equivalent
FTP		Funds Transfer Pricing
GAAP		Generally Accepted Accounting Principles in the United States
Green Dot		Green Dot Corporation
HEAL		Home Equity Amortizing Loan
HELOC		Home Equity Line of Credit
HTM		Held to Maturity
IRS		Internal Revenue Service
ITM		Interactive Teller Machine
Lawsuit		The lawsuit the Bank filed against Green Dot in the Delaware Court of Chancery on October 5, 2021
LGD		Loss Given Default
LIBOR		London Interbank Offered Rate
LOC		Line of Credit
LOC I		RCS product introduced in 2014 for which the Bank participates out a 90% interest and holds a 10% interest
LOC II		RCS product introduced in 2021 for which the Bank participates out a 95% interest and holds a 5% interest
LTV		Loan to Value
MBS		Mortgage Backed Securities
MSRs		Mortgage Servicing Rights
NA		Not Applicable
NIM		Net Interest Margin
NM		Not Meaningful
OBS		Off-Balance Sheet
OCI		Other Comprehensive Income
OREO		Other Real Estate Owned
OTTI		Other than Temporary Impairment
PCD		Purchased with Credit Deterioration
PD		Probability of Default
PPP		SBA's Paycheck Protection Program
Prime		TheWall Street Journal Prime Interest Rate
Provision		Provision for Expected Credit Loss Expense
PSU		Performance Stock Unit
RA		Refund Advance
RB&T / the Bank		Republic Bank & Trust Company
RCS		Republic Credit Solutions segment
Republic / the Company		Republic Bancorp, Inc.
RPG		Republic Processing Group
RPS		Republic Payment Solutions
RT		Refund Transfer
Sale Transaction		Sale contemplated in the May 13, 2021 Asset Purchase Agreement between the Bank and Green Dot
SBA		U.S. Small Business Administration
Settlement Agreement		The agreement between the Bank and Green Dot that settled the Lawsuit filed by the Bank against Green Dot
SEC		Securities and Exchange Commission
SSUAR		Securities Sold Under Agreements to Repurchase
TDR		Troubled Debt Restructuring
The Captive		Republic Insurance Services, Inc.
TRS		Tax Refund Solutions segment
TRS Purchase Agreement		May 13, 2021 Asset Purchase Agreement for the sale of substantially all of the Bank's TRS assets and operations to Green Dot
TRUP		Trust Preferred Security Investment
Warehouse		Warehouse Lending segment

(in thousands)

March 31, 2023

December 31, 2022

Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure