PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (in thousands)


	March 31,		December 31,
	2024		2023
ASSETS	(Unaudited)		(Audited)

Cash and cash equivalents	$	546,363	$	316,567
Available-for-sale debt securities, at fair value (amortized cost of $614,368 in 2024 and $618,525 in 2023, allowance for credit losses of $0 in 2024 and 2023)		587,805		591,313
Held-to-maturity debt securities (fair value of $76,119 in 2024 and $76,167 in 2023, allowance for credit losses of $10 in 2024 and $10 in 2023)		76,254		76,387
Equity securities with readily determinable fair value		235		174
Mortgage loans held for sale, at fair value		80,884		3,227
Consumer loans held for sale, at fair value		6,093		7,914
Consumer loans held for sale, at the lower of cost or fair value		13,083		16,094
Loans (loans carried at fair value of $0 in 2024 and $0 in 2023)		5,224,292		5,239,861
Allowance for credit losses		(108,702)		(82,130)
Loans, net		5,115,590		5,157,731
Federal Home Loan Bank stock, at cost		43,729		23,770
Premises and equipment, net		33,557		33,411
Right-of-use assets		33,210		34,691
Goodwill		40,516		40,516
Other real estate owned		1,486		1,370
Bank owned life insurance		104,670		103,916
Low-income housing tax credit investments		73,621		75,055
Other assets and accrued interest receivable		118,496		112,755

TOTAL ASSETS	$	6,875,592	$	6,594,891

LIABILITIES

Deposits:
Noninterest-bearing	$	1,359,516	$	1,676,998
Interest-bearing		4,061,133		3,376,165
Total deposits		5,420,649		5,053,163

Securities sold under agreements to repurchase and other short-term borrowings		84,522		97,618
Operating lease liabilities		34,076		35,539
Federal Home Loan Bank advances		270,000		380,000
Low-income housing tax credit obligations		56,093		58,619
Other liabilities and accrued interest payable		74,669		57,196

Total liabilities		5,940,009		5,682,135

Commitments and contingent liabilities (Footnote 9)		—		—

STOCKHOLDERS’ EQUITY

Preferred stock, no par value		—		—
Class A Common Stock, no par value, 30,000,000 shares authorized, 17,260,406 shares (2024) and 17,203,355 shares (2023) issued and outstanding; Class B Common Stock, no par value, 5,000,000 shares authorized, 2,150,669 shares (2024) and 2,154,562 shares (2023) issued and outstanding		4,578		4,553
Additional paid in capital		142,091		142,124
Retained earnings		808,836		786,487
Accumulated other comprehensive (loss) income		(19,922)		(20,408)

Total stockholders’ equity		935,583		912,756

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,875,592	$	6,594,891

See accompanying footnotes to consolidated financial statements.

4

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)


	Three Months Ended
	March 31,
	2024		2023
INTEREST INCOME:

Loans, including fees	$	118,907	$	92,609
Taxable investment securities		4,452		4,603
Federal Home Loan Bank stock and other		7,273		3,144
Total interest income		130,632		100,356

INTEREST EXPENSE:

Deposits		26,996		4,878
Securities sold under agreements to repurchase and other short-term borrowings		130		248
Federal Home Loan Bank advances		6,587		2,588
Total interest expense		33,713		7,714

NET INTEREST INCOME		96,919		92,642

Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities)		30,622		26,766

NET INTEREST INCOME AFTER PROVISION		66,297		65,876

NONINTEREST INCOME:

Service charges on deposit accounts		3,313		3,299
Net refund transfer fees		10,820		10,807
Mortgage banking income		310		800
Interchange fee income		3,157		3,051
Program fees		4,179		3,241
Increase in cash surrender value of bank owned life insurance		754		635
Net losses on other real estate owned		(53)		(53)
Other		893		901
Total noninterest income		23,373		22,681

NONINTEREST EXPENSE:

Salaries and employee benefits		29,716		29,961
Technology, equipment, and communication		7,490		7,228
Occupancy		3,822		3,406
Marketing and development		1,924		1,574
FDIC insurance expense		772		637
Interchange related expense		1,298		1,499
Legal and professional fees		1,055		1,061
Merger expense		41		2,073
Other		4,853		5,004
Total noninterest expense		50,971		52,443

INCOME BEFORE INCOME TAX EXPENSE		38,699		36,114
INCOME TAX EXPENSE		8,093		8,022
NET INCOME	$	30,606	$	28,092

BASIC EARNINGS PER SHARE:
Class A Common Stock	$	1.59	$	1.42
Class B Common Stock		1.44		1.30

DILUTED EARNINGS PER SHARE:
Class A Common Stock	$	1.58	$	1.42
Class B Common Stock		1.43		1.29

See accompanying footnotes to consolidated financial statements.

5

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended
	March 31,
	2024		2023

Net income	$	30,606	$	28,092

OTHER COMPREHENSIVE INCOME (LOSS)

Unrealized gain (loss) on AFS debt securities		592		5,205
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings		57		5
Total other comprehensive income (loss) before income tax		649		5,210
Income tax benefit (expense) related to items of other comprehensive income		(163)		(1,305)
Total other comprehensive income (loss), net of tax		486		3,905

COMPREHENSIVE INCOME	$	31,092	$	31,997

See accompanying footnotes to consolidated financial statements.

6

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


	Three Months Ended March 31, 2024

	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, 2024	17,203	2,155	$	4,553	$	142,124	$	786,487	$	(20,408)	$	912,756

Net income	—	—		—		—		30,606		—		30,606
Net change in AOCI	—	—		—		—		—		486		486
Dividends declared on Common Stock:
Class A Shares ($0.407 per share)	—	—		—		—		(6,986)		—		(6,986)
Class B Shares ($0.370 per share)	—	—		—		—		(796)		—		(796)
Stock options exercised, net of shares withheld	37	—		26		(689)		(437)		—		(1,100)
Conversion of Class B to Class A Common Shares	4	(4)		—		—		—		—		—
Deferred compensation - Class A Common Stock:
Directors	—	—		(1)		135		—		—		134
Designated key employees	11	—		—		167		—		—		167
Employee stock purchase plan - Class A Common Stock	4	—		1		183		—		—		184
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		36		—		—		36
Restricted stock	1	—		(1)		(34)		(38)		—		(73)
Stock options	—	—		—		169		—		—		169

Balance, March 31, 2024	17,260	2,151	$	4,578	$	142,091	$	808,836	$	(19,922)	$	935,583


	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)
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

See accompanying footnotes to consolidated financial statements.

7

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Three Months Ended
	March 31,
	2024		2023
OPERATING ACTIVITIES:
Net income	$	30,606	$	28,092
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization on investment securities and low-income housing investments		1,555		1,438
Net accretion and amortization on loans		(639)		(618)
Unrealized and realized losses on equity securities with readily determinable fair value		(61)		4
Depreciation of premises and equipment		1,944		1,594
Amortization of mortgage servicing rights		426		490
Provision for on-balance sheet exposures		30,622		26,766
Provision for off-balance sheet exposures		(110)		210
Net gain on sale of mortgage loans held for sale		80		(420)
Origination of mortgage loans held for sale		(27,046)		(15,942)
Proceeds from sale of mortgage loans held for sale		18,773		16,630
Net gain on sale of consumer loans held for sale		(3,405)		(2,534)
Origination of consumer loans held for sale		(188,347)		(207,222)
Proceeds from sale of consumer loans held for sale		196,584		210,199
Writedowns of other real estate owned		53		52
Deferred compensation expense - Class A Common Stock		301		331
Stock-based awards and ESPP expense - Class A Common Stock		160		438
Amortization of right-of-use assets		1,481		1,544
Accretion of operating lease liabilities		(1,463)		(1,550)
Increase in cash surrender value of bank owned life insurance		(754)		(635)
Net change in other assets and liabilities:
Accrued interest receivable		(1,878)		(2,502)
Accrued interest payable		2,832		103
Other assets		(5,489)		(5,402)
Other liabilities		14,999		19,670
Net cash provided by operating activities		71,224		70,736

INVESTING ACTIVITIES:
Net cash proceeds paid in acquisition		—		(40,970)
Purchases of available-for-sale debt securities		(50,000)		(25,000)
Purchases of held-to-maturity debt securities		—		(25,000)
Proceeds from calls, maturities and paydowns of equity and available-for-sale debt securities		54,220		54,066
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities		133		278
Net change in outstanding warehouse lines of credit		(123,526)		(53,805)
Purchase of correspondent loans, including premiums paid		—		(8,731)
Net change in other loans		66,188		19,670
Net purchases of Federal Home Loan Bank stock		(19,959)		(16,793)
Investments in low-income housing tax partnerships		(2,710)		(1,172)
Net purchases of premises and equipment		(2,090)		(1,688)
Net cash used in investing activities		(77,744)		(99,145)

FINANCING ACTIVITIES:
Net change in deposits		367,486		40,145
Net change in securities sold under agreements to repurchase and other short-term borrowings		(13,096)		(82,544)
Payments of Federal Home Loan Bank advances		(110,000)		—
Proceeds from Federal Home Loan Bank advances		—		13,000
Net proceeds from Class A Common Stock purchased through employee stock purchase plan		156		138
Net proceeds from option exercises and equity awards vested - Class A Common Stock		(1,100)		(84)
Cash dividends paid		(7,130)		(6,646)
Net cash (used in) provided by financing activities		236,316		(35,991)
NET CHANGE IN CASH AND CASH EQUIVALENTS		229,796		(64,400)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		316,567		313,689
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	546,363	$	249,289
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	30,882	$	7,611
Income taxes		570		471
SUPPLEMENTAL NONCASH DISCLOSURES:
Mortgage servicing rights capitalized	$	118	$	127
Transfers from loans to real estate acquired in settlement of loans		169		—
Transfers from loans held for investment to held for sale		69,464		—
Right-of-use assets recorded		—		722

See accompanying footnotes to consolidated financial statements.

8

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –MARCH 31, 2024 and 2023 AND DECEMBER 31, 2023 (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 geographic market footprint where it has physical locations, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. During the fourth quarter of 2023, the Company dissolved its Captive, a Nevada-based, wholly owned insurance subsidiary of the Company. The Captive provided property and casualty insurance coverage to the Company and the Bank, as well as a group of unrelated third-party insurance captives.

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 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, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024. 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, 2023. Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported prior periods’ net income or shareholders’ equity.

BUSINESS SEGMENT COMPOSITION

As of March 31, 2024, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending, TRS, RPS, and RCS. Republic had previously reported mortgage banking as a separate reportable segment prior to the first quarter of 2024. Due to the quantitative and qualitative immateriality of this division, Management concluded its mortgage banking operations no longer constitutes a separate reportable segment for SEC reporting purposes.

Management considers the first two segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last three segments collectively constitute RPG operations.

9

Table of Contents

Core Bank

Traditional Banking segment — The Traditional Banking segment, which also includes the results of the former mortgage banking segment, provides traditional banking products primarily to customers in the Company’s market footprint. As of March 31, 2024, Republic had 47 banking centers with locations as follows:

●

Kentucky — 29

●

Metropolitan Louisville — 19

●

Central Kentucky — 6

●

Georgetown — 1

●

Lexington — 5

●

Northern Kentucky (Metropolitan Cincinnati) — 4

●Bellevue— 1

●

Covington — 1

●

Crestview Hills — 1

●

Florence — 1

●

Indiana — 3

●

Southern Indiana (Metropolitan Louisville) — 3

●

Floyds Knobs — 1

●

Jeffersonville — 1

●

New Albany — 1

●

Florida — 7

●

Metropolitan Tampa — 7

●

Ohio — 4

●

Metropolitan Cincinnati — 4

●

Tennessee — 4

●

Metropolitan Nashville — 4

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 mortgage banking income, 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.

10

Table of Contents

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. During December 2023, TRS originated $103 million of ERAs related to tax returns that were anticipated to be filed during the first quarter 2024 tax filing season. Of these ERAs, $11 million remained outstanding as of March 31, 2024. During the second half of each year, TRS generates limited revenue and incurs costs preparing for the next year’s 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 2024 and 2023:

●

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 $6,500;

●

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.

Since its introduction in December of 2022, the ERA credit product has been structured similarly to the RA with the primary differences being the timing of when the ERAs are originated and the documentation available to underwrite the ERA credits. The ERA is originated prior to the taxpayer receiving their fiscal year taxable income documentation, e.g., W-2, and the filing of the taxpayer’s final federal tax return. As such, the Company generally uses paystub information to underwrite the ERA. The repayment of the ERA is incumbent upon the taxpayer client returning to the Bank’s Tax Provider for the filing of their final federal tax return in order for the tax refund to potentially be received by the Bank from the federal government to pay off the advance. The ERA product had the following features during the 2023 and 2024 tax filing seasons:

●

Only offered during December and the up-coming January in connection with the upcoming first quarter tax business for each period;

●

The taxpayer had the option to choose from multiple loan 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 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 deducted from the taxpayer’s tax refund proceeds; and

●

If an insufficient refund to repay the ERA, including the failure to file a final federal tax return through a Republic Tax Provider:

o

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. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. RAs, including ERAs that were originated related

11

Table of Contents

to the first quarter 2023 tax filing 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 as it did during 2023, the Company will consider an RA delinquent in 2024 if it remains unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority.

Provisions on RAs are estimated when advances are made. Unpaid RAs, including ERAs, related to the first quarter tax filing season of a given year are charged-off by June 30^th of that year, unless they are deemed to be uncollectible earlier than June 30^th, at which time they are charged off. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are recorded as recoveries of previously charged-off loans.

Republic Payment Solutions segment - The RPS segment offers a range of payment-related products and services to consumers through third party service providers. The Bank offers both issuing solutions and money movement capabilities.

Issuing Solutions:

The RPS segment offers prepaid and debit solutions primarily marketed to consumers through third-party marketer-servicers.

Prepaid solutions include the issuing of payroll and general purpose reloadable (“GPR”) cards. Characteristics of these cards include the following:

●

Similar to a traditional debit card with features including traditional point of sale purchasing, ATM withdrawals and direct deposit;

●

Funds associated with these products are typically held in pooled accounts at the Bank with the Bank maintaining records of individual balances within these pooled accounts; and

●

Payroll cards facilitate the loading of an employer’s payroll onto a card via direct deposit with GPR cards generally distributed through retail locations and reloadable through participating retail load networks.

Debit solutions include the issuing of demand deposit accounts, savings accounts and/or debit cards. In addition to offering traditional point of sale purchasing, ATM withdrawals, and direct deposit options, these accounts may include overdraft protection.

Money Movement:

The Bank participates in traditional money movement solutions including ACH transactions, wire transfer, check processing, and the Mastercard Remote Payment and Presentment Service (“RPPS”). These capabilities are complementary to issuing within RPS, as well as, generally facilitating the movement of money for the TRS and RCS Divisions.

The Company reports its share of client-related charges and fees for 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 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.

1)

Elastic Marketing, LLC and Elevate Decision Sciences, LLC are third-party service providers for the LOC I 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. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of the product.

12

Table of Contents

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.

2)

Similar to its LOC I product, the Bank provides oversight and supervision to a third party for its LOC II product. In return, this third party provides the Bank with marketing services and loan servicing for the LOC II product. The Bank is the lender for this product and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this product.

The Bank sells 95% participation interests in the LOC II product. These 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.

For the RCS line of credit and healthcare receivable products, the Company reports interest income and loan origination fees earned on RCS loans under “Loans, including fees,” while any net gains or losses on sale and mark-to-market adjustments of RCS loans are reported as noninterest income under “RCS Program fees.” The Company has elected fair value accounting for its RCS installment loan product that it sells after an initial holding period. As a result, interest income on loans, loan origination fees, net gains or losses on sale, and mark-to-market adjustments for the RCS installment product are reported as noninterest income under “RCS Program fees.”

13

Table of Contents

Recently Adopted Accounting Standards

The following ASUs were adopted by the Company during the three months ended March 31, 2024:


				Method of	Financial
ASU. No.	Topic	Nature of Update	Date Adopted	Adoption	Statement 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	Immaterial

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	Immaterial

Accounting Standards Update

The following not-yet-effective ASUs were issued prior to March 31, 2024, and considered relevant to the Company’s financial statements.


			Date Adoption	Adoption	Expected
ASU. No.	Topic	Nature of Update	Required	Method	Financial Impact
2024-02	Codification Improvements—Amendments to Remove References to the Concepts Statements	This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas.	January 1, 2025	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

2023-09	Income Taxes (Topic 740): Improvements to Income Tax Disclosures	Among other things, these amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate).	January 1, 2025	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

2023-07	Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures	The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.	October 1, 2024	Retrospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

2023-03	Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock (SEC Update)	This ASU amends the FASB Accounting Standards Codification™ for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.	Upon addition to the FASB Codification.	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

14

Table of Contents

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 previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, final recast adjustments to those previously reported preliminary fair values, and the expected fair values of those assets and liabilities as recorded by the Company. Effective September 30, 2023, management finalized the fair values of the acquired assets and assumed liabilities.


	March 15, 2023
	As Previously Reported					As Recasted
	As Recorded		Fair Value			Recast			As Recorded
Years Ended December 31, (in thousands)	by CBank		Adjustments			Adjustments			by Republic

Assets acquired:

Cash and cash equivalents	$	10,030	$	—		$	—		$	10,030
Investment securities		16,463		(4)	a		(65)	a		16,394
Loans		221,707		(4,219)	b		(150)	b		217,338
Allowance for loan and lease losses		(2,953)		1,353	c		1,391	c, j		(209)
Loans, net		218,754		(2,866)			1,241			217,129
Goodwill		954		(954)	d		—			—
Core deposit intangible		—		2,844	e		—			2,844
Premises and equipment, net		162		35	f		(24)	f		173
Other assets and accrued interest receivable		7,067		(320)	g		—			6,747

Total assets acquired	$	253,430	$	(1,265)		$	1,152		$	253,317

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		50	i		4,855

Total liabilities assumed		226,356		127			50			226,533

Net assets acquired	$	27,074	$	(1,392)		$	1,102			26,784

Cash consideration paid										(51,000)

Goodwill									$	24,216

15

Table of Contents

Explanation of fair value and recast 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 based on the Company’s evaluation of the acquired loan portfolio.

c.

Adjustments to the Allowance reflect the fair value adjustment to eliminate the acquiree’s recorded allowance for loan losses and other fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

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.

j.

Adjustment reflects a change in estimated fair value based upon further evaluation of PCD loans, including cash payments received subsequent to the date of acquisition.

Goodwill of approximately $24 million, which is the excess of the merger consideration over the fair value of net assets acquired, was 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.

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, 2024 (in thousands)	Cost		Gains		Losses		Credit Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	426,414	$	—	$	(13,289)	$	—	$	413,125
Private label mortgage-backed security		385		1,387		—		—		1,772
Mortgage-backed securities - residential		159,666		106		(13,950)		—		145,822
Collateralized mortgage obligations		22,077		39		(1,076)		—		21,040
Corporate bonds		2,011		8		—		—		2,019
Trust preferred security		3,815		212		—		—		4,027
Total available-for-sale debt securities	$	614,368	$	1,752	$	(28,315)	$	—	$	587,805


			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
December 31, 2023 (in thousands)	Cost		Gains		Losses		Credit Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	421,576	$	—	$	(14,543)	$	—	$	407,033
Private label mortgage-backed security		443		1,330		—		—		1,773
Mortgage-backed securities - residential		167,996		176		(13,462)		—		154,710
Collateralized mortgage obligations		22,698		36		(1,075)		—		21,659
Corporate bonds		2,012		8		—		—		2,020
Trust preferred security		3,800		318		—		—		4,118
Total available-for-sale debt securities	$	618,525	$	1,868	$	(29,080)	$	—	$	591,313

16

Table of Contents

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, 2024 (in thousands)	Cost		Gains		Losses		Value		Credit Losses

U.S. Treasury securities and U.S. Government agencies	$	65,000	$	—	$	(116)	$	64,884	$	—
Mortgage-backed securities - residential		24		—		—		24		—
Collateralized mortgage obligations		6,251		45		(104)		6,192		—
Corporate bonds		4,989		30		—		5,019		(10)
Obligations of state and political subdivisions		—		—		—		—		—
Total held-to-maturity debt securities	$	76,264	$	75	$	(220)	$	76,119	$	(10)


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

U.S. Treasury securities and U.S. Government agencies	$	65,000	$	—	$	(163)	$	64,837	$	—
Mortgage-backed securities - residential		25		—		—		25		—
Collateralized mortgage obligations		6,386		48		(121)		6,313		—
Corporate bonds		4,986		6		—		4,992		(10)
Obligations of state and political subdivisions		—		—		—		—		—
Total held-to-maturity debt securities	$	76,397	$	54	$	(284)	$	76,167	$	(10)

Sales of Available-for-Sale Debt Securities

During the three months ended March 31, 2024 and 2023, there were no gains or losses on sales or calls of AFS debt securities.

Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity as of March 31, 2024 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, 2024 (in thousands)	Cost		Value		Cost		Value

Due in one year or less	$	191,117	$	189,114	$	50,000	$	49,897
Due from one year to five years		237,308		226,030		19,989		20,006
Due from five years to ten years		—		—		—		—
Due beyond ten years		3,815		4,027		—		—
Private label mortgage-backed security		385		1,772		—		—
Mortgage-backed securities - residential		159,666		145,822		24		24
Collateralized mortgage obligations		22,077		21,040		6,251		6,192
Total debt securities	$	614,368	$	587,805	$	76,264	$	76,119

17

Table of Contents

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, 2024 and December 31, 2023, 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, 2024 (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	$	61,177	$	(430)	$	351,949	$	(12,859)	$	413,126	$	(13,289)
Mortgage-backed securities - residential		9,818		(194)		129,370		(13,756)		139,188		(13,950)
Collateralized mortgage obligations		1,608		(72)		16,765		(1,004)		18,373		(1,076)
Trust preferred security		—		—		—		—		—		—
Total available-for-sale debt securities	$	72,603	$	(696)	$	498,084	$	(27,619)	$	570,687	$	(28,315)


	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	$	26,707	$	(84)	$	380,326	$	(14,459)	$	407,033	$	(14,543)
Mortgage-backed securities - residential		1,911		(23)		136,180		(13,439)		138,091		(13,462)
Collateralized mortgage obligations		1,668		(52)		17,239		(1,023)		18,907		(1,075)
Trust preferred security		—		—		—		—		—		—
Total available-for-sale debt securities	$	30,286	$	(159)	$	533,745	$	(28,921)	$	564,031	$	(29,080)

As of March 31, 2024, the Bank’s security portfolio consisted of 194 securities, 155 of which were in an unrealized loss position.

As of December 31, 2023, the Bank’s security portfolio consisted of 191 securities, 144 of which were in an unrealized loss position.

As of March 31, 2024 and December 31, 2023, 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 $1.8 million as of March 31, 2024. This security is mostly backed by “Alternative A” first-lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

See additional discussion regarding the Bank’s private label mortgage-backed security under Footnote 10 “Fair Value” in this section of the filing.

Mortgage-Backed Securities and Collateralized Mortgage Obligations

As of March 31, 2024, with the exception of the $1.8 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 FHLMC and FNMA. As of March 31, 2024 and December 31, 2023, there were gross unrealized losses of $15.0 million and $14.5 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 believes the unrealized losses detailed above do not require an allowance for credit losses relating to these securities to be recognized.

18

Table of Contents

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, 2024 and 2023 of the ACLS on AFS and HTM debt securities:


	ACLS Roll-forward
	Three Months Ended March 31,
	2024										2023
	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			10		—		—		—		10

Total	$	10	$	—	$	—	$	—	$	10		$	10	$	3	$	—	$	—	$	13

The Company’s ACLS on its HTM corporate bonds during the three months ended March 31, 2024 remains unchanged from December 31, 2023.

There were no HTM debt securities on nonaccrual or past due 90 days or more as of March 31, 2024 and December 31, 2023. All of the Company’s HTM corporate bonds were rated investment grade as of March 31, 2024 and December 31, 2023.

There were no HTM debt securities considered collateral dependent as of March 31, 2024 and December 31, 2023.

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 $2 million and $2 million as of March 31, 2024 and December 31, 2023. Accrued interest receivable on HTM debt securities totaled $837,000 and $384,000 as of March 31, 2024 and December 31, 2023.

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, 2024		December 31, 2023

Amortized cost	$	87,238	$	106,169
Fair value		86,171		99,530
Carrying amount		86,178		99,530

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, 2024 (in thousands)	Cost		Gains		Losses		Value

Freddie Mac preferred stock	$	—	$	235	$	—	$	235
Total equity securities with readily determinable fair values	$	—	$	235	$	—	$	235


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

Freddie Mac preferred stock	$	—	$	174	$	—	$	174
Total equity securities with readily determinable fair values	$	—	$	174	$	—	$	174

19

Table of Contents

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, 2024						Three Months Ended March 31, 2023
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total

Freddie Mac preferred stock	$	—	$	61	$	61	$	—	$	(4)	$	(4)
Total equity securities with readily determinable fair value	$	—	$	61	$	61	$	—	$	(4)	$	(4)

20

Table of Contents

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 Traditional 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 11 “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)	2024		2023

Balance, beginning of period	$	7,914	$	4,706
Origination of consumer loans held for sale		35,159		22,797
Proceeds from the sale of consumer loans held for sale		(38,011)		(23,560)
Net gain on sale of consumer loans held for sale		1,031		745
Balance, end of period	$	6,093	$	4,688

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)	2024		2023

Balance, beginning of period	$	16,094	$	13,169
Origination of consumer loans held for sale		153,188		184,425
Proceeds from the sale of consumer loans held for sale		(158,573)		(186,639)
Net gain on sale of consumer loans held for sale		2,374		1,789
Balance, end of period	$	13,083	$	12,744

21

Table of Contents

5.LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:


(in thousands)	March 31, 2024		December 31, 2023

Traditional Banking:
Residential real estate:
Owner-occupied	$	1,064,071	$	1,144,684
Nonowner-occupied		342,481		345,965
Commercial real estate (1)		1,800,801		1,785,289
Construction & land development		237,998		217,338
Commercial & industrial		453,971		464,078
Lease financing receivables		88,272		88,591
Aircraft		246,060		250,051
Home equity		309,083		295,133
Consumer:
Credit cards		16,858		16,654
Overdrafts		629		694
Automobile loans		2,054		2,664
Other consumer		11,372		7,428
Total Traditional Banking		4,573,650		4,618,569
Warehouse lines of credit*		463,249		339,723
Total Core Banking		5,036,899		4,958,292

*Republic Processing Group:**
Tax Refund Solutions:
Refund Advances		52,101		103,115
Other TRS commercial & industrial loans		5,396		46,092
Republic Credit Solutions		129,896		132,362
Total Republic Processing Group		187,393		281,569

Total loans**		5,224,292		5,239,861
Allowance for credit losses		(108,702)		(82,130)

Total loans, net	$	5,115,590	$	5,157,731

*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.

(1)

The approximate percentage of Nonowner-occupied CRE loans to total CRE loans was 64% and 63%, respectively, for March 31, 2024 and December 31, 2023. The approximate percentage of Owner-occupied CRE loans to total CRE loans was 36% and 37%, respectively, for March 31, 2024 and December 31, 2023.

The following table reconciles the contractually receivable and carrying amounts of loans:


(in thousands)	March 31, 2024		December 31, 2023

Contractually receivable	$	5,231,943	$	5,246,621
Unearned income		(2,830)		(2,556)
Unamortized premiums		257		1,060
Unaccreted discounts		(2,264)		(2,533)
Other net unamortized deferred origination (fees) and costs		(2,814)		(2,731)
Carrying value of loans	$	5,224,292	$	5,239,861

22

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, 2024 remain unchanged from those defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. 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, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total

Residential real estate owner-occupied:
Risk Rating
Pass or not rated	$	20,990	$	257,598	$	199,426	$	171,956	$	164,679	$	223,861	$	—	$	2,434	$	1,040,944
Special Mention		—		—		—		—		—		5,757		—		—		5,757
Substandard		—		240		3,609		1,763		1,476		10,282		—		—		17,370
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	20,990	$	257,838	$	203,035	$	173,719	$	166,155	$	239,900	$	—	$	2,434	$	1,064,071
YTD Gross Charge-offs	$	—	$	—	$	—	$	13	$	—	$	—	$	—	$	—	$	13

Residential real estate nonowner-occupied:
Risk Rating
Pass or not rated	$	2,567	$	57,493	$	63,182	$	74,295	$	65,051	$	70,075	$	—	$	7,636	$	340,299
Special Mention		—		169		1,928		—		—		25		—		—		2,122
Substandard		—		—		—		—		—		60		—		—		60
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	2,567	$	57,662	$	65,110	$	74,295	$	65,051	$	70,160	$	—	$	7,636	$	342,481
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate:
Risk Rating
Pass or not rated	$	38,884	$	217,232	$	350,566	$	295,191	$	330,055	$	347,829	$	35,856	$	148,684	$	1,764,297
Special Mention		—		—		—		4,860		5,809		23,247		1,770		—		35,686
Substandard		—		—		7		—		640		171		—		—		818
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	38,884	$	217,232	$	350,573	$	300,051	$	336,504	$	371,247	$	37,626	$	148,684	$	1,800,801
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction and land development:
Risk Rating
Pass or not rated	$	5,061	$	79,899	$	117,704	$	22,655	$	2,689	$	5,217	$	385	$	4,388	$	237,998
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	5,061	$	79,899	$	117,704	$	22,655	$	2,689	$	5,217	$	385	$	4,388	$	237,998
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—		—

Commercial and industrial:
Risk Rating
Pass or not rated	$	15,456	$	100,658	$	76,782	$	64,531	$	33,713	$	32,042	$	115,105	$	3,793	$	442,080
Special Mention		—		138		5,397		1,290		1,347		2,737		187		—		11,096
Substandard		—		—		85		2		—		340		25		343		795
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	15,456	$	100,796	$	82,264	$	65,823	$	35,060	$	35,119	$	115,317	$	4,136	$	453,971
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Lease financing receivables:
Risk Rating
Pass or not rated	$	7,362	$	42,950	$	21,864	$	9,023	$	3,979	$	2,117	$	—	$	—	$	87,295
Special Mention		—		412		28		108		156		17		—		—		721
Substandard		—		—		187		38		—		31		—		—		256
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	7,362	$	43,362	$	22,079	$	9,169	$	4,135	$	2,165	$	—	$	—	$	88,272
YTD Gross Charge-offs	$	—	$	24	$	—	$	—	$	—	$	—	$	—	$	—	$	24

Aircraft:
Risk Rating
Pass or not rated	$	8,049	$	93,208	$	55,071	$	42,213	$	27,419	$	20,100	$	—	$	—	$	246,060
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	8,049	$	93,208	$	55,071	$	42,213	$	27,419	$	20,100	$	—	$	—	$	246,060
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	—	$	306,523	$	—	$	306,523
Special Mention		—		—		—		—		—		—		250		—		250
Substandard		—		—		—		—		—		—		2,310		—		2,310
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	309,083	$	—	$	309,083
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

23

Table of Contents


													Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)												Amortized		Converted
As of March 31, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total

Consumer:
Risk Rating
Pass or not rated	$	3,331	$	4,554	$	1,124	$	144	$	54	$	2,888	$	18,807	$	—	$	30,902
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		11		—		—		11
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	3,331	$	4,554	$	1,124	$	144	$	54	$	2,899	$	18,807	$	—	$	30,913
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	345	$	—	$	345

Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	—	$	463,249	$	—	$	463,249
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	463,249	$	—	$	463,249
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

TRS:
Risk Rating
Pass or not rated	$	41,099	$	16,398	$	—	$	—	$	—	$	—	$	—	$	—	$	57,497
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	41,099	$	16,398	$	—	$	—	$	—	$	—	$	—	$	—	$	57,497
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

RCS:
Risk Rating
Pass or not rated	$	8,836	$	23,834	$	5,546	$	452	$	1,209	$	35,351	$	52,483	$	—	$	127,711
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		2,185		—		2,185
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	8,836	$	23,834	$	5,546	$	452	$	1,209	$	35,351	$	54,668	$	—	$	129,896
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	4,545	$	—	$	4,545

Grand Total:
Risk Rating
Pass or not rated	$	151,635	$	893,824	$	891,265	$	680,460	$	628,848	$	739,480	$	992,408	$	166,935	$	5,144,855
Special Mention		—		719		7,353		6,258		7,312		31,783		2,207		—		55,632
Substandard		—		240		3,888		1,803		2,116		10,895		4,520		343		23,805
Doubtful		—		—		—		—		—		—		—		—		—
Grand Total	$	151,635	$	894,783	$	902,506	$	688,521	$	638,276	$	782,158	$	999,135	$	167,278	$	5,224,292
YTD Gross Charge-offs	$	—	$	24	$	—	$	13	$	—	$	—	$	4,890	$	—	$	4,927


													Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year												Amortized		Converted
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total

Residential real estate owner-occupied:
Risk Rating
Pass or not rated	$	346,195	$	200,715	$	175,030	$	167,493	$	59,982	$	170,402	$	—	$	2,474	$	1,122,291
Special Mention		41		—		—		—		—		6,309		—		—		6,350
Substandard		—		2,526		1,885		1,226		1,040		9,366		—		—		16,043
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	346,236	$	203,241	$	176,915	$	168,719	$	61,022	$	186,077	$	—	$	2,474	$	1,144,684
YTD Gross Charge-offs	$	—	$	10	$	16	$	—	$	—	$	—	$	—	$	—	$	26

Residential real estate nonowner-occupied:
Risk Rating
Pass or not rated	$	63,405	$	69,827	$	82,814	$	47,395	$	28,416	$	44,280	$	—	$	7,597	$	343,734
Special Mention		170		1,971		—		—		—		26		—		—		2,167
Substandard		—		—		16		—		—		48		—		—		64
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	63,575	$	71,798	$	82,830	$	47,395	$	28,416	$	44,354	$	—	$	7,597	$	345,965
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate:
Risk Rating
Pass or not rated	$	342,658	$	439,643	$	351,600	$	174,093	$	84,457	$	179,849	$	32,491	$	143,670	$	1,748,461
Special Mention		23,852		1,020		374		—		3,668		5,330		1,716		—		35,960
Substandard		—		—		—		—		—		868		—		—		868
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	366,510	$	440,663	$	351,974	$	174,093	$	88,125	$	186,047	$	34,207	$	143,670	$	1,785,289
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction and land development:
Risk Rating
Pass or not rated	$	107,827	$	89,106	$	16,936	$	297	$	125	$	125	$	225	$	2,697	$	217,338
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	107,827	$	89,106	$	16,936	$	297	$	125	$	125	$	225	$	2,697	$	217,338
YTD Gross Charge-offs		—		—		—		—		—		—		—		—		—

24

Table of Contents


													Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)												Amortized		Converted
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total

Commercial and industrial:
Risk Rating
Pass or not rated	$	140,753	$	87,497	$	70,149	$	13,150	$	10,175	$	10,782	$	120,069	$	3,968	$	456,543
Special Mention		349		423		3,473		—		—		1,476		542		—		6,263
Substandard		49		36		3		—		339		—		25		820		1,272
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	141,151	$	87,956	$	73,625	$	13,150	$	10,514	$	12,258	$	120,636	$	4,788	$	464,078
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Lease financing receivables:
Risk Rating
Pass or not rated	$	45,824	$	23,956	$	10,265	$	4,571	$	2,344	$	545	$	—	$	—	$	87,505
Special Mention		429		30		162		183		27		88		—		—		919
Substandard		—		102		—		—		—		65		—		—		167
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	46,253	$	24,088	$	10,427	$	4,754	$	2,371	$	698	$	—	$	—	$	88,591
YTD Gross Charge-offs	$	20	$	113	$	—	$	—	$	—	$	8	$	—	$	—	$	141

Aircraft:
Risk Rating
Pass or not rated	$	97,761	$	55,896	$	44,721	$	30,628	$	14,195	$	6,850	$	—	$	—	$	250,051
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	97,761	$	55,896	$	44,721	$	30,628	$	14,195	$	6,850	$	—	$	—	$	250,051
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	—	$	292,890	$	—	$	292,890
Special Mention		—		—		—		—		—		—		235		—		235
Substandard		—		—		—		—		—		—		2,008		—		2,008
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	295,133	$	—	$	295,133
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	2	$	—	$	2

Consumer:
Risk Rating
Pass or not rated	$	3,947	$	1,194	$	181	$	74	$	1,186	$	2,234	$	18,611	$	—	$	27,427
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		1		12		—		—		13
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	3,947	$	1,194	$	181	$	74	$	1,187	$	2,246	$	18,611	$	—	$	27,440
YTD Gross Charge-offs	$	9	$	11	$	8	$	—	$	—	$	7	$	1,147	$	—	$	1,182

Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	—	$	339,723	$	—	$	339,723
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	339,723	$	—	$	339,723
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

TRS:
Risk Rating
Pass or not rated (1)	$	149,207	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	149,207
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total (1)	$	149,207	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	149,207
YTD Gross Charge-offs (1)	$	20,418	$	5,533	$	—	$	—	$	—	$	—	$	—	$	—	$	25,951

RCS:
Risk Rating
Pass or not rated	$	30,607	$	7,203	$	579	$	454	$	996	$	36,372	$	54,634	$	—	$	130,845
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		1,517		—		1,517
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	30,607	$	7,203	$	579	$	454	$	996	$	36,372	$	56,151	$	—	$	132,362
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	13,912	$	—	$	13,912

Grand Total:
Risk Rating
Pass or not rated	$	1,328,184	$	975,037	$	752,275	$	438,155	$	201,876	$	451,439	$	858,643	$	160,406	$	5,166,015
Special Mention		24,841		3,444		4,009		183		3,695		13,229		2,493		—		51,894
Substandard		49		2,664		1,904		1,226		1,380		10,359		3,550		820		21,952
Doubtful		—		—		—		—		—		—		—		—		—
Grand Total	$	1,353,074	$	981,145	$	758,188	$	439,564	$	206,951	$	475,027	$	864,686	$	161,226	$	5,239,861
YTD Gross Charge-offs	$	20,447	$	5,667	$	24	$	—	$	—	$	15	$	15,061	$	—	$	41,214

(1) Loans and YTD Gross Charge-offs have been revised for an immaterial correction into Term Loan categories from a Revolving Loan category as previously reported in the 2023 Annual Report on Form 10-K.

25

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,
	2024												2023
	Beginning				Charge-				Ending			Beginning		CBank				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance			Balance		Adjustment*		Provision		offs		Recoveries		Balance

Traditional Banking:
Residential real estate:
Owner-occupied	$	10,337	$	(800)	$	(13)	$	58	$	9,582	$	8,909		$	—	$	(120)	$	(6)	$	15	$	8,798
Nonowner-occupied		3,047		3		—		1		3,051		2,831			—		64		—		—		2,895
Commercial real estate		25,830		145		—		20		25,995		23,739			—		1,041		—		47		24,827
Construction & land development		6,060		640		—		—		6,700		4,123			—		329		—		—		4,452
Commercial & industrial		4,236		(79)		—		1		4,158		3,976			1,008		602		—		90		5,676
Lease financing receivables		1,061		22		(24)		13		1,072		110			592		648		—		—		1,350
Aircraft		625		(10)		—		—		615		449			—		12		—		—		461
Home equity		5,501		247		—		1		5,749		4,628			—		31		—		1		4,660
Consumer:
Credit cards		1,074		83		(81)		11		1,087		996			—		112		(40)		12		1,080
Overdrafts		694		27		(238)		80		563		726			—		52		(247)		64		595
Automobile loans		32		(10)		—		2		24		87			—		(16)		(7)		2		66
Other consumer		501		90		(26)		15		580		135			—		229		(31)		23		356
Total Traditional Banking		58,998		358		(382)		202		59,176		50,709			1,600		2,984		(331)		254		55,216
Warehouse lines of credit		847		309		—		—		1,156		1,009			—		135		—		—		1,144
Total Core Banking		59,845		667		(382)		202		60,332		51,718			1,600		3,119		(331)		254		56,360

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		3,929		25,718		—		275		29,922		3,797			—		21,715		—		285		25,797
Other TRS commercial & industrial loans		61		56		—		30		147		91			—		93		—		—		184
Republic Credit Solutions		18,295		4,181		(4,545)		370		18,301		14,807			—		1,839		(3,099)		233		13,780
Total Republic Processing Group		22,285		29,955		(4,545)		675		48,370		18,695			—		23,647		(3,099)		518		39,761

Total	$	82,130	$	30,622	$	(4,927)	$	877	$	108,702	$	70,413		$	1,600	$	26,766	$	(3,430)	$	772	$	96,121

* 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, 2024 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.

26

Table of Contents

Nonperforming Loans and Nonperforming Assets

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


(dollars in thousands)	March 31, 2024			December 31, 2023

Loans on nonaccrual status*	$	19,258		$	19,150
Loans past due 90-days-or-more and still on accrual**		2,116			1,468
Total nonperforming loans		21,374			20,618
Other real estate owned		1,486			1,370
Total nonperforming assets	$	22,860		$	21,988

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans		0.41	%		0.39	%
Nonperforming assets to total loans (including OREO)		0.44			0.42
Nonperforming assets to total assets		0.33			0.33

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans		0.38	%		0.39	%
Nonperforming assets to total loans (including OREO)		0.41			0.41
Nonperforming assets to total assets		0.33			0.35

*	Loans on nonaccrual status include collateral-dependent loans.

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

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, 2024		December 31, 2023		March 31, 2024		December 31, 2023

Traditional Banking:
Residential real estate:
Owner-occupied	$	15,533	$	15,056	$	—	$	—
Nonowner-occupied		60		64		—		—
Commercial real estate		795		850		—		—
Construction & land development		—		—		—		—
Commercial & industrial		744		1,221		—		—
Lease financing receivables		15		—		—		—
Aircraft		—		—		—		—
Home equity		2,103		1,948		—		—
Consumer:
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Automobile loans		8		10		—		—
Other consumer		—		1		—		—
Total Traditional Banking		19,258		19,150		—		—
Warehouse lines of credit		—		—		—		—
Total Core Banking		19,258		19,150		—		—

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—		—		—		—
Other TRS commercial & industrial loans		—		—		—		—
Republic Credit Solutions		—		—		2,116		1,468
Total Republic Processing Group		—		—		2,116		1,468

Total	$	19,258	$	19,150	$	2,116	$	1,468

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

27

Table of Contents


							Three Months Ended
	As of March 31, 2024						March 31, 2024
	Nonaccrual		Nonaccrual			Total	Interest Income
	Loans with		Loans without			Nonaccrual	Recognized
(in thousands)	ACLL		ACLL			Loans	on Nonaccrual Loans*

Residential real estate:
Owner-occupied	$	303	$	15,230	$	15,533	$	246
Nonowner-occupied		19		41		60		15
Commercial real estate		795		—		795		42
Construction & land development		—		—		—		—
Commercial & industrial		744		—		744		—
Lease financing receivables		15		—		15		—
Aircraft		—		—		—		—
Home equity		—		2,103		2,103		49
Consumer		6		2		8		—
Total	$	1,882	$	17,376	$	19,258	$	352

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


							Three Months Ended
	As of December 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	$	376	$	14,680	$	15,056	$	181
Nonowner-occupied		20		44		64		1
Commercial real estate		850		—		850		23
Construction & land development		—		—		—		—
Commercial & industrial		1,221		—		1,221		—
Lease financing receivables		—		—		—		—
Aircraft		—		—		—		—
Home equity		—		1,948		1,948		23
Consumer		8		3		11		3
Total	$	2,475	$	16,675	$	19,150	$	231

* 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.

28

Table of Contents

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, 2024	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner-occupied	$	2,861		$	1,453		$	1,507		$	5,821		$	1,058,250	$	1,064,071
Nonowner-occupied		—			—			—			—			342,481		342,481
Commercial real estate		—			—			—			—			1,800,801		1,800,801
Construction & land development		—			—			—			—			237,998		237,998
Commercial & industrial		2			—			744			746			453,225		453,971
Lease financing receivables		7			—			15			22			88,250		88,272
Aircraft		—			—			—			—			246,060		246,060
Home equity		464			309			217			990			308,093		309,083
Consumer:
Credit cards		22			13			—			35			16,823		16,858
Overdrafts		114			4			—			118			511		629
Automobile loans		—			—			2			2			2,052		2,054
Other consumer		52			10			—			62			11,310		11,372
Total Traditional Banking		3,522			1,789			2,485			7,796			4,565,854		4,573,650
Warehouse lines of credit		—			—			—			—			463,249		463,249
Total Core Banking		3,522			1,789			2,485			7,796			5,029,103		5,036,899

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—			—			—			—			52,101		52,101
Other TRS commercial & industrial loans		283			—			—			283			5,113		5,396
Republic Credit Solutions		8,211			3,006			2,116			13,333			116,563		129,896
Total Republic Processing Group		8,494			3,006			2,116			13,616			173,777		187,393

Total	$	12,016		$	4,795		$	4,601		$	21,412		$	5,202,880	$	5,224,292
Delinquency ratio***		0.23	%		0.09	%		0.09	%		0.41	%

* 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.

29

Table of Contents


	30 - 59			60 - 89			90 or More
December 31, 2023	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner-occupied	$	3,396		$	769		$	1,638		$	5,803		$	1,138,881	$	1,144,684
Nonowner-occupied		—			—			—			—			345,965		345,965
Commercial real estate		—			—			—			—			1,785,289		1,785,289
Construction & land development		—			—			—			—			217,338		217,338
Commercial & industrial		140			36			1,184			1,360			462,718		464,078
Lease financing receivables		18			—			—			18			88,573		88,591
Aircraft		—			—			—			—			250,051		250,051
Home equity		417			96			254			767			294,366		295,133
Consumer:
Credit cards		31			4			—			35			16,619		16,654
Overdrafts		129			1			1			131			563		694
Automobile loans		—			—			2			2			2,662		2,664
Other consumer		53			7			—			60			7,368		7,428
Total Traditional Banking		4,184			913			3,079			8,176			4,610,393		4,618,569
Warehouse lines of credit		—			—			—			—			339,723		339,723
Total Core Banking		4,184			913			3,079			8,176			4,950,116		4,958,292

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—			—			—			—			103,115		103,115
Other TRS commercial & industrial loans		—			—			—			—			46,092		46,092
Republic Credit Solutions		9,387			3,061			1,468			13,916			118,446		132,362
Total Republic Processing Group		9,387			3,061			1,468			13,916			267,653		281,569

Total	$	13,571		$	3,974		$	4,547		$	22,092		$	5,217,769	$	5,239,861
Delinquency ratio***		0.25	%		0.08	%		0.09	%		0.42	%

* 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.

30

Table of Contents

Collateral-Dependent Loans

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


	March 31, 2024				December 31, 2023
	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	$	17,287	$	—	$	18,602	$	—
Nonowner-occupied		60		—		64		—
Commercial real estate		820		—		870		—
Construction & land development		—		—		—		—
Commercial & industrial		795		—		1,273		—
Lease financing receivables		—		256		—		108
Aircraft		—		—		—		—
Home equity		2,310		—		2,008		—
Consumer		—		11		—		13
Total Traditional Banking	$	21,272	$	267	$	22,817	$	121

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 tables show the amortized cost of loans and leases as of the identified period that were both experiencing financial difficulty and modified during the three months prior, 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
	Three Months Ended March 31, 2024
(dollars in thousands)	Loans (#)	Rate Reduction ($)		Loans (#)	Term Extension ($)		Loans (#)	Principal Deferral ($)

Residential real estate:
Owner-occupied	—	$	—	—	$	—	—	$	—
Nonowner-occupied	—		—	—		—	—		—
Home equity	—		—	—		—	—		—
Republic Processing Group	—		—	—		—	349		75
Total Loan Modifications	—	$	—	—	$	—	349	$	75


	Amortized Cost Basis of Modified Financing Receivables
	Three Months Ended March 31, 2023

(dollars in thousands)	Loans (#)	Rate Reduction ($)		Loans (#)	Term Extension ($)		Loans (#)	Principal Deferral ($)

Residential real estate:
Owner-occupied	—	$	—	2	$	265	4	$	344
Home equity	—		—	—		—	1		72
Republic Processing Group	—		—	—		—	537		105
Total Loan Modifications	—	$	—	2	$	265	542	$	521


	Total Loan Modification by Type
	Three Months Ended March 31, 2024
	Accruing			Nonaccruing
(dollars in thousands)	Loans (#)	Recorded investment ($)		Loans (#)	Recorded investment ($)

Term extension	—	$	—	—	$	—
Principal deferral	349		75	—		—
Total Loan Modifications	349	$	75	—	$	—

31

Table of Contents


	Total Loan Modification by Type
	Three Months Ended March 31, 2023
	Accruing			Nonaccruing
(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

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, 2024
				% of Total
		Amortized		of Financing
(dollars in thousands)	Loans	Cost Basis		Receivable

Republic Processing Group	349	$	75	0.04	%
Total Accruing Loan Modifications	349	$	75	NM


	Nonaccruing Loan Modifications
	Three Months Ended March 31, 2024
				% of Total
		Amortized		of Financing
(dollars in thousands)	Loans	Cost Basis		Receivable

Residential real estate:
Owner-occupied	—	$	—	—	%
Home equity	—		—	—
Total Nonaccruing 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



	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 financial impact of loan modifications was not material for the three months ended March 31, 2024 or March 31, 2023.

32

Table of Contents

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 identified period.


	Accruing Loan Modifications
	At March 31, 2024
			30-89 Days		90+ Days
(in thousands)	Current		Past Due		Past Due

Residential real estate:
Owner occupied	$	475	$	—	$	—
Republic Processing Group		75	$	—	$	—
Total accruing loan modifications to borrowers experiencing financial difficulty in which modifications were made in the twelve months ended March 31, 2024	$	550	$	—	$	—


	Nonaccruing Loan Modifications
	At March 31, 2024
			30-89 Days		90+ Days
(in thousands)	Current		Past Due		Past Due

Residential real estate:
Owner-occupied	$	267	$	—	$	109
Home equity		617		—		25
Total nonaccruing loan modifications to borrowers experiencing financial difficulty in which modifications were made in the twelve months ended March 31, 2024	$	884	$	—	$	134



	Accruing Loan Modifications
	At March 31, 2023
			30-89 Days		90+ Days
(in thousands)	Current		Past Due		Past Due

Residential real estate:
Owner occupied	$	—	$	—	$	—
Republic Processing Group		105	$	—	$	—
Total accruing loan modifications to borrowers experiencing financial difficulty in which modifications were made in the twelve months ended March 31, 2023	$	105	$	—	$	—


	Nonaccruing Loan Modifications
	At March 31, 2023
			30-89 Days		90+ Days
(in thousands)	Current		Past Due		Past Due

Residential real estate:
Owner-occupied	$	609	$	—	$	—
Home equity		72		—		—
Total nonaccruing loan modifications to borrowers experiencing financial difficulty in which modifications were made in the twelve months ended March 31, 2023	$	681	$	—	$	—

There were no modified loans and leases that had a payment default during the three months ended March 31, 2024 or March 31, 2023 that 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.

33

Table of Contents

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, 2024		December 31, 2023

Commercial real estate	$	1,486	$	1,370

Total other real estate owned	$	1,486	$	1,370

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 (i) its RA product during the first two months of 2024, along with its ERA product during December 2023 and the first two weeks of 2024 and (ii) its RA product during the first two months of 2023, along with its ERA product during December 2022 and the first two weeks of 2023. The ERA originations during December 2023 and the first two weeks of 2024 were made in relation to estimated tax returns that were anticipated to be filed during the first quarter 2024 tax season, while 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)	2024			2023

Refund Advances originated	$	771,091		$	737,047
Net charge to the Provision for RAs, including ERAs		25,718			21,715
Provision as a percentage of RAs, including ERAs, originated		3.34	%		2.95	%
Refund Advances net charge-offs (recoveries)	$	(275)		$	(285)
Refund Advances net charge-offs (recoveries) to total Refund Advances originated		(0.04)	%		(0.04)	%

34

Table of Contents

6.DEPOSITS

The composition of the deposit portfolio follows:


(in thousands)	March 31, 2024		December 31, 2023

Core Bank:
Demand	$	1,179,771	$	1,158,051
Money market accounts		1,078,549		1,007,356
Savings		355,260		263,238
Reciprocal money market		221,779		188,078
Individual retirement accounts (1)		34,208		33,793
Time deposits, $250 and over (1)		113,096		101,787
Other certificates of deposit (1)		239,258		225,614
Reciprocal time deposits (1)		90,857		90,857
Wholesale brokered deposits (1)		349,298		88,767
Total Core Bank interest-bearing deposits		3,662,076		3,157,541
Total Core Bank noninterest-bearing deposits		1,180,237		1,239,466
Total Core Bank deposits		4,842,313		4,397,007

Republic Processing Group:
Wholesale brokered deposits (1)		—		199,960
Interest-bearing prepaid card deposits		379,677		—
Money market accounts		19,380		18,664
Total RPG interest-bearing deposits		399,057		218,624

Noninterest-bearing prepaid card deposits		—		318,769
Other noninterest-bearing deposits		179,279		118,763
Total RPG noninterest-bearing deposits		179,279		437,532
Total RPG deposits		578,336		656,156

Total deposits	$	5,420,649	$	5,053,163

(1)	Includes time deposit.

35

Table of Contents

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, 2024 and December 31, 2023, 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, 2024			December 31, 2023

Outstanding balance at end of period	$	84,522		$	97,618
Weighted average interest rate at end of period		0.59	%		0.50	%

Fair value of securities pledged:
U.S. Treasury securities and U.S. Government agencies	$	86,171		$	99,530
Total securities pledged	$	86,171		$	99,530


	Three Months Ended
	March 31,
(dollars in thousands)	2024			2023

Average outstanding balance during the period	$	102,592		$	202,910
Weighted average interest rate during the period		0.51	%		0.49	%
Maximum outstanding at any month end during the period	$	113,281		$	224,067

36

Table of Contents

8.FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:


(in thousands)	March 31, 2024		December 31, 2023

Overnight advances	$	—	$	110,000
Fixed interest rate advances		270,000		270,000
Total FHLB advances	$	270,000	$	380,000

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, 2024 and December 31, 2023, Republic had available borrowing capacity of $1.0 billion and $730 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $100 million available through various other financial institutions as of March 31, 2024 and December 31, 2023.

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

2024	$	—	—	%
2025		—	—
2026		30,000	4.82
2027		80,000	4.01
2028		160,000	4.39
Total	$	270,000	4.33	%

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)	2024			2023

Average outstanding balance during the period	$	266,209		$	225,344
Weighted average interest rate during the period		5.44	%		4.43	%
Maximum outstanding at any month end during the period	$	760,000		$	485,000

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


(in thousands)	March 31, 2024		December 31, 2023

First-lien, single family residential real estate	$	1,250,774	$	1,345,752
Home equity lines of credit		268,442		266,389
Multi-family commercial real estate		133,908		133,565
Commercial real estate		377,934		—

37

Table of Contents

9.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, 2024		December 31, 2023

Unused warehouse lines of credit	$	469,751	$	623,277
Unused home equity lines of credit		460,311		446,006
Unused loan commitments - other		1,146,352		1,159,284
Standby letters of credit		11,091		11,012
FHLB letter of credit		—		—
Total commitments	$	2,087,505	$	2,239,579

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.

The following tables present a roll-forward of the ACLC for the three months ended March 31, 2024 and 2023:


	ACLC Roll-forward
	Three Months Ended March 31,
	2024										2023
	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	$	116	$	(8)	$	—	$	—	$	108	$	190	$	8	$	—	$	—	$	198
Unused home equity lines of credit		55		31		—		—		86		332		9		—		—		341
Unused construction lines of credit		820		(179)		—		—		641		384		163		—		—		547
Unused loan commitments - other		349		46		—		—		395		344		30		—		—		374

Total	$	1,340	$	(110)	$	—	$	—	$	1,230	$	1,250	$	210	$	—	$	—	$	1,460

The Company decreased its ACLC during the three months ended March 31, 2024 based on a decrease in the expected loss rate for its unused commitments.

38

Table of Contents

10.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, 2024. 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.

39

Table of Contents

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).

40

Table of Contents

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, 2024 is presented net of any applicable ACL.


	Fair Value Measurements at
	March 31, 2024 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	$	148,755	$	264,370	$	—	$	413,125
Private label mortgage-backed security		—		—		1,772		1,772
Mortgage-backed securities - residential		—		145,822		—		145,822
Collateralized mortgage obligations		—		21,040		—		21,040
Corporate bonds		—		2,019		—		2,019
Trust preferred security		—		—		4,027		4,027
Total available-for-sale debt securities	$	148,755	$	433,251	$	5,799	$	587,805

Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	235	$	—	$	235
Total equity securities with readily determinable fair value	$	—	$	235	$	—	$	235

Mortgage loans held for sale	$	—	$	80,884	$	—	$	80,884
Consumer loans held for sale		—		—		6,093		6,093
Rate lock commitments		—		466		—		466
Interest rate swap agreements		—		7,870		—		7,870

Financial liabilities:
Mandatory forward contracts	$	—	$	77	$	—	$	77
Interest rate swap agreements		—		7,870		—		7,870


	Fair Value Measurements at
	December 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	$	177,784	$	229,249	$	—	$	407,033
Private label mortgage-backed security		—		—		1,773		1,773
Mortgage-backed securities - residential		—		154,710		—		154,710
Collateralized mortgage obligations		—		21,659		—		21,659
Corporate bonds		—		2,020		—		2,020
Trust preferred security		—		—		4,118		4,118
Total available-for-sale debt securities	$	177,784	$	407,638	$	5,891	$	591,313

Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	174	$	—	$	174
Total equity securities with readily determinable fair value	$	—	$	174	$	—	$	174

Mortgage loans held for sale	$	—	$	3,227	$	—	$	3,227
Consumer loans held for sale		—		—		7,914		7,914
Rate lock commitments		—		243		—		243
Interest rate swap agreements		—		8,933		—		8,933

Financial liabilities:
Mandatory forward contracts	$	—	$	61	$	—	$	61
Interest rate swap agreements		—		8,933		—		8,933

41

Table of Contents

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, 2024 and 2023.

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)	2024		2023

Balance, beginning of period	$	1,773	$	2,127
Total gains or losses included in earnings:
Net change in unrealized gain (loss)		57		5
Principal paydowns		(58)		(122)
Balance, end of period	$	1,772	$	2,010

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.

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, 2024 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage-backed security	$	1,772	Discounted cash flow	(1) Constant prepayment rate	3.9% - 4.6%

				(2) Probability of default	1.8% - 9.4%

				(3) Loss severity	22% - 35%


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

Private label mortgage-backed security	$	1,773	Discounted cash flow	(1) Constant prepayment rate	3.9% - 4.5%

				(2) Probability of default	1.8% - 9.4%

				(3) Loss severity	25% - 35%

42

Table of Contents

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)	2024		2023

Balance, beginning of period	$	4,118	$	3,855
Total gains or losses included in earnings:
Discount accretion		15		14
Net change in unrealized gain (loss)		(106)		132
Balance, end of period	$	4,027	$	4,001

The fair value of the Company’s TRUP investment is based on the most recent bid price for this instrument, as provided by a third-party broker.

Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the 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, 2024 and December 31, 2023.

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


(in thousands)	March 31, 2024		December 31, 2023

Aggregate fair value	$	80,884	$	3,227
Contractual balance		80,681		3,168
Unrealized gain		203		59

The total amount of gains and losses from changes in fair value included in earnings for the three months ended March 31, 2024 and 2023 for mortgage loans held for sale are presented in the following table:


	Three Months Ended
	March 31,
(in thousands)	2024		2023

Interest income	$	86	$	61
Change in fair value		145		(8)
Total included in earnings	$	231	$	53

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, 2024 and December 31, 2023.

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.

43

Table of Contents

The following table presents quantitative information about recurring Level 3 fair value measurement inputs for installment loans:


	Fair		Valuation
March 31, 2024 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	6,093	Contract Terms	(1) Net Premium	0.15%

				(2) Discounted Sales	10.00%


	Fair		Valuation
December 31, 2023 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	7,914	Contract Terms	(1) Net Premium	0.15%

				(2) Discounted Sales	10.00%

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, 2024		December 31, 2023

Aggregate fair value	$	6,093	$	7,914
Contractual balance		6,129		7,964
Unrealized loss		(36)		(50)

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)	2024		2023

Interest income	$	1,173	$	765
Change in fair value		14		3
Total included in earnings	$	1,187	$	768

44

Table of Contents

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


	Fair Value Measurements at
	March 31, 2024 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

Other real estate owned:
Commercial real estate	$	—	$	—	$	1,486	$	1,486
Total other real estate owned	$	—	$	—	$	1,486	$	1,486


	Fair Value Measurements at
	December 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	$	—	$	—	$	1,580	$	1,580
Commercial real estate		—		—		795		795
Home equity		—		—		104		104
Total collateral-dependent loans*	$	—	$	—	$	2,479	$	2,479

Other real estate owned:
Residential real estate	$	—	$	—	$	1,370	$	1,370
Total other real estate owned	$	—	$	—	$	1,370	$	1,370

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, 2024 (dollars in thousands)	Value		Technique	Inputs	Average)

Other real estate owned - commercial real estate	$	1,486	Sales comparison approach	Adjustments determined for differences between comparable sales	39% (39%)


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

Collateral-dependent loans - residential real estate owner-occupied	$	1,580	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 27% (4%)

Collateral-dependent loans - commercial real estate	$	795	Sales comparison approach	Adjustments determined for differences between comparable sales	11% (11%)

Collateral-dependent loans - home equity	$	104	Sales comparison approach	Adjustments determined for differences between comparable sales	5% (5%)

Other real estate owned - commercial real estate	$	1,370	Sales comparison approach	Adjustments determined for differences between comparable sales	39% (39%)

45

Table of Contents

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)	2024		2023

Provision on collateral-dependent loans	$	(7)	$	(19)

Other Real Estate Owned

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



(in thousands)	March 31, 2024		December 31, 2023

Other real estate owned carried at fair value	$	1,486	$	1,370
Total carrying value of other real estate owned	$	1,486	$	1,370


	Three Months Ended
	March 31,
(in thousands)	2024		2023

Other real estate owned write-downs during the period	$	53	$	52

46

Table of Contents

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


			Fair Value Measurements at
			March 31, 2024:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	546,363	$	546,363	$	—	$	—	$	546,363
Available-for-sale debt securities		587,805		148,755		433,251		5,799		587,805
Held-to-maturity debt securities		76,254		—		76,119		—		76,119
Equity securities with readily determinable fair values		235		—		235		—		235
Mortgage loans held for sale, at fair value		80,884		—		80,884		—		80,884
Consumer loans held for sale, at fair value		6,093		—		—		6,093		6,093
Consumer loans held for sale, at the lower of cost or fair value		13,083		—		—		13,083		13,083
Loans, net		5,115,590		—		—		4,843,728		4,843,728
Federal Home Loan Bank stock		43,729		—		—		—		NA
Accrued interest receivable		20,325		—		4,111		16,214		20,325
Mortgage servicing rights		7,102		—		16,054		—		16,054
Rate lock commitments		466		—		466		—		466
Interest rate swap agreements		7,870		—		7,870		—		7,870

Liabilities:
Noninterest-bearing deposits	$	1,359,516	$	—	$	1,359,516	$	—	$	1,359,516
Transaction deposits		3,583,714		—		3,583,714		—		3,583,714
Time deposits		477,419		—		473,818		—		473,818
Securities sold under agreements to repurchase and other short-term borrowings		86,171		—		86,171		—		86,171
Federal Home Loan Bank advances		270,000		—		270,565		—		270,565
Accrued interest payable		6,905		—		6,905		—		6,905
Rate lock commitments		466		—		466		—		466
Mandatory forward contracts		(77)		—		(77)		—		(77)
Interest rate swap agreements		7,870		—		7,870		—		7,870

47

Table of Contents


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

Assets:
Cash and cash equivalents	$	316,567	$	316,567	$	—	$	—	$	316,567
Available-for-sale debt securities		—		—		—		—		—
Held-to-maturity debt securities		76,387		—		76,167		—		76,167
Equity securities with readily determinable fair values		174		—		—		—		—
Mortgage loans held for sale, at fair value		3,227		—		3,227		—		3,227
Consumer loans held for sale, at fair value		7,914		—		—		7,914		7,914
Consumer loans held for sale, at the lower of cost or fair value		16,094		—		—		16,094		16,094
Loans, net		5,157,731		—		—		4,874,974		4,874,974
Federal Home Loan Bank stock		23,770		—		—		—		NA
Accrued interest receivable		18,447		—		4,097		14,350		18,447
Mortgage servicing rights		7,411		—		16,054		—		16,054
Rate lock commitments		243		—		243		—		243
Interest rate swap agreements		8,933		—		8,933		—		8,933

Liabilities:
Noninterest-bearing deposits	$	1,676,998	$	—	$	1,676,998	$	—	$	1,676,998
Transaction deposits		2,924,114		—		2,924,114		—		2,924,114
Time deposits		452,051		—		446,218		—		446,218
Securities sold under agreements to repurchase and other short-term borrowings		—		—		—		—		—
Federal Home Loan Bank advances		380,000		—		382,062		—		382,062
Accrued interest payable		4,073		—		4,073		—		4,073
Rate lock commitments		243		—		243		—		243
Mandatory forward contracts		61		—		61		—		61
Interest rate swap agreements		8,933		—		8,933		—		8,933

48

Table of Contents

11.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)	2024		2023

Balance, beginning of period	$	3,227	$	1,302
Origination of mortgage loans held for sale		27,046		15,942
Transferred from held for investment to held for sale		69,464		—
Proceeds from the sale of mortgage loans held for sale		(18,773)		(16,630)
Net gain (loss) on mortgage loans held for sale		(80)		420
Balance, end of period	$	80,884	$	1,034

The following table presents the components of Mortgage banking income:


	Three Months Ended
	March 31,
(in thousands)	2024		2023

Net gain realized on sale of mortgage loans held for sale	$	565	$	248
Net loss realized on fair value adjustment for correspondent loans reclassified to held for sale		(997)		—
Net change in fair value recognized on loans held for sale		145		(8)
Net change in fair value recognized on rate lock loan commitments		223		94
Net change in fair value recognized on forward contracts		(16)		86
Net gain (loss) recognized		(80)		420

Loan servicing income		816		870
Amortization of mortgage servicing rights		(426)		(490)
Change in mortgage servicing rights valuation allowance		—		—
Net servicing income recognized		390		380
Total mortgage banking income	$	310	$	800

Activity for capitalized mortgage servicing rights was as follows:


	Three Months Ended
	March 31,
(in thousands)	2024		2023

Balance, beginning of period	$	7,411	$	8,769
Additions		118		127
Amortized to expense		(426)		(490)
Change in valuation allowance		—		—
Balance, end of period	$	7,103	$	8,406

There was no valuation allowance for capitalized mortgage servicing rights for the three months ended March 31, 2024 and 2023.

49

Table of Contents

Other information relating to mortgage servicing rights follows:


(dollars in thousands)	March 31, 2024			December 31, 2023

Fair value of mortgage servicing rights portfolio	$	16,704		$	16,054
Monthly weighted average prepayment rate of unpaid principal balance*		124	%		128	%
Discount rate		10.09	%		10.26	%
Weighted average foreclosure rate		0.16	%		0.16	%
Weighted average life in years		7.58			7.52

*	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, 2024				December 31, 2023
	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	$	80,681	$	80,884	$	3,168	$	3,227

Included in other assets:
Rate lock loan commitments	$	16,380	$	466	$	9,275	$	243

Included in other liabilities:
Mandatory forward contracts	$	22,317	$	77	$	9,092	$	61

50

Table of Contents

12.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, 2024				December 31, 2023
		Notional				Notional
(in thousands)	Bank Position	Amount		Fair Value		Amount		Fair Value

Interest rate swaps with Bank clients - Assets	Pay variable/receive fixed	$	131,515	$	1,602	$	120,442	$	4,066
Interest rate swaps with Bank clients - Liabilities	Pay variable/receive fixed		100,463		(6,311)		95,820		(4,867)
Interest rate swaps with Bank clients - Total	Pay variable/receive fixed	$	231,978	$	(4,709)	$	216,262	$	(801)

Offsetting interest rate swaps with institutional swap dealer - Assets	Pay fixed/receive variable		100,463		6,311		95,820		4,867
Offsetting interest rate swaps with institutional swap dealer - Liabilities	Pay fixed/receive variable		131,515		(1,602)		120,442		(4,066)
Offsetting interest rate swaps with institutional swap dealer - Total	Pay fixed/receive variable	$	231,978	$	4,709	$	216,262	$	801

Total		$	463,956	$	—	$	432,524	$	—

The Bank and its counterparties are required to pledge securities or cash as collateral when either party is in a net loss position exceeding $250,000 with the other party. As of March 31, 2024 and December 31, 2023, the Bank’s counterparties had cash of $5.3 million and $1.9 million pledged to the Bank, which were included in Interest-bearing deposits on the Company’s Balance Sheet. Conversely, the Bank had $178,000 and $1.0 million pledged to its counterparties as of March 31, 2024 and December 31, 2023, which were included in Cash and cash equivalents on the Company’s Balance Sheet.

51

Table of Contents

13.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,
Years Ended December 31, (in thousands, except per share data)	2024		2023

Net income	$	30,606	$	28,092
Dividends declared on Common Stock:
Class A Shares		(6,986)		(6,581)
Class B Shares		(796)		(734)
Undistributed net income for basic earnings per share		22,824		20,777
Weighted average potential dividends on Class A shares upon exercise of dilutive options		(36)		(21)
Undistributed net income for diluted earnings per share	$	22,788	$	20,756

Weighted average shares outstanding:
Class A Shares		17,456		17,776
Class B Shares		2,151		2,159
Effect of dilutive securities on Class A Shares outstanding		87		55
Weighted average shares outstanding including dilutive securities		19,694		19,990

Basic earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.41	$	0.37
Undistributed earnings per share*		1.18		1.05
Total basic earnings per share - Class A Common Stock	$	1.59	$	1.42

Class B Common Stock:
Per share dividends distributed	$	0.37	$	0.34
Undistributed earnings per share*		1.07		0.96
Total basic earnings per share - Class B Common Stock	$	1.44	$	1.30

Diluted earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.41	$	0.37
Undistributed earnings per share*		1.17		1.05
Total diluted earnings per share - Class A Common Stock	$	1.58	$	1.42

Class B Common Stock:
Per share dividends distributed	$	0.37	$	0.34
Undistributed earnings per share*		1.06		0.95
Total diluted earnings per share - Class B Common Stock	$	1.43	$	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.

52

Table of Contents

Stock options excluded from the detailed earnings per share calculation because their impact was antidilutive are as follows:


	Three Months Ended
	March 31,
	2024	2023

Antidilutive stock options	52,781	245,898
Average antidilutive stock options	52,781	245,898

14. OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:


	Three Months Ended
	March 31,
(in thousands)	2024		2023

Available-for-Sale Debt Securities:
Unrealized gain (loss) on AFS debt securities	$	592	$	5,205
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings		57		5
Net gains (losses)		649		5,210
Income tax benefit (expense) related to items of other comprehensive income		(163)		(1,305)
Net of tax	$	486	$	3,905

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


			2024
(in thousands)	December 31, 2023		Change		March 31, 2024

Unrealized gain (loss) on AFS debt securities	$	(21,409)	$	429	$	(20,980)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		1,001		57		1,058
Total unrealized gain (loss)	$	(20,408)	$	486	$	(19,922)


			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)

53

Table of Contents

15.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, 2024
	Core Banking									Republic Processing Group
							Total			Tax			Republic			Republic
	Traditional			Warehouse			Core			Refund			Payment			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Solutions			Solutions			Solutions			RPG			Company

Net interest income (1)	$	48,259		$	2,257		$	50,516		$	30,910		$	3,508		$	11,985		$	46,403		$	96,919

Noninterest income:
Service charges on deposit accounts		3,299			13			3,312			—			—			1			1			3,313
Net refund transfer fees		—			—			—			10,820			—			—			10,820			10,820
Mortgage banking income (1)		310			—			310			—			—			—			—			310
Interchange fee income		3,117			—			3,117			39			1			—			40			3,157
Program fees (1)		—			—			—			—			773			3,406			4,179			4,179
Increase in cash surrender value of BOLI (1)		754			—			754			—			—			—			—			754
Net losses on OREO		(53)			—			(53)			—			—			—			—			(53)
Other		869			—			869			24			—			—			24			893
Total noninterest income		8,296			13			8,309			10,883			774			3,407			15,064			23,373

Total net revenue	$	56,555		$	2,270		$	58,825		$	41,793		$	4,282		$	15,392		$	61,467		$	120,292

Net-revenue concentration (2)		46	%		2	%		48	%		35	%		4	%		13	%		52	%		100	%


	Three Months Ended March 31, 2023
	Core Banking									Republic Processing Group
							Total			Tax			Republic			Republic
	Traditional			Warehouse			Core			Refund			Payment			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Solutions			Solutions			Solutions			RPG			Company

Net interest income (1)	$	50,168		$	2,087		$	52,255		$	28,307		$	3,458		$	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			44			1			—			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		795			—			795			71			10			25			106			901
Total noninterest income		8,471			11			8,482			10,922			718			2,559			14,199			22,681

Total net revenue	$	58,639		$	2,098		$	60,737		$	39,229		$	4,176		$	11,181		$	54,586		$	115,323

Net-revenue concentration (2)		50	%		2	%		52	%		34	%		4	%		10	%		48	%		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

54

Table of Contents

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.

55

Table of Contents

16.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, 2024, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending, TRS, RPS, and RCS. Management considers the first two segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last three 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

Republic Processing Group:

Tax Refund Solutions

TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax ~~refund~~refunds through Refund Transfer products. TRS products and offers a credit product through third-party tax preparers located throughout the United States, as well as tax-preparation software providers (collectively, the “Tax Providers”). Substantially allare primarily provided to clients outside of the ~~business generated by the TRS segment occurs in the first half~~Bank’s market footprint.

Loans and refund transfers

Republic Payment Solutions

RPS offers general-purpose reloadable cards. RPS products are primarily provided to clients outside 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.~~Bank’s market footprint.

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: Prepaid cards


	·		~~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. The RPS division is an issuing bank offering general-purpose reloadable prepaid cards through third-party program managers. For the projected near-term, as the prepaid card program matures, the operating results of the RPS division are expected to be immaterial to the Company’s overall results of operations 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.”

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 2023 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.

56

Table of Contents

Segment information follows:


	Three Months Ended March 31, 2024
	Core Banking									Republic Processing Group
							Total			Tax			Republic			Republic
	Traditional			Warehouse			Core			Refund			Payment			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Solutions			Solutions			Solutions			RPG			Company

Net interest income	$	48,259		$	2,257		$	50,516		$	30,910		$	3,508		$	11,985		$	46,403		$	96,919

Provision for expected credit loss expense		358			309			667			25,774			—			4,181			29,955			30,622

Net refund transfer fees		—			—			—			10,820			—			—			10,820			10,820
Mortgage banking income		310			—			310			—			—			—			—			310
Program fees		—			—			—			—			773			3,406			4,179			4,179
Other noninterest income		7,986			13			7,999			63			1			1			65			8,064
Total noninterest income		8,296			13			8,309			10,883			774			3,407			15,064			23,373

Total noninterest expense		41,394			878			42,272			4,512			954			3,233			8,699			50,971

Income (loss) before income tax expense		14,803			1,083			15,886			11,507			3,328			7,978			22,813			38,699
Income tax expense (benefit)		2,520			244			2,764			2,714			761			1,854			5,329			8,093

Net income (loss)	$	12,283		$	839		$	13,122		$	8,793		$	2,567		$	6,124		$	17,484		$	30,606

Period-end assets	$	5,766,166		$	463,664		$	6,229,830		$	106,401		$	406,847		$	132,514		$	645,762		$	6,875,592

Net interest margin		3.33	%		2.67	%		3.30	%		NM			5.07	%		NM			NM			5.87	%

Net-revenue concentration*		46	%		2	%		48	%		35	%		4	%		13	%		52	%		100	%


	Three Months Ended March 31, 2023
	Core Banking									Republic Processing Group
							Total			Tax			Republic			Republic
	Traditional			Warehouse			Core			Refund			Payment			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Solutions			Solutions			Solutions			RPG			Company

Net interest income	$	50,168		$	2,087		$	52,255		$	28,307		$	3,458		$	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
Other noninterest income		7,671			11			7,682			115			11			25			151			7,833
Total noninterest income		8,471			11			8,482			10,922			718			2,559			14,199			22,681

Total noninterest expense		43,406			968			44,374			4,782			866			2,421			8,069			52,443

Income before income tax expense		12,249			995			13,244			12,639			3,310			6,921			22,870			36,114
Income tax expense		2,713			223			2,936			2,806			735			1,545			5,086			8,022

Net income	$	9,536		$	772		$	10,308		$	9,833		$	2,575		$	5,376		$	17,784		$	28,092

Period-end assets	$	4,987,423		$	458,675		$	5,446,098		$	95,462		$	415,688		$	116,843		$	627,993		$	6,074,091

Net interest margin		4.07	%		2.53	%		3.98	%		NM			3.84	%		NM			NM			6.52	%

Net-revenue concentration*		50	%		2	%		52	%		34	%		4	%		10	%		48	%		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.

57

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 geographical market footprint where it has physical locations, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. During the last quarter of 2023, the Company dissolved its Captive, a Nevada-based, wholly owned insurance subsidiary of the Company. The Captive provided property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives.

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 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~~defaults;
● recession;
● future acquisitions;
● integrations of ~~RCS loans are reported as noninterest income under “Program fees.”~~
acquired businesses;
● changes in technology;

58

Table of Contents

11

~~Table of Contents~~

~~Accounting Standards Updates (“ASUs”)~~

~~The following ASUs were issued prior to September 30, 2017~~
● changes in applicable laws and ~~are considered relevant~~regulations or the interpretation and enforcement thereof;
● changes in fiscal, monetary, regulatory, and tax policies;
● changes in accounting standards;
● monetary fluctuations;
● changes to the Company’s ~~financial statements. Generally, if an issued-but-not-yet-effective ASU with an~~overall internal control environment;
● the Company’s ability to qualify for future R&D federal tax credits;
● the ability for Tax Providers to successfully market and realize the expected ~~immaterial impact to~~RA and RT volume anticipated by TRS;
● information security breaches or cybersecurity attacks involving either the Company ~~has been disclosed in prior Company financial statements, it will not be included below.~~
~~ASU. No.~~
~~Topic~~
~~Nature~~or one of ~~Update~~
~~Date Adoption Required~~
~~Method of Adoption~~
~~Expected Financial Statement Impact~~
~~2014-09~~
~~Revenue from Contracts with Customers (Topic 606)~~
Requires that revenue from contracts with clients be recognized upon transfer of control of a good or service in the amount of consideration expected to be received.  Changes the accounting for certain contract costs, including whether they may be offset against revenue in the statements of income, and requires additional disclosures about revenue and contract costs.
~~January 1, 2018~~
~~Modified-retrospective approach.~~
Because most financial instruments are outside the scope of this ASU, the Company believes the impact on its financial statements will likely be immaterial, with the largest impact on the Company's nontraditional products.  The Company does expect to take the following actions in association with the adoption of this ASU:  1) amend its accounting policies and procedures to assure proper revenue recognition in conformity with this ASU; 2) update its revenue-recognition financial statement disclosures as guided by this ASU.
~~2016-02~~
~~Leases (Topic 842)~~
Most leases are considered operating leases, which are not accounted for on the lessees’ balance sheets. The significant change under this ASU is that those operating leases will be recorded on the balance sheet.
~~January 1, 2019~~
~~Modified-retrospective approach, which includes a number of optional practical expedients.~~
During 2017, the Company completed a pro forma impact analysis on the Company's financial statements of implementing this standard. Based on this analysis, the Company believes approximately $33 million of leases will be placed on its balance sheet, with this amount increasing both total assets and total liabilities.  Additionally, the Company's analysis reflected that this ASU would have minimal impact on the Company's performance metrics, including regulatory capital ratios and return on average assets. From a client perspective, the Company is currently reviewing the impact of this ASU on any debt covenants.
~~2016-13~~
~~Financial Instruments – Credit Losses (Topic 326)~~
~~Amends guidance on reporting credit losses for assets held at amortized-cost basis and available-for-sale debt securities.~~
~~January 1, 2020~~
~~Modified-retrospective approach.~~
As a result of this ASU, the Company expects a substantial, yet fully undetermined, increase in its allowance for credit losses. The Company currently utilizes a third-party software solution as its model to calculate its allowance for loan and lease losses. During 2016 and into 2017, the Company formed a committee to begin the process of transitioning to a current expected credit losses (“CECL”) methodology by the expected adoption date of January 1, 2020.  As part of this transition, the committee has analyzed the Company’s loan-level data and preliminarily concluded that no additional loan level segmentation beyond its current methodology segmentation would be warranted under CECL.  The Company is also currently analyzing the output from a “beta test” CECL model provided by its third-party software solution.
~~2017-11~~
~~Earnings Per Share (Topic 260)~~
The amendments in this ASU simplify the accounting for certain financial instruments by requiring companies to disregard the "down round feature" when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share data ("EPS") will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

~~January 1, 2019~~
~~Prospectively, early adoption permitted.~~
~~Immaterial~~
~~2017-12~~
~~Derivatives and Hedging (Topic 815)~~
~~The amendments in this ASU make certain targeted improvements to simplify the application of hedge accounting.~~
~~January 1, 2019~~
~~Prospectively, early adoption permitted.~~
~~Immaterial~~
~~2017-13~~
~~Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)~~
~~The amendments in this ASU add Securities and Exchange Commission ("SEC") paragraphs pursuant to an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force meeting.~~
~~Effective in conjunction with each ASU addressed within this ASU.~~
~~Not applicable.~~
~~See above~~
12
~~Table of Contents~~
~~The following ASUs were adopted by the Company during the nine months ended September 30, 2017:~~
~~ASU. No.~~
~~Topic~~
~~Nature of Update~~
~~Date Adopted~~
~~Method of Adoption~~
~~Financial Statement Impact~~
~~2016-09~~
~~Compensation – Stock Compensation (Topic 718)~~
Provides simplification in areas of accounting for share-based payments, including: the income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities.
~~January 1, 2017~~
~~Prospectively~~
~~Immaterial~~
~~2017-08~~
~~Receivables - Nonrefundable Fees and Other Costs (Topic 310-20)~~
This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the ASU requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.
~~June 1, 2017~~
~~Early adoption, modified retrospective approach.~~
~~Immaterial~~
13
~~Table of Contents~~
~~2. 2016 ACQUISITION OF CORNERSTONE BANCORP, INC.~~
~~OVERVIEW~~
On May 17, 2016, the Company completed its acquisition of Cornerstone Bancorp, Inc. (“Cornerstone”), and its wholly-owned bank subsidiary Cornerstone Community Bank, for approximately $32 million in cash. The primary reason for the acquisition of Cornerstone was to expand the Company’s ~~footprint in the Tampa, Florida metropolitan statistical area.~~
~~ACQUISITION SUMMARY~~
~~The following table provides a summary of the assets acquired~~third-party service providers; and liabilities assumed as recorded by Cornerstone, the previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, final recast adjustments to those previously reported preliminary fair values, and the final fair values of those assets and liabilities as recorded by the Company. Effective October 1, 2016, management believed it had finalized the fair values of the acquired assets and assumed liabilities within the 12 months following the date of acquisition, as allowed by GAAP.

Summary of Assets Acquired and Liabilities Assumed

May 17, 2016

As Previously Reported

As Recasted

As Recorded

Fair Value

Recast

As Recorded
(in thousands)

by Cornerstone

Adjustments

Adjustments

by Republic

Assets acquired:

Cash and cash equivalents

$
22,707

$
—

$
—

$
22,707
Investment securities

329

—

—

329
Loans

195,136

(5,525)

a

13

a

189,624
Allowance for loan and lease losses

(1,955)

1,955

a

—

—
Loans, net

193,181

(3,570)

13

189,624
Federal Home Loan Bank stock, at cost

224

—

—

224
Premises and equipment, net

7,770

4,457

b

—

12,227
Core deposit intangible

—

1,205

c

—

1,205
Deferred income taxes

3,714

(74)

d

—

3,640
Bank owned life insurance

7,461

—

—

7,461
Other assets and accrued interest receivable

658

—

—

658

Total assets acquired

$
236,044

$
2,018

$
13

$
238,075

Liabilities assumed:

Deposits:

   Noninterest-bearing

$
52,908

$
—

$
—

$
52,908
   Interest-bearing

152,257

92

e

—

152,349
Total deposits

205,165

92

—

205,257

Subordinated note

4,124

—

—

4,124
Other liabilities and accrued interest payable

2,244

787

f

—

3,031

Total liabilities assumed

211,533

879

—

212,412

Net assets acquired

$
24,511

$
1,139

$
13

25,663

Cash consideration paid

(31,795)

Goodwill

$
6,132
14
~~Table of Contents~~
~~Explanation of fair value adjustments~~
a.
~~Reflects the fair value adjustment based on the Company’s evaluation of the acquired loan portfolio and to eliminate the acquiree’s recorded allowance for loan losses.~~
b.
~~Reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment acquired.~~
c.
~~Reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.~~
d.
~~Reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.~~
e.
~~Reflects the fair value adjustment based on the Company’s evaluation of the assumed time deposits.~~
f.
~~Reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly attributable to the acquisition of Cornerstone.~~
~~Goodwill of approximately $6 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the Cornerstone acquisition~~
● other risks 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 not expected to be deductible for tax purposes.
For the three and nine months ended September 30, 2016, the Company’s consolidated statements of income included approximately $257,000 and $1.2 million of acquisition-related noninterest expense associated with the Cornerstone acquisition.
15
~~Table of Contents~~
3.~~INVESTMENT SECURITIES~~
~~Securities Available for Sale~~
The gross amortized cost and fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (“AOCI”) were as follows:




Gross

Gross



Amortized

Unrealized

Unrealized

Fair

September 30, 2017 (in thousands)

Cost

Gains

Losses

Value

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

$
236,899

$
13

$
(653)

$
236,259

Private label mortgage backed security

3,245

1,330

—

4,575

Mortgage backed securities - residential

102,657

1,644

(299)

104,002

Collateralized mortgage obligations

92,348

425

(539)

92,234

Freddie Mac preferred stock

—

407

—

407

Community Reinvestment Act mutual fund

2,500

5

(24)

2,481

Corporate bonds

15,002

259

—

15,261

Trust preferred security

3,482

18

—

3,500

Total securities available for sale

$
456,133

$
4,101

$
(1,515)

$
458,719




Gross

Gross



Amortized

Unrealized

Unrealized

Fair

December 31, 2016 (in thousands)

Cost

Gains

Losses

Value

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

$
295,425

$
226

$
(1,107)

$
294,544

Private label mortgage backed security

3,691

1,086

—

4,777

Mortgage backed securities - residential

71,197

2,027

(220)

73,004

Collateralized mortgage obligations

88,559

334

(1,239)

87,654

Freddie Mac preferred stock

—

483

—

483

Community Reinvestment Act mutual fund

2,500

—

(45)

2,455

Corporate bonds

15,004

154

—

15,158

Trust preferred security

3,449

—

(249)

3,200

Total securities available for sale

$
479,825

$
4,310

$
(2,860)

$
481,275

~~Securities Held to Maturity~~
~~The carrying value, gross unrecognized gains and losses, and fair value of securities held to maturity were as follows:~~





Gross

Gross



Carrying

Unrecognized

Unrecognized

Fair

September 30, 2017 (in thousands)

Value

Gains

Losses

Value

Mortgage backed securities - residential

$
153

$
11

$
—

$
164

Collateralized mortgage obligations

24,378

239

(21)

24,596

Corporate bonds

40,182

541

—

40,723

Obligations of state and political subdivisions

464

2

—

466

Total securities held to maturity

$
65,177

$
793

$
(21)

$
65,949





Gross

Gross



Carrying

Unrecognized

Unrecognized

Fair

December 31, 2016 (in thousands)

Value

Gains

Losses

Value

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

$
506

$
—

$
(2)

$
504

Mortgage backed securities - residential

158

12

—

170

Collateralized mortgage obligations

27,142

250

(124)

27,268

Corporate bonds

25,058

312

(63)

25,307

Total securities held to maturity

$
52,864

$
574

$
(189)

$
53,249

At September 30, 2017 and December 31, 2016, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.
16
~~Table of Contents~~
~~Sales of Securities Available for Sale~~
~~During the three and nine months ended September 30, 2017 there were no gains or losses on sales or calls of securities available for sale.~~
~~During the three and nine months ended September 30, 2016 there were no gains or losses on sales or calls of securities available for sale.~~
~~Investment Securities by Contractual Maturity~~
The amortized cost and fair value of the investment securities portfolio by contractual maturity at September 30, 2017 follows. 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.

Securities

Securities

Available for Sale

Held to Maturity


Amortized

Fair

Carrying

Fair

September 30, 2017 (in thousands)

Cost

Value

Value

Value

Due in one year or less

$
85,073

$
85,055

$
—

$
—

Due from one year to five years

156,828

156,225

10,574

10,606

Due from five years to ten years

10,000

10,240

30,072

30,583

Due beyond ten years

3,482

3,500

—

—

Private label mortgage backed security

3,245

4,575

—

—

Mortgage backed securities - residential

102,657

104,002

153

164

Collateralized mortgage obligations

92,348

92,234

24,378

24,596

Freddie Mac preferred stock

—

407

—

—

Community Reinvestment Act mutual fund

2,500

2,481

—

—

Total securities

$
456,133

$
458,719

$
65,177

$
65,949

~~Freddie Mac Preferred Stock~~
During 2008, the U.S. Treasury, the Federal Reserve Board and the Federal Housing Finance Agency (“FHFA”) announced that the FHFA was placing Freddie Mac under conservatorship and giving management control to the FHFA. The Bank contemporaneously determined that its 40,000 shares of Freddie Mac preferred stock were fully impaired and recorded an other-than-temporary impairment (“OTTI”) charge of $2.1 million in 2008.  The OTTI charge brought the carrying value of the stock to $0.  In 2014, based on active trading volume of Freddie Mac preferred stock, the Company determined it appropriate to record an unrealized gain to AOCI related to its Freddie Mac preferred stock holdings.  Based on the stock’s market closing price as of September 30, 2017, the Company’s unrealized gain for its Freddie Mac preferred stock totaled $407,000.
~~Corporate Bonds~~
The Company’s portfolio of corporate bonds were rated “investment grade” by accredited rating agencies as of their respective purchase dates. The total fair value of the Bank’s corporate bonds represented 11% and 8% of the Bank’s investment portfolio as of September 30, 2017 and December 31, 2016.
~~Mortgage Backed Securities and Collateralized Mortgage Obligations~~
At September 30, 2017, with the exception of the $4.6 million private label mortgage backed security, all other mortgage backed securities and collateralized mortgage obligations (“CMOs”) held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily Freddie Mac and the Fannie Mae. At September 30, 2017 and December 31, 2016, there were gross unrealized losses of $838,000 and $1.5 million related to available for sale 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.
17
~~Table of Contents~~
~~Trust Preferred Security~~
During the fourth quarter of 2015, the Parent Company purchased a $3 million floating rate trust preferred security (“TRUP”) at a price of 68% of par.  The coupon on this security is based on the 3-month London Interbank Borrowing Rate (“LIBOR”) rate plus 159 basis points.  The Company performed an initial analysis prior to acquisition and performs ongoing analysis of the credit risk of the underlying borrower in relation to its TRUP.
~~Unrealized-Loss Analysis~~
Securities with unrealized losses at September 30, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

Less than 12 months

12 months or more

Total




Unrealized



Unrealized



Unrealized

September 30, 2017 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Securities available for sale:

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

$
9,933

$
(67)

$
186,270

$
(586)

$
196,203

$
(653)

Mortgage backed securities - residential

—

—

48,738

(299)

48,738

(299)

Collateralized mortgage obligations

—

—

41,752

(539)

41,752

(539)

Community Reinvestment Act mutual fund

1,476

(24)

—

—

1,476

(24)

Total securities available for sale

$
11,409

$
(91)

$
276,760

$
(1,424)

$
288,169

$
(1,515)

Less than 12 months

12 months or more

Total




Unrealized



Unrealized



Unrealized

December 31, 2016 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Securities available for sale:

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

$
138,002

$
(1,107)

$
—

$
—

$
138,002

$
(1,107)

Mortgage backed securities - residential

9,427

(122)

4,211

(98)

13,638

(220)

Collateralized mortgage obligations

37,547

(690)

15,668

(549)

53,215

(1,239)

Community Reinvestment Act mutual fund

2,455

(45)

—

—

2,455

(45)

Trust preferred security

3,200

(249)

—

—

3,200

(249)

Total securities available for sale

$
190,631

$
(2,213)

$
19,879

$
(647)

$
210,510

$
(2,860)

Less than 12 months

12 months or more

Total




Unrealized



Unrealized



Unrealized

September 30, 2017 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Securities held to maturity:

Collateralized mortgage obligations

$
—

$
—

$
6,602

$
(21)

$
6,602

$
(21)

Total securities held to maturity

$
—

$
—

$
6,602

$
(21)

$
6,602

$
(21)

Less than 12 months

12 months or more

Total




Unrealized



Unrealized



Unrealized

December 31, 2016 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Securities held to maturity:

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

$
506

$
(2)

$
—

$
—

$
506

$
(2)

Collateralized mortgage obligations

13,315

(124)

—

—

13,315

(124)

Corporate bonds

—

—

4,937

(63)

4,937

(63)

Total securities held to maturity

$
13,821

$
(126)

$
4,937

$
(63)

$
18,758

$
(189)

~~At September 30, 2017, the Bank’s security portfolio consisted of 185 securities, 45 of which were in an unrealized loss position.~~
~~At December 31, 2016, the Bank’s security portfolio consisted of 179 securities, 45 of which were in an unrealized loss position.~~
18
~~Table of Contents~~
~~Other-than-temporary impairment (“OTTI”)~~
Unrealized losses for all investment securities are reviewed to determine whether the losses are “other-than-temporary.” Investment securities are evaluated for OTTI on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in value below amortized cost is other-than-temporary. In conducting this assessment, the Bank evaluates a number of factors including, but not limited to the following:
·
~~The length of time and the extent to which fair value has been less than the amortized cost basis;~~
·
~~The Bank’s intent to hold until maturity or sell the debt security prior to maturity;~~
·
~~An analysis of whether it is more-likely-than-not that the Bank will be required to sell the debt security before its anticipated recovery;~~
·
~~Adverse conditions specifically related to the security, an industry, or a geographic area;~~
·
~~The historical and implied volatility of the fair value of the security;~~
·
~~The payment structure of the security and the likelihood of the issuer being able to make payments;~~
·
~~Failure of the issuer to make scheduled interest or principal payments;~~
·
~~Any rating changes by a rating agency; and~~
·
~~Recoveries or additional decline in fair value subsequent to the balance sheet date.~~
The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized for the anticipated credit losses.
The Bank owns one private label mortgage backed security with a total carrying value of $4.6 million at September 30, 2017. 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 Accounting Standards Codification (“ASC”) Topic 820, ~~Fair Value Measurements and Disclosures.~~ Based on this determination, the Bank utilized an income valuation model (“present value model”) approach, in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.
~~See additional discussion regarding the Bank’s private label mortgage backed security under Footnote 10 “Fair Value” in this section of the filing.~~
~~Pledged Investment Securities~~
~~Investment securities pledged to secure public deposits, securities sold under agreements to repurchase and securities held for other purposes, as required or permitted by law are as follows:~~

(in thousands)

September 30, 2017

December 31, 2016

Carrying amount

$
212,825

$
231,695

Fair value

213,048

231,891

19
~~Table of Contents~~
~~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 Core 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 11 “Mortgage Banking Activities” of this section of the filing.~~
~~Consumer Loans Held for Sale, at Fair Value~~
During the first quarter of 2016, RCS initiated an installment-loan program, in which the Company sells 100% of the receivables approximately 21 days after origination.  The Company carries these loans at fair value, with the loans marked to market on a monthly basis and changes in fair valueuncertainties reported ~~as a component of “Program fees.”~~
~~Activity for consumer loans held for sale and carried at fair value was as follows:~~


Three Months Ended

Nine Months Ended

September 30,

September 30,
(in thousands)

2017

2016

2017

2016

Balance, beginning of period

$
3,235

$
6,826

$
2,198

$
—
Origination of consumer loans held for sale

15,066

20,057

46,847

33,714
Proceeds from the sale of consumer loans held for sale

(15,115)

(25,397)

(45,988)

(32,355)
Net gain on sale of consumer loans held for sale

182

205

311

332
Balance, end of period

$
3,368

$
1,691

$
3,368

$
1,691
~~Consumer Loans Held for Sale, at Lower of Cost or Fair Value~~
RCS originates for sale its line-of-credit product, credit card product and its health care receivables product. The Bank sells 90% of the line-of-credit and credit card balances within two business days of loan origination and retains a 10% interest. Hospital receivables originated for sale are based on a predetermined pool subject to defined criteria. The line-of-credit product represents the substantial majority of activity in consumer loans held for sale carried at the lower of cost or fair value.  Any gains or losses on the sale of 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

Nine Months Ended

September 30,

September 30,
(in thousands)

2017

2016

2017

2016

Balance, beginning of period

$
2,464

$
1,122

$
1,310

$
514
Origination of consumer loans held for sale

164,815

99,346

407,997

214,716
Proceeds from the sale of consumer loans held for sale

(162,947)

(100,099)

(407,181)

(215,573)
Net gain on sale of consumer loans held for sale

1,352

724

3,558

1,436
Balance, end of period

$
5,684

$
1,093

$
5,684

$
1,093
20
~~Table of Contents~~
5.~~LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES~~
~~The composition of the loan portfolio at period end follows:~~

(in thousands)
September 30, 2017

December 31, 2016

Traditional Banking:

Residential real estate:

Owner occupied
$
933,726

$
1,000,148

Owner occupied - correspondent*

125,643

149,028

Nonowner occupied

193,379

156,605

Commercial real estate

1,161,225

1,060,496

Construction & land development

138,837

119,650

Commercial & industrial

327,214

259,026

Lease financing receivables

15,367

13,614

Home equity

346,154

341,285

Consumer:

Credit cards

19,898

13,414

Overdrafts

892

803

Automobile loans

63,639

52,579

Other consumer

13,247

19,744

Total Traditional Banking

3,339,221

3,186,392

Warehouse lines of credit*

571,160

585,439

Total Core Banking

3,910,381

3,771,831

Republic Processing Group*:

Tax Refund Solutions:

Easy Advances

—

—

Commercial & industrial

265

6,695

Republic Credit Solutions

46,866

32,252

Total Republic Processing Group

47,131

38,947

Total loans**

3,957,512

3,810,778

Allowance for loan and lease losses

(40,191)

(32,920)

Total loans, net
$
3,917,321

$
3,777,858

*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 at September 30, 2017 and December 31, 2016:~~

(in thousands)
September 30, 2017

December 31, 2016

Contractually receivable
$
3,960,048

$
3,816,086

Unearned income(1)

(1,206)

(1,050)

Unamortized premiums(2)

1,258

1,838

Unaccreted discounts(3)

(6,478)

(9,397)

Net unamortized deferred origination fees and costs(4)

3,890

3,301

Carrying value of loans
$
3,957,512

$
3,810,778

~~(1)~~
~~Unearned income relates to lease financing receivables.~~
~~(2)~~
~~Unamortized premiums predominately relate to loans acquired through the Bank’s Correspondent Lending channel.~~
~~(3)~~
~~Unaccreted discounts include accretable and non-accretable discounts and predominately relate to loans acquired in the Bank’s 2016 Cornerstone acquisition and its 2012 FDIC-assisted transactions.~~
~~(4)~~
~~Primarily attributable to the Traditional Banking segment.~~
21
~~Table of Contents~~
~~Loan Purchases~~
Primarily from its Warehouse clients, the Core Bank acquires single family, first lien mortgage loans that meet the Core Bank’s specifications through its Correspondent Lending channel. The volume of loans purchased through the Correspondent Lending channel may fluctuate from time to time based on several factors, including, but not limited to, borrower demand, other investment options and the Bank’s current and forecasted liquidity position. Substantially all loans purchased through the Correspondent Lending channel are purchased at a premium.  Loans acquired through the Correspondent Lending channel generally reflect borrowers outside of the Bank’s historical market footprint, with 73% of loans acquired through this origination channel as of September 30, 2017, secured by collateral in the state of California.
In addition, the Bank has acquired in the past unsecured consumer installment loans for investment from a third-party originator. Such consumer loans were purchased at par and were selected by the Bank based on certain underwriting specifications.
The following table reflects the purchased activity of single family, first lien mortgage loans and unsecured consumer loans, by class, during the three and nine months ended September 30, 2017 and 2016.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)
2017

2016

2017

2016

Residential real estate:

Owner occupied - correspondent*
$
2,155

$
9,631

$
4,811

$
44,454

Consumer:

Other consumer*

—

—

—

4,422

Total purchased loans
$
2,155

$
9,631

$
4,811

$
48,876

* Represents origination amount, inclusive of applicable purchase premiums.
~~Loans Acquired in Cornerstone Acquisition~~
~~The following table summarizes loans acquired~~ in the Company’s ~~May 17, 2016 Cornerstone acquisition, finalized as~~filings with the SEC, including Part 1 Item 1A “Risk Factors.” of ~~October 1, 2016:~~

May 17, 2016
(in thousands)
Contractual Receivable

Non-accretable Discount

Accretable Discount

Acquisition-Day Fair Value

Residential real estate:

Owner occupied
$
15,487

$
—

$
(393)

$
15,094
Nonowner occupied

11,196

—

(101)

11,095
Commercial real estate

106,089

—

(1,498)

104,591
Construction & land development

18,277

—

(502)

17,775
Commercial & industrial

11,462

—

(191)

11,271
Home equity

20,652

—

(350)

20,302
Consumer and other

2,347

—

(147)

2,200

Total loans - ASC 310-20

185,510

—

(3,182)

182,328

Residential real estate:

Owner occupied

2,963

(822)

(15)

2,126
Nonowner occupied

1,721

(320)

(167)

1,234
Commercial real estate

4,315

(617)

(197)

3,501
Construction & land development

175

—

—

175
Commercial & industrial

66

(1)

1

66
Home equity

382

(178)

(11)

193
Consumer and other

4

(3)

—

1

Total loans - ASC 310-30 - PCI loans

9,626

(1,941)

(389)

7,296

Total loans acquired
$
195,136

$
(1,941)

$
(3,571)

$
189,624
22
~~Table of Contents~~
~~Purchased-Credit-Impaired (“PCI”) Loans~~
~~The Bank acquired PCI loans on May 17, 2016 in its Cornerstone acquisition and during the year ended December 31, 2012 in two FDIC-assisted transactions. PCI loans are accounted for under ASC 310-30,~~ ~~Loans and Debt Securities Acquired with Deteriorated Credit Quality~~.
~~Management utilized the following criteria in determining which loans were classified as PCI loans for its May 17, 2016 Cornerstone acquisition:~~
·
~~Loans for which the Bank assigned a non-accretable discount~~
·
~~Loans classified as nonaccrual when acquired~~
·
~~Loans past due 90-days-or-more when acquired~~
~~The following table reconciles the contractually required and carrying amounts of all PCI loans at September 30, 2017 and December 31, 2016:~~

(in thousands)

September 30, 2017

December 31, 2016

Contractually-required principal

$
10,792

$
15,587

Non-accretable amount

(1,747)

(1,713)

Accretable amount

(1,693)

(3,600)

Carrying value of loans

$
7,352

$
10,274

~~The following table presents a rollforward of the accretable amount on all PCI loans:~~


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Balance, beginning of period

$
(3,333)

$
(4,087)

$
(3,600)

$
(4,125)

Transfers between non-accretable and accretable*

(44)

179

31

(299)

Net accretion into interest income on loans, including loan fees

1,684

48

1,876

945

Generated from acquisition of Cornerstone Bancorp, Inc. (recasted)

—

—

—

(381)

Balance, end of period

$
(1,693)

$
(3,860)

$
(1,693)

$
(3,860)

*~~Transfers are primarily attributable to changes in estimated cash flows of the underlying loans.~~
23
~~Table of Contents~~
~~Credit Quality Indicators~~
~~Based on the Bank’s internal analyses performed as of September 30, 2017 and December 31, 2016, the following tables reflect loans by risk category. Risk categories are defined in~~ the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016:~~2023 and Part II Item 1A “Risk Factors” of the current filing.

Accounting Standards Update

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Republic’s consolidated financial statements and accompanying footnotes have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods.

A summary of the Company's significant accounting policies is set forth in Part II “Item 8. Financial Statements and Supplementary Data” of its Annual Report on Form 10-K for the year ended December 31, 2023.

Management continually evaluates the Company’s accounting policies and estimates that it uses to prepare the consolidated financial statements. In general, management’s estimates and assumptions are based on historical experience, accounting and regulatory guidance, and information obtained from independent third-party professionals. Actual results may differ from those estimates made by management.

Critical accounting policies are those that management believes are the most important to the portrayal of the Company’s financial condition and operating results and require management to make estimates that are difficult, subjective and complex. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the financial statements. These factors include, among other things, whether the estimates have a significant impact on the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including independent third parties or available pricing, sensitivity of the estimates to changes in economic conditions and whether alternative methods of accounting may be utilized under GAAP. Management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the Company’s Audit Committee.

Republic believes its critical accounting policies and estimates relate to its ACLL and Provision.

ACLL and Provision — As of March 31, 2024, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the ACLL monthly and presents and discusses the ACLL with the Audit Committee and the Board of Directors quarterly.

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

Adjustments to the historical loss rate for current conditions include differences in underwriting standards, portfolio mix or term, delinquency level, as well as for changes in environmental conditions, such as changes in property values or other relevant factors. One-year forecast adjustments to the historical loss rate are based on the U.S. national unemployment rate and CRE values. Subsequent to the one-year forecasts, loss rates are assumed to immediately revert back to long-term historical averages.
59
Table of Contents
The ACLL is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the ACLL, and therefore, greater volatility to the Company’s reported earnings.

BUSINESS SEGMENT COMPOSITION

As of March 31, 2024, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending, TRS, RPS, and RCS. Republic had previously reported mortgage banking as a separate reportable segment prior to the first quarter of 2024. Due to the quantitative and qualitative immateriality of this division, Management concluded its mortgage banking operations no longer constitutes a separate reportable segment for SEC reporting purposes.

Management considers the first two segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last three segments collectively constitute RPG operations.

(I) Traditional Banking segment

The Traditional Banking segment, which also includes the results of the former mortgage banking segment, provides traditional banking products primarily to customers in the Company’s market footprint. As of March 31, 2024, Republic had 47 banking centers with locations as follows:

●

September 30, 2017

Special

Doubtful /

PCI Loans -

PCI Loans -

Total Rated

(in thousands)

Pass

Mention

Substandard

Loss

Group 1

Substandard

Loans*

Traditional Banking:

Residential real estate:

Owner occupied

$
—

$
19,866

$
12,180

$
—

$
182

$
1,673

$
33,901

Owner occupied - correspondent

—

—

��
—

—

—

—

—

Nonowner occupied

—

643

1,016

—

510

—

2,169

Commercial real estate

1,146,117

5,358

4,977

—

4,773

—

1,161,225

Construction & land development

138,095

—

742

—

—

—

138,837

Commercial & industrial

326,846

263

82

—

23

—

327,214

Lease financing receivables

15,367

—

—

—

—

—

15,367

Home equity

83

83

1,743

—

91

97

2,097

Consumer:

Credit cards

—

—

—

—

—

—

—

Overdrafts

—

—

—

—

—

—

—

Automobile loans

—

—

97

—

—

—

97

Other consumer

417

417

240

—

3

—

1,077

Total Traditional Banking

1,626,925

26,630

21,077

—

5,582

1,770

1,681,984

Warehouse lines of credit

571,160

—

—

—

—

—

571,160

Total Core Banking

2,198,085

26,630

21,077

—

5,582

1,770

2,253,144

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

—

Commercial & industrial

265

—

—

—

—

—

265

Republic Credit Solutions

—

—

851

—

—

—

851

Total Republic Processing Group

265

—

851

—

—

—

1,116

Total rated loans

$
2,198,350

$
26,630

$
21,928

$
—

$
5,582

$
1,770

$
2,254,260

Kentucky — 29
●

December 31, 2016

Special

Doubtful /

PCI Loans -

PCI Loans -

Total Rated

(in thousands)

Pass

Mention

Substandard

Loss

Group 1

Substandard

Loans*

Traditional Banking:

Residential real estate:

Owner occupied

$
—

$
21,344

$
13,117

$
—

$
218

$
2,267

$
36,946

Owner occupied - correspondent

—

—

—

—

—

—

—

Nonowner occupied

—

656

1,115

—

523

—

2,294

Commercial real estate

1,042,137

7,086

4,224

—

7,049

—

1,060,496

Construction & land development

118,769

90

791

—

—

—

119,650

Commercial & industrial

257,579

1,270

154

—

23

—

259,026

Lease financing receivables

13,614

—

—

—

13,614

Home equity

—

256

1,763

—

94

99

2,212

Consumer:

Credit cards

—

—

—

—

—

—

—

Overdrafts

—

—

—

—

—

—

—

Automobile loans

—

—

—

—

—

—

—

Other consumer

—

—

166

—

1

—

167

Total Traditional Banking

1,432,099

30,702

21,330

—

7,908

2,366

1,494,405

Warehouse lines of credit

585,439

—

—

—

—

—

585,439

Total Core Banking

2,017,538

30,702

21,330

—

7,908

2,366

2,079,844

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

—

Commercial & industrial

6,695

—

—

—

—

—

6,695

Republic Credit Solutions

—

—

82

—

—

—

82

Total Republic Processing Group

6,695

—

82

—

—

—

6,777

Total rated loans

$
2,024,233

$
30,702

$
21,412

$
—

$
7,908

$
2,366

$
2,086,621

Metropolitan Louisville — 19
* The above tables exclude all non-classified or non-rated residential real estate, home equity●
Central Kentucky — 6
●
Georgetown — 1
●
Lexington — 5
●
Northern Kentucky (Metropolitan Cincinnati) — 4
●Bellevue— 1
● Covington — 1
●
Crestview Hills — 1
●
Florence — 1
●
Indiana — 3
●
Southern Indiana (Metropolitan Louisville) — 3
●
Floyds Knobs — 1
●
Jeffersonville — 1
●
New Albany — 1
●
Florida — 7
●
Metropolitan Tampa — 7
●
Ohio — 4
●
Metropolitan Cincinnati — 4
●
Tennessee — 4
●
Metropolitan Nashville — 4

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

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

Retail Mortgage Lending — Through its retail banking centers and its online Consumer Direct channel, the Bank originates single-family, residential real estate loans and HELOCs. In addition, the Bank originates HEALs through its retail banking centers. Such loans are generally collateralized by owner-occupied, residential real estate properties. For those loans originated through the Bank’s retail banking centers, the collateral is predominately located in the Bank’s market footprint, while loans originated through its Consumer Direct channel are generally secured by owner-occupied collateral located outside of the Bank’s market footprint.

Mortgage banking — 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
60
Table of Contents
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.

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

In general, commercial lending credit approvals and processing are prepared and underwritten through the Bank’s Commercial Credit Administration Department. Clients are generally located within the Bank’s market footprint or in areas nearby the market footprint.

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

Consumer Lending — Traditional Banking consumer loans made by the Bank include home improvement and home equity loans, other secured and unsecured personal loans, and credit cards. Except for home equity loans, which are actively marketed in conjunction with single family, first lien residential real estate loans, other Traditional Banking consumer loan products (not including products offered through RPG), while available, are not and have not been actively promoted in the Bank’s markets.

Aircraft Lending — Aircraft loans are typically made to purchase or refinance personal aircrafts, along with engine overhauls and avionic upgrades. Loans range between $200,000 and $4,000,000 in size and have terms up to 20 years. The aircraft loan program is open to all fifty states. The credit characteristics of an aircraft borrower are higher than a typical consumer in that they must demonstrate and indicate a higher degree of credit worthiness for approval.

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

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

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

Correspondent Lending — The Bank began acquiring single family, first lien mortgage loans for investment through its Correspondent Lending channel during the first quarter of 2023. Correspondent Lending generally involves the Bank acquiring, primarily from its Warehouse Lending clients, closed loans that meet the Bank’s specifications. Substantially all loans purchased through the Correspondent Lending channel are purchased at a premium. Premiums on loans held for investment acquired through
61
Table of Contents
the Correspondent Lending channel will be amortized into interest income on the level-yield method over the expected life of the loan. Loans acquired through the Correspondent Lending channel are generally made to borrowers outside of the Bank’s historical market footprint.

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

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

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

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

See additional detail regarding the Traditional Banking segment under Footnote 16 “Segment Information” of Part I Item 1 “Financial Statements.”

(II) Warehouse Lending segment

The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the United States through mortgage warehouse lines of credit. These credit facilities are primarily secured by single-family, first-lien residential real estate loans. The credit facility enables the mortgage banking clients to close single-family, first-lien residential real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank. Individual 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.

See additional detail regarding the Warehouse Lending segment under Footnote 16 “Segment Information” of Part I Item 1 “Financial Statements.”

(III) 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. During December 2023, TRS originated $103 million of ERAs related to tax returns that were anticipated to be filed during the first quarter 2024 tax filing season. Of these ERAs, $11 million remained outstanding as of March 31, 2024.

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 2024 and 2023:

● 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 $6,500;
● No requirement that the taxpayer pays for another bank product, such as an RT;
62
Table of Contents
● 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.

Since its introduction in December of 2022, the ERA credit product has been structured similarly to the RA with the primary differences being the timing of when the ERAs are originated and the documentation available to underwrite the ERA credits. The ERA is originated prior to the taxpayer receiving their fiscal year taxable income documentation, e.g., W-2, and the filing of the taxpayer’s final federal tax return. As such, the Company generally uses paystub information to underwrite the ERA. The repayment of the ERA is incumbent upon the taxpayer client returning to the Bank’s Tax Provider for the filing of their final federal tax return in order for the tax refund to potentially be received by the Bank from the federal government to pay off the advance. The ERA product had the following features during the 2023 and 2024 tax filing seasons:

● Only offered during December and the up-coming January in connection with the upcoming first quarter tax business for each period;
● The taxpayer had the option to choose from multiple loan 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 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 deducted from the taxpayer’s tax refund proceeds; and
● If an insufficient refund to repay the ERA, including the failure to file a final federal tax return through a Republic Tax Provider:
o 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. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. RAs, including ERAs that were originated related to the first quarter 2023 tax filing 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 as it did during 2023, the Company will consider an RA delinquent in 2024 if it remains unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority.

Provisions on RAs are estimated when advances are made. Unpaid RAs, including ERAs, related to the first quarter tax filing season of a given year are charged-off by June 30^th of that year, unless they are deemed to be uncollectible earlier than June 30^th, at which time they are charged off. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are 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.

See additional detail regarding the RA product under Footnote 5 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”

63
Table of Contents
(IV) Republic Payment Solutions segment

Through the RPS segment, the Bank offers a range of payment-related products and services to consumers through third-party service providers. The Bank offers both issuing solutions and money movement capabilities.

Issuing Solutions:

The RPS segment offers prepaid and debit solutions primarily marketed to consumers through third-party marketer-servicers.

Prepaid solutions include the issuing of payroll and general purpose reloadable (“GPR”) cards. Characteristics of these cards include the following:

● Similar to a traditional debit card with features including traditional point of sale purchasing, ATM withdrawals and direct deposit;
● Funds associated with these products are typically held in pooled accounts at the ~~respective period ends.~~Bank with the Bank maintaining records of individual balances within these pooled accounts; and
● Payroll cards facilitate the loading of an employer’s payroll onto a card via direct deposit with GPR cards generally distributed through retail locations and reloadable through participating retail load networks.

Debit solutions include the issuing of demand deposit accounts, savings accounts and/or debit cards. In addition to offering traditional point of sale purchasing, ATM withdrawals, and direct deposit options, these accounts may include overdraft protection.

Money Movement:

The Bank participates in traditional money movement solutions including ACH transactions, wire transfer, check processing, and the Mastercard Remote Payment and Presentment Service (“RPPS”). These capabilities are complementary to issuing within RPS, as well as, generally facilitating the movement of money for the TRS and RCS Divisions.

The Company reports its share of client-related charges and fees for RPS programs under RPS program fees. Additionally, the Company’s portion of interchange revenue generated by prepaid card transactions is reported as noninterest income under “Interchange fee income.”

(V) Republic Credit Solutions segment

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 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.

3) Elastic Marketing, LLC and Elevate Decision Sciences, LLC are third-party service providers for the LOC I 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. 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.

64
Table of Contents
24
~~Table~~
4) Similar to its LOC I product, the Bank provides oversight and supervision to a third party for its LOC II product. In return, this third party provides the Bank with marketing services and loan servicing for the LOC II product. The Bank is the lender for this product and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of ~~Contents~~this product.

The Bank sells 95% participation interests in the LOC II product. These 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.

~~Allowance~~
● 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 ~~Loan~~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 ~~Lease Losses~~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.

~~Activity~~
o For two of the programs, the Bank retains 100% of the receivables, with recourse in the ~~allowance~~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 ~~loan and lease losses (“Allowance”) by loan class follows:~~

Allowance Rollforward

Three Months Ended September 30,

2017

2016

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Traditional Banking:

Residential real estate:

Owner occupied

$
6,740

$
(222)

$
(52)

$
107

$
6,573

$
7,893

$
(562)

$
(56)

$
142

$
7,417

Owner occupied - correspondent

324

(10)

—

—

314

592

(200)

—

—

392

Nonowner occupied

1,237

100

—

—

1,337

1,052

113

—

—

1,165

Commercial real estate

8,368

325

—

77

8,770

7,805

192

—

34

8,031

Construction & land development

2,508

(435)

—

3

2,076

1,332

66

—

10

1,408

Commercial & industrial

1,682

388

(152)

12

1,930

1,441

(182)

—

121

1,380

Lease financing receivables

151

11

—

—

162

115

13

—

—

128

Home equity

3,787

14

(4)

51

3,848

3,016

633

(145)

31

3,535

Consumer:

Credit cards

588

50

(38)

��
6

606

456

105

(91)

17

487

Overdrafts

806

311

(276)

51

892

824

(34)

(239)

55

606

Automobile loans

640

40

(12)

1

669

281

178

(12)

—

447

Other consumer

918

111

(155)

67

941

585

(33)

(180)

70

442

Total Traditional Banking

27,749

683

(689)

375

28,118

25,392

289

(723)

480

25,438

Warehouse lines of credit

1,502

(74)

—

—

1,428

1,465

188

—

—

1,653

Total Core Banking

29,251

609

(689)

375

29,546

26,857

477

(723)

480

27,091

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

(840)

—

840

—

—

(89)

—

89

—

Refund Anticipation Loans

—

—

—

—

—

—

—

—

—

—

Commercial & industrial

—

—

—

—

—

—

—

—

—

—

Republic Credit Solutions

8,647

4,452

(2,680)

226

10,645

2,451

2,101

(1,348)

141

3,345

Total Republic Processing Group

8,647

3,612

(2,680)

1,066

10,645

2,451

2,012

(1,348)

230

3,345

Total

$
37,898

$
4,221

$
(3,369)

$
1,441

$
40,191

$
29,308

$
2,489

$
(2,071)

$
710

$
30,436

25
~~Table~~sale through this program are carried at the lower of ~~Contents~~cost or fair value.

For the RCS line of credit and healthcare receivable products, the Company reports interest income and loan origination fees earned on RCS loans under “Loans, including fees,” while any net gains or losses on sale and mark-to-market adjustments of RCS loans are reported as noninterest income under “RCS Program fees.” The Company has elected fair value accounting for its RCS installment loan product that it sells after an initial holding period. As a result, interest income on loans, loan origination fees, net gains or losses on sale, and mark-to-market adjustments for the RCS installment product are reported as noninterest income under “RCS Program fees.”

OVERVIEW (Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023)

Total Company net income for the first quarter of 2024 was $30.6 million, a $2.5 million, or 9%, increase over the same period in 2023. Diluted EPS was $1.58 for first quarter of 2024 compared to $1.42 for the first quarter of 2023.

The following are general highlights by reportable segment:

Traditional Banking segment

● Net income increased $2.7 million, or 29%, for the first quarter of 2024 compared to the same period in 2023.

● Net interest income decreased $1.9 million, or 4%, for the first quarter of 2024 compared to the same period in 2023.

● Provision was a net charge of $358,000 for the first quarter of 2024 compared to a net charge of $3.0 million for the same period in 2023.

Allowance Rollforward

Nine Months Ended September 30,

2017

2016

Beginning

Charge-

Ending

Beginning

Charge-

Ending
(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Traditional Banking:

Residential real estate:

Owner occupied

$
7,158

$
(653)

$
(163)

$
231

$
6,573

$
8,301

$
(860)

$
(317)

$
293

$
7,417
Owner occupied - correspondent

373

(59)

—

—

314

623

(231)

—

—

392
Nonowner occupied

1,139

212

(14)

—

1,337

1,052

105

—

8

1,165
Commercial real estate

8,078

577

—

115

8,770

7,672

260

(41)

140

8,031
Construction & land development

1,850

222

—

4

2,076

1,303

119

(44)

30

1,408
Commercial & industrial

1,511

537

(152)

34

1,930

1,455

130

(330)

125

1,380
Lease financing receivables

136

26

—

—

162

89

39

—

—

128
Home equity

3,757

62

(99)

128

3,848

2,996

633

(229)

135

3,535
Consumer:

Credit cards

490

181

(86)

21

606

448

163

(153)

29

487
Overdrafts

675

731

(687)

173

892

351

639

(571)

187

606
Automobile loans

526

160

(19)

2

669

56

402

(12)

1

447
Other consumer

771

615

(691)

246

941

479

168

(442)

237

442
Total Traditional Banking

26,464

2,611

(1,911)

954

28,118

24,825

1,567

(2,139)

1,185

25,438
Warehouse lines of credit

1,464

(36)

—

—

1,428

967

686

—

—

1,653
Total Core Banking

27,928

2,575

(1,911)

954

29,546

25,792

2,253

(2,139)

1,185

27,091

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

7,041

(8,123)

1,082

—

—

3,127

(3,474)

347

—
Refund Anticipation Loans

—

(253)

—

253

—

—

(222)

—

222

—
Commercial & industrial

25

(25)

—

—

—

—

—

—

—

—
Republic Credit Solutions

4,967

12,295

(7,216)

599

10,645

1,699

4,331

(3,004)

319

3,345
Total Republic Processing Group

4,992

19,058

(15,339)

1,934

10,645

1,699

7,236

(6,478)

888

3,345

Total

$
32,920

$
21,633

$
(17,250)

$
2,888

$
40,191

$
27,491

$
9,489

$
(8,617)

$
2,073

$
30,436

● Noninterest income decreased $175,000, or 2%, for the first quarter of 2024 compared to the same period in 2023.

● Noninterest expense decreased $2.0 million, or 5%, for the first quarter of 2024 compared to the same period in 2023.
65
Table of Contents

● Total Traditional Bank loans decreased $45 million, or 1%, during the first quarter of 2024.

~~Nonperforming Loans and Nonperforming Assets~~
~~Detail of~~
● Total nonperforming loans to total loans for the Traditional Banking segment was 0.42% as of March 31, 2024 compared to 0.41% as of December 31, 2023.

● Delinquent loans to total loans for the Traditional Banking segment was 0.18% as of March 31, 2024 compared to 0.18% as of December 31, 2023.

● Total Traditional Bank deposits increased $444 million, or 10%, during the first quarter of 2024.

Warehouse Lending segment

● Net income increased $67,000, or 9%, for the first quarter of 2024 compared to the same period in 2023.

● Net interest income increased $170,000, or 8%, for the first quarter of 2024 compared to the same period in 2023.

● The Warehouse Provision was a net charge of $309,000 for the first quarter of 2024 compared to a net charge of $135,000 for the same period in 2023.

● Average committed Warehouse lines decreased from $1.0 billion in the first quarter of 2023 to $929 million the first quarter of 2024.

● Average line usage was 37% during the first quarter of 2024 compared to 31% during the same period in 2023.

Tax Refund Solutions segment

● Net income decreased $1.0 million, or 11%, from the first quarter of 2023 to the first quarter of 2024.

● Net interest income increased $2.6 million, or 9%, from the first quarter of 2023 to the first quarter of 2024.

● Total RA originations were $771 million during the first quarter of 2024 compared to $737 million for the first quarter of 2023.

● TRS originated $103 million of ERAs during the fourth quarter of 2023 related to the anticipated filing of tax returns for the upcoming first quarter 2024 tax filing season compared to $98 million during the fourth quarter of 2022 related to the anticipated filing of tax returns for the first quarter of 2023.

● The TRS Provision was $25.8 million for the first quarter of 2024, compared to $21.8 million for the first quarter of 2023.

● Noninterest income was $10.9 million for the first quarter of 2024 compared to $10.9 million for the first quarter of 2023.

● Net RT revenue was flat at $10.8 million, for the first quarters of 2024 and 2023.

● Noninterest expense was $4.5 million for the first quarter of 2024 compared to $4.8 million for the first quarter of 2023.

Republic Payment Solutions segment

● Net income was flat at $2.6 million for the first quarters of 2024 and 2023.

● Net interest income was flat at $3.5 million for the first quarters of 2024 and 2023.

● Noninterest income was $774,000 for the first quarter of 2024 compared to $718,000 for the first quarter of 2023.

● Noninterest expense was $954,000 for the first quarter of 2024 and compared to $866,000 for the first quarter of 2023.
66
Table of Contents
Republic Credit Solutions segment

● Net income was $6.1 million for the first quarter of 2024, a $748,000, or 14%, increase over the first quarter of 2023.

● Net interest income increased $3.4 million, or 39%, to $12.0 million for the first quarter of 2024 compared to the same period in 2023.

● Overall, RCS recorded a net charge to the Provision of $4.2 million during the first quarter of 2024 compared to a net charge of $1.8 million for the same period in 2023.

● Noninterest income increased $848,000, or 33%, from the first quarter of 2023 to the first quarter of 2024.

● Noninterest expense was $3.2 million for the first quarter of 2024 and $2.4 million for the same period in 2023.

● Total nonperforming ~~assets follows:~~loans to total loans for the RCS segment was 1.63% as of March 31, 2024 compared to 1.11% as of December 31, 2023.

● Delinquent loans to total loans for the RCS segment was 10.26% as of March 31, 2024 compared to 10.51% as of December 31, 2023.

RESULTS OF OPERATIONS (Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023)

Net Interest Income

Banking operations are significantly dependent upon net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and the interest expense on interest-bearing liabilities used to fund those assets, such as interest-bearing deposits, securities sold under agreements to repurchase, and FHLB advances. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities, as well as market interest rates.

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

67
Table of Contents
A large amount of the Company’s financial instruments track closely with, or are primarily indexed to, either the FFTR, Prime, or SOFR. These indices trended lower beginning in the first quarter of 2020 with the onset of the COVID pandemic, as the FOMC reduced the FFTR to approximately 25 basis points. During 2022 inflation rose to levels not seen in approximately 40 years. In response, the FOMC began executing a quantitative tightening program by reducing its balance sheet, selling certain types of bonds in the market, and repeatedly increasing the FFTR. The FOMC’s increases to the FFTR since January 1, 2022 included the following:

Table 1 — Increases to the Federal Funds Target Rate during 2022, 2023 and the first quarter of 2024

Increase to

FFTR
Date

the FFTR

after Increase

March 17, 2022

0.25
%

0.50
%
May 5, 2022

0.50

1.00

June 16, 2022

0.75

1.75

July 27, 2022

0.75

2.50

September 21, 2022

0.75

3.25

November 2, 2022

0.75

4.00

December 15, 2022

0.50

4.50

February 2, 2023

0.25

4.75

March 23, 2023

0.25

5.00

May 4, 2023

0.25

5.25

July 26, 2023

0.25

5.50

The FOMC’s actions and signals continued to place upward pressure on short-term market interest rates throughout the prior two years. While long-term interest rates initially rose in tandem with the increases to the FFTR through the middle part of 2022, they generally moved lower than short-term rates during the second half of 2022. Long-term rates generally maintained this lower level relative to short-term rates throughout 2023 as the market generally began anticipating a recession to take place in the near-term future. As a result of the higher short-term interest rates and the lower long-term interest rates, the yield curve has been inverted for several months, with short-term rates generally higher than long-term rates on the yield curve. Because banks generally price customer deposits based on the shorter-end of the yield curve and price many loans based on the longer-end of the yield curve, an inverted yield curve is generally negative for banks’ net interest income while a steep yield curve, in which long-term rates exceed short-term rates, is generally more favorable for banks.

As of the date of this filing, the near-term shape of the yield curve is uncertain. The Federal Reserve continues to signal its willingness to implement appropriate monetary policy to maintain inflation at an acceptable level. Many market forecasters, however, believe that near-term interest rate cuts by the FOMC are more likely than near-term interest rate increases or no change to the FFTR at all. Any further monetary tightening by the FOMC in the future will likely cause short-term interest rates to increase. It is unknown what impact additional short-term rate increases by the FOMC could have on long-term market interest rates. Alternatively, future rate cuts are likely to decrease interest rates on the shorter end of the yield curve. Similarly, it is unknown how corresponding long-term rates will move, if at all, if the FOMC does cut short-term interest rates in the near-term. Additionally, if the FFTR experiences no changes in the near-term, it is uncertain if long term rates will remain generally below short-term interest rates or if the yield curve could begin to steepen.

Total Company net interest income was $96.9 million during the first quarter of 2024 and represented an increase of $4.3 million, or 5%, from the first quarter of 2023. Total Company net interest margin decreased to 5.87% during the first quarter of 2024 compared to 6.52% for the same period in 2023.

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

Traditional Banking segment

The Traditional Banking’s net interest income decreased $1.9 million, or 4%, for the first quarter of 2024 compared to the same period in 2023. Traditional Banking’s net interest margin was 3.33% for the first quarter of 2024, a decrease of 74 basis points from the same period in 2023.

The primary driver of this decrease in net interest income and net interest margin at the Traditional Bank was an on-going shift in funding mix away from noninterest-bearing deposit balances into higher-costing, interest-bearing deposits and FHLB borrowings. As a continuance in trend from 2023, the Traditional Bank’s average noninterest-bearing deposits decreased from $1.6 billion during the first quarter of 2023 to $1.2 billion for the first quarter of 2024. In addition to this change in funding mix, the Traditional Bank’s cost
68
Table of Contents
of interest-bearing liabilities increased 230 basis points from the first quarter of 2023 to the first quarter of 2024, notably more than the 88-basis-point increase to its yield on interest-earning assets for the same periods.

Further impacting the Traditional Bank’s change in net interest income and NIM between the first quarter of 2023 and the first quarter of 2024 were the following:

● Traditional Bank average loans grew from $3.9 billion with a weighted-average yield of 4.59% during the first quarter of 2023 to $4.6 billion with a weighted-average yield of 5.45% during the first quarter of 2024. In general, the growth in average loan balances was primarily attributable to loan growth achieved during the last nine months of 2023, as the spot balances for Traditional Bank loans decreased $45 million, or 1%, from December 31, 2023 to March 31, 2024.

● Average investments were $733 million with a weighted-average yield of 2.98% during the first quarter of 2024 compared to $773 million with a weighted-average yield of 2.61% for the first quarter of 2023. During the first quarter of 2024, the Traditional Bank continued to maintain an investment portfolio with a generally short overall duration, as part of its interest rate risk management strategy.

● Further segmenting the Traditional Bank’s increased cost of interest-bearing liabilities:

o The weighted-average cost of interest-bearing deposits increased from 0.74% during the first quarter of 2023 to 2.68% for the first quarter of 2024, while average interest-bearing deposits grew $746 million for the same periods. In addition to offsetting the decrease in its noninterest bearing deposits since 2023, the Traditional Bank also raised additional non-retail, higher-costing interest-bearing deposits since the first quarter of 2023 to maintain strong liquidity during the first quarter 2024 tax season at RPG.

o The average balance of FHLB borrowings increased from $245 million for the first quarter of 2023 to $536 million for the first quarter of 2024. In addition, the weighted-average cost of these borrowings increased from 4.22% to 4.94% for the same time periods. This increase in the average balance of borrowings was generally driven by the above noted growth in period-to-period average loans.

● Average interest-earning cash was $454 million with a weighted-average yield of 5.57% during the first quarter of 2024 compared to $241 million with a weighted-average yield of 4.48% for the first quarter of 2023. The change in average cash balances was a strategic increase in on-balance sheet liquidity above required minimums in response to the uncertainty of the economic environment.

Management believes the Traditional Bank could likely continue to experience net interest margin compression during the remainder of 2024 as a result of the negative impact of 1) a continuing shift from noninterest-bearing deposits into interest-bearing deposits; 2) larger, higher-costing average balances of FHLB borrowings; and 3) a continuing rise in the cost of interest-bearing deposits in order to maintain client balances. Additional variables which may also impact the Traditional Bank’s net interest income and net interest margin in the future include, but are not limited to, the actual steepness and shape of the yield curve, future demand for the Traditional Bank’s financial products, and the Traditional Bank’s overall future liquidity needs.

For additional discussion of the factors impacting interest-earning cash and deposit balances as well as deposit betas, see sections titled “Cash and Cash Equivalents” and “Deposits” in the “COMPARISON OF FINANCIAL CONDITION” of this document.

Warehouse Lending segment

● Net interest income within the Warehouse segment increased $170,000, or 8%, from the first quarter of 2023 to the first quarter of 2024, driven by an increase in average outstanding balances. Overall, average outstanding Warehouse balances increased from $330 million during the first quarter of 2023 to $340 million for the first quarter of 2024. Committed Warehouse lines declined from $1.0 billion to $932 million from March 31, 2023 to March 31, 2024, while an up-tick in demand caused average usage rates for Warehouse lines to increase from 31% during the first quarter of 2023 to 37% for the first quarter of 2024.

69
Table of Contents
Tax Refund Solutions segment

Net interest income within the TRS segment was up $2.6 million from the first quarter of 2023 to the first quarter of 2024
Loan-related interest and fees increased $3.5 million for the quarter and was driven primarily by a $40 million increase in RA origination volume. This increase in loan revenue was partially offset by a $1.1 million increase in the TRS’s loan funding costs, net of the interest revenue the segment earned as a credit to interest income for its average deposit balances.

See additional detail regarding the RA product under Footnote 5 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”

Republic Payment Solutions

Net interest income from the Company’s prepaid card division was flat at $3.5 million for the first quarters of 2024 and 2023. RPS earned a higher yield of 5.07% applied to the $375 million average of prepaid program balances for the first quarter of 2024 compared to a yield of 3.84% for the $377 million in average prepaid card balances for the first quarter of 2023. The increase in this higher yield, however, was substantially offset by a $969,000 charge to interest expense for a new revenue sharing arrangement for the program which began in January 2024, as previously disclosed withinItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2023 Annual Report on Form 10-K.

Republic Credit Solutions segment

RCS’s net interest income increased $3.4 million, or 39%, from the first quarter of 2023 to the first quarter of 2024. The increase was driven primarily by an increase in fee income from RCS’s LOC II product. Loan fees on this product, recorded as interest income on loans, increased $3.5 million from the first quarter of 2023 to the first quarter of 2024.

70
Table of Contents
The following table presents the average balance sheets for the three-month periods ended March 31, 2024 and 2023, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

Table 2 — Total Company Average Balance Sheets and Interest Rates

Three Months Ended March 31, 2024

Three Months Ended March 31, 2023

Average



Average


Average



Average


(dollars in thousands)

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS

Interest-earning assets:

Federal funds sold and other interest-earning deposits

$
454,426

$
6,289

5.57
%


$
241,211

$
2,700

4.48
%

Investment securities, including FHLB stock (a)

732,678

5,436

2.98

773,172

5,047

2.61

TRS Refund Advance loans (b)

287,806

34,652

48.42

249,378

31,405

50.37

RCS LOC products (b)

41,339

11,372

110.64

31,086

7,962

102.45

Other RPG loans (c) (f)

149,818

3,295

8.85

141,975

2,625

7.40

Outstanding Warehouse lines of credit (d) (f)

340,433

6,753

7.98

329,716

5,720

6.94

All other Core Bank loans (e) (f)

4,634,948

62,835

5.45

3,913,388

44,897

4.59

Total interest-earning assets

6,641,448

130,632

7.91

5,679,926

100,356

7.07

Allowance for credit loss

(96,446)

(83,195)

Noninterest-earning assets:

Noninterest-earning cash and cash equivalents

280,618

295,905

Premises and equipment, net

33,889

32,232

Bank owned life insurance

104,305

102,004

Other assets (a)

255,758

186,169

Total assets

$
7,219,572

$
6,213,041

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:

Transaction accounts

$
1,833,566

$
5,729

1.26
%

$
1,644,777

$
1,742

0.42
%

Money market accounts

1,066,046

8,807

3.32

748,623

2,106

1.13

Time deposits

373,240

3,581

3.86

225,847

859

1.52

Reciprocal money market and time deposits

310,898

3,232

4.18

43,852

171

1.56

Brokered deposits

421,096

5,647

5.39

—

—

—

Total interest-bearing deposits

4,004,846

26,996

2.71

2,663,099

4,878

0.73

SSUARs and other short-term borrowings

102,592

130

0.51

202,910

248

0.49

Federal Reserve PPP Liquidity Facility

—

—

—

—

—

—

Federal Home Loan Bank advances and other long-term borrowings

536,209

6,587

4.94

245,344

2,588

4.22

Total interest-bearing liabilities

4,643,647

33,713

2.92

3,111,353

7,714

0.99

Noninterest-bearing liabilities and Stockholders’ equity:

Noninterest-bearing deposits

1,490,048

2,089,162

Other liabilities

152,835

133,321

Stockholders’ equity

933,042

879,205

Total liabilities and stock-holders’ equity

$
7,219,572

$
6,213,041

Net interest income

$
96,919

$
92,642

Net interest spread

4.99
%

6.08
%

Net interest margin

5.87
%

6.52
%

(1) For the purpose of this calculation, the fair market value adjustment on debt securities is included as a component of other assets.
(2) Interest income for Refund Advances and RCS line-of-credit products is composed entirely of loan fees.
(3) Interest income includes loan fees of $1.2 million and $933,000 for the three months ended March 31, 2024 and 2023.
(4) Interest income includes loan fees of $263,000 and $248,000 for the three months ended March 31, 2024 and 2023.
(5) Interest income includes loan fees of $1.4 million and $946,000 for the three months ended March 31, 2024 and 2023.
(6) Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs.

71
Table of Contents
Table 3 illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities impacted Republic’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

Table 3 — Total Company Volume/Rate Variance Analysis

Three Months Ended March 31, 2024

Compared to

Three Months Ended March 31, 2023

Total Net

Increase / (Decrease) Due to

(in thousands)

Change

Volume

Rate


Interest income:

Federal funds sold and other interest-earning deposits

$
3,589

$
2,832

$
757

Investment securities, including FHLB stock

389

(274)

663

TRS Refund Advance loans

3,247

4,674

(1,427)

RCS LOC products

3,410

2,564

846

Other RPG loans

670

167

503

Outstanding Warehouse lines of credit

1,033

190

843

All other Core Bank loans

17,938

9,033

8,905

Net change in interest income

30,276

19,186

11,090

Interest expense:

Transaction accounts

3,945

222

3,723

Money market accounts

6,702

1,203

5,499

Time deposits

2,721

818

1,903

Reciprocal money market and time deposits

3,061

2,404

657

Brokered deposits

5,647

5,647

—

SSUARs and other short-term borrowings

(76)

(116)

40

Federal Home Loan Bank advances

3,999

3,512

487

Subordinated note

Net change in interest expense

25,999

13,690

12,309

Net change in net interest income

$
4,277

$
5,496

$
(1,219)

72
Table of Contents
Provision

Total Company Provision was a net charge of $30.6 million for the first quarter of 2024 compared to a net charge of $26.8 million for the same period in 2023.

The following were the most significant components comprising the Company’s Provision by reportable segment:

Traditional Banking segment

The Traditional Banking Provision during the first quarter of 2024 was a net charge of $358,000 compared to a net charge of $3.0 million for the first quarter of 2023. An analysis of the Provision for the first quarter of 2024 compared to the same period in 2023 follows:

The net charge during the first quarter of 2024 was primarily driven by the following:

● The Traditional Bank recorded a net charge to the Provision of $820,000 during the first quarter of 2024 related to general formula reserves applied to Traditional Bank loans.While loan balances at the Traditional Bank decreased in total during the first quarter, the segment experienced a change in loan mix growing in loan categories, such as construction and land development, with higher loan loss reserve requirements.

● Partially offsetting the above charges to the Provision, the Traditional Bank recorded a net credit to the Provision of $631,000 as a result of the reclass of $69 million of correspondent mortgage loans from loans held for investment into loans held for sale.

The net charge during the first quarter of 2023 was primarily driven by the following:

● The Traditional Bank recorded a net charge to the Provision of $430,000 million during the first quarter of 2023 related to general formula reserves applied to $92 million of Traditional Bank loan growth for the first quarter of 2023.

● The Traditional Bank recorded a Day-1 net charge to the Provision of $2.7 million during the first quarter of 2023 related to its acquisition of CBank.

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.29% as of March 31, 2024 compared to 1.28% as of December 31, 2023 and 1.33% as of March 31, 2023. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of March 31, 2024.

See the sections titled “Allowance for Credit Losses” and “Asset Quality” in this section of the filing under “Comparison of Financial Condition” for additional discussion regarding the Provision and the Bank’s credit quality.

Warehouse Lending segment

Warehouse recorded a net charge to the Provision of $309,000 for the first quarter of 2024 compared to a net charge of $135,000 for the same period in 2023. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances increased $124 million during the first quarter of 2024 compared to an increase of $54 million during the first quarter of 2023.

As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% as of March 31, 2024, December 31, 2023, and March 31, 2023. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses as of March 31, 2024.

Tax Refund Solutions segment

TRS recorded a net charge to the Provision of $25.8 million during the first quarter of 2024 compared to a net charge of $21.8 million for the same period in 2023. Substantially all TRS Provision in both periods was related to its RA product.

In addition to an increase in RA volume driving higher estimated loan losses during the quarter, the increase in Provision from the first quarter of 2023 to the first quarter of 2024 primarily occurred because payments received from the U.S. Treasury to fund federal tax
73
Table of Contents
refunds through March 31, 2024 lagged the payments received through March 31, 2023. As a result, TRS recorded a charge to the Provision for RAs, including ERAs, of $26.0 million, or 3.37% of its $771 million in RAs originated during the first quarter of 2024 compared to a net charge to the Provision of $22.0 million, or 2.98% of its $737 million of RAs originated during the first quarter of 2023.

RAs related to a first quarter tax filing season are only originated during December of the previous year and the first two months of the current year. As is the case each year as of March 31^st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30th. The final charge-off figures posted during the second quarter of a calendar year can be meaningfully different (higher or lower) than its March 31^st estimate based on actual paydowns received from the U.S. Treasury during the second quarter. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are recorded as recoveries of previously charged-off loans. TRS’s loss rate as of June 30, 2023 was 3.22% of total originations and it finished 2023 with a RA loss rate of 2.84% of total RAs originated.

For factors affecting the comparison of the TRS results of operations for the first quarter of 2024 and the first quarter of 2023, see section titled “OVERVIEW (Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023) - Tax Refund Solutions.”

See additional detail regarding the EA product under Footnote 5 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”

Republic Credit Solutions segment

As illustrated in Table 4 below, RCS recorded a net charge to the Provision of $4.2 million during the first quarter of 2024 compared to a net charge to the Provision of $1.8 million for the same period in 2023. The increase in the Provision was driven primarily by a $1.4 million increase in net charge-offs for RCS’s LOC II product. The $1.4 million, or 117%, increase in net charge-offs within the LOC II product was driven by a $9.9 million, or 88%, increase in average outstanding balances from the first quarter of 2023 to the first quarter of 2024.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products, particularly within RCS’s unsecured LOC I and LOC II products. As a percentage of total RCS loans, the RCS ACLL was 14.09% as of March 31, 2024, 13.82% as of December 31, 2023, and 12.34% as of March 31, 2023. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of March 31, 2024.

The following table presents net charges to the RCS Provision by product:

Table 4 — RCS Provision by Product

Three Months Ended Mar. 31,

(dollars in thousands)

2024

2023

$ Change

% Change

Product:

Lines of credit

$
4,185

$
1,825

$
2,360

129
%

Healthcare receivables

(4)

14

(18)

(129)

Total

$
4,181

$
1,839

$
2,342

127
%

74
Table of Contents
Table 5 — Summary of Loan and Lease Loss Experience

Three Months Ended

March 31,

(dollars in thousands)

2024

2023

ACLL at beginning of period

$
82,130

$
70,413

CBank Initial Recognition of ACLL and Fair Value Adjustment

—

1,600

Charge-offs:

Traditional Banking:

Residential real estate

(13)

(6)

Commercial real estate

—

—

Construction & land development

—

—

Commercial & industrial

—

—

Lease financing receivables

(24)

—

Home equity

—

—

Consumer

(345)

(325)

Total Traditional Banking

(382)

(331)

Warehouse lines of credit

—

—

Total Core Banking

(382)

(331)

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

—

—

Refund Anticipation Loans

—

—

Other TRS commercial & industrial loans

—

—

Republic Credit Solutions

(4,545)

(3,099)

Total Republic Processing Group

(4,545)

(3,099)

Total charge-offs

(4,927)

(3,430)

Recoveries:

Traditional Banking:

Residential real estate

59

15

Commercial real estate

20

47

Construction & land development

—

—

Commercial & industrial

1

90

Lease financing receivables

13

—

Home equity

1

1

Consumer

108

101

Total Traditional Banking

202

254

Warehouse lines of credit

—

—

Total Core Banking

202

254

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

275

285

Refund Anticipation Loans

—

—

Other TRS commercial & industrial loans

30

—

Republic Credit Solutions

370

233

Total Republic Processing Group

675

518

Total recoveries

877

772

Net loan charge-offs

(4,050)

(2,658)

Provision - Core Banking

667

3,119

Provision - RPG

29,955

23,647

Total Provision

30,622

26,766

ACLL at end of period

$
108,702

$
96,121

Credit Quality Ratios - Total Company:

ACLL to total loans

2.08
%

2.01
%
ACLL to nonperforming loans

509

579

Net loan charge-offs to average loans

0.30

0.23

Credit Quality Ratios - Core Banking:

ACLL to total loans

1.20
%

1.22
%
ACLL to nonperforming loans

313

356

Net loan charge-offs to average loans

0.01

0.01

75
Table of Contents
Table 6 — Annualized Net Loan Charge-offs (Recoveries) to Average Loans by Loan Category

Net Loan Charge-Offs (Recoveries) to Average Loans

Three Months Ended

March 31,

2024

2023

Traditional Banking:

Residential real estate:

Owner-occupied

(0.02)
%

—
%
Nonowner-occupied

—

—

Commercial real estate

—

(0.01)

Construction & land development

—

—

Commercial & industrial

—

(0.09)

Lease financing receivables

0.05

—

Aircraft

—

—

Home equity

—

—

Consumer:

Credit cards

1.54

0.65

Overdrafts

79.01

95.97

Automobile loans

(0.49)

0.40

Other consumer

0.48

0.84

Total Traditional Banking

0.02

0.01

Warehouse lines of credit

—

—

Total Core Banking

0.01

0.01

Republic Processing Group:

Tax Refund Solutions:

Refund Advances*

NM

NM

Other TRS commercial & industrial loans

NM

NM

Republic Credit Solutions

12.21

10.14

Total Republic Processing Group

3.25

2.45

Total

0.30
%

0.23
%
*  Refund Advances are originated during the first two months of each year. In December 2022 and the first two weeks of 2023, ERAs were originated in relation to estimated tax returns that were anticipated to be filed during the first quarter 2023 tax season. In December 2023 and the first two weeks of 2024, ERAs were originated in relation to estimated tax returns that were anticipated to be filed during the first quarter 2024 tax season. All RAs, including ERAs, are charged-off by June 30th of each year.

The Company’s net charge-offs to average total Company loans increased from 0.23% during the first quarter of 2023 to 0.30% during the first quarter of 2024, with net charge-offs increasing $1.4 million, or 52%, and average total Company loans increasing $789 million, or 17%. The increase in net charge-offs was primarily driven by a $1.3 million increase in net charge-offs within the Company’s RCS operations, which generally conducts significantly higher risk lending activities that the Company’s Core Banking operations. As previously noted above, the net charge-offs within the RCS division was primarily driven by an increase in the average outstanding balances for the RCS LOC II product. During the first quarters of 2024 and 2023, the Company’s Core Bank net charge-offs to average Core Bank loans remained near zero.

Noninterest Income

Total Company noninterest income decreased $692,000 during the first quarter of 2024 compared to the same period in 2023.

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

Traditional Banking segment

Traditional Banking’s noninterest income decreased $175,000, or 2%, for the first quarter of 2024 compared to the same period in 2023. The most notable change was within the mortgage banking income category of the income statement, which declined $490,000 from the first quarter of 2023.

Mortgage banking activities and the associated revenue from those activities was generally more favorable during first quarter of 2024 compared to the first quarter of 2023. During the last half of March 2024, however, Management decided to sell $69 million of correspondent loans that were previously classified as held for investment. As a result of this decision, the Company reclassified these
76
Table of Contents
loans into the mortgage loans held-for-sale category on the balance sheet and recorded a $1.0 million fair value impairment charge within mortgage banking income in order to write these loans down to their estimated net realizable value.
As it relates to the Company’s standard, recurring mortgage banking activities, which excludes the $1.0 million charge recorded for the reclassification of correspondent loans into the loans held for sale, Mortgage Banking income increased from $800,000 during the first quarter of 2023 to $1.3 million for the first quarter of 2024. For the first quarter of 2024, the Bank sold $18.8 million in secondary market loans and achieved an average cash-gain-as-a-percent-of-loans-sold during the quarter of 2.97%, while during the first quarter of 2023, the Bank sold $16.6 million in secondary market loans and achieved an average cash-gain-as-a-percent-of-loans-sold during the quarter of 1.74%.

With the FOMC ending its quantitative easing program and continuing to signal a more aggressive and hawkish approach to its monetary policies, Management believes it is likely that the Core Bank’s mortgage origination volume will continue to be immaterial and the Company could experience further declines in mortgage banking income on a year-to-year basis if long-term interest rates were to further increase.

The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the three months ended March 31, 2024 and 2023 were $1.7 million and $1.7 million. The total daily overdraft charges, net of refunds, included in interest income for the three months ended March 31, 2024 and 2023 were $301,000 and $294,000.

Tax Refund Solutions segment

TRS’s noninterest income was flat at $10.9 million for the first quarters of 2024 and 2023. RT fees constituted the substantial majority of all TRS noninterest income for each of these quarters. Total RT fees were flat at $10.8 million from quarter to quarter as a 5.6% increase in the net revenue earned for each RT product was offset by a 5.2% decrease in the number of funded RTs from quarter to quarter. The 5.6% improvement in per-unit net RT revenue was the result of pricing adjustments made by the Company since the last tax season while the decrease in funded RTs was the result of a decrease in the level of payments received from the US Treasury for tax payer refunds during the first quarter of 2024 compared to the level of payments received during the first quarter of 2023.

For factors affecting the comparison of the TRS results of operations for the first quarter of 2024 and the first quarter of 2023, see section titled “OVERVIEW (Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023) - Tax Refund Solutions.”

77
Table of Contents
Republic Credit Solutions segment

RCS’s noninterest income increased $848,000, or 33%, during the first quarter of 2024 compared to the same period in 2023, with program fees representing the substantial majority of RCS’s noninterest income. The increase in program fees at RCS primarily reflected higher sales volume from RCS’s LOC II product, and to a lesser degree, higher sales volume for its installment loan product. Proceeds from the sale of RCS LOC II product totaled $136 million for the first quarter of 2024 compared to $77 million for the first quarter of 2023, while proceeds from the sale of RCS’s installment loan products totaled $197 million during the first quarter of 2024 compared to $210 million for the first quarter of 2023.

The following table presents RCS program fees by product:

Table 7 — RCS Program Fees by Product

Three Months Ended Mar. 31,

(dollars in thousands)

2024

2023

$ Change

% Change

Product:

Lines of credit

$
2,326

$
1,740

$
586

34
%

Healthcare receivables

47

49

(2)

(4)

Installment loans*

1,033

745

288

39

Total

$
3,406

$
2,534

$
872

34
%

*

(dollars in thousands)

September 30, 2017

December 31, 2016


Loans on nonaccrual status*

$
15,475

$
15,892

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

906

167

Total nonperforming loans

16,381

16,059

Other real estate owned

167

1,391

Total nonperforming assets

$
16,548

$
17,450

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans

0.41
%

0.42
%

Nonperforming assets to total loans (including OREO)

0.42

0.46

Nonperforming assets to total assets

0.33

0.36

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans

0.40
%

0.42
%

Nonperforming assets to total loans (including OREO)

0.40

0.46

Nonperforming assets to total assets

0.32

0.36

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

Noninterest Expense

Total Company noninterest expense decreased $1.5 million, or 3%, during the first quarter of 2024 compared to the same period in 2023.

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

Traditional Banking segment

Traditional Banking noninterest expense decreased $2.0 million for the first quarter of 2024 compared to the same period in 2023. The most notable item driving this decrease was $2.1 million of merger related expenses for the CBank acquisition recorded during the first quarter of 2023.

Republic Credit Solutions

RCS noninterest expense increased $812,000 for the first quarter of 2024 compared to the same period in 2023. The most notable item driving this increase was a $770,000 increase in marketing development expenses and was driven primarily by a higher volume of originations for RCS’s LOC II product. Under the terms of the Company’s contract with its LOC II marketer-servicer, Republic reimburses the marketer-servicer a certain dollar amount for marketing costs based on each new line of credit originated during the period.

78
Table of Contents
COMPARISON OF FINANCIAL CONDITION AS OF MARCH 31, 2024 AND DECEMBER 31, 2023

Cash and Cash Equivalents

Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Republic had $546 million in period-end cash and cash equivalents as of March 31, 2024 compared to $317 million as of December 31, 2023. Comparing average balances for the first quarters of 2024 and 2023, the Company had average interest-earning cash and cash equivalent balances of $454 million for the first quarter of 2024 compared to $241 million for the first quarter of 2023. The Company generally carried higher average interest-earning cash balances during the first quarter of 2024 as the result of a strategic decision to maintain additional on-balance sheet liquidity above required minimums in response to the uncertainty of the economic environment.

See Footnote 6 “Deposits” of Part I Item 1 “Financial Statements” for additional discussion regarding Deposits

For cash held at the FRB, the Bank earns a yield on amounts more than required reserves. This cash earned a weighted-average yield of 4.94% during the first quarter of 2024 with a spot balance yield of 5.40% on March 31, 2024. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.

Investment Securities

Republic’s investment portfolio increased $16 million from December 31, 2023 to March 31, 2024. The increase was driven by the purchase of $50 million in agency securities and $20 million in FHLB stock, partially offset by $45 million in calls and maturities of debt securities and $9 million in paydowns on mortgage-backed securities.
79
Table of Contents
Table 8 — Loan Portfolio Composition

(dollars in thousands)


March 31, 2024

December 31, 2023

$ Change

% Change

Traditional Banking:

Residential real estate:

Owner-occupied

$
1,064,071

$
1,144,684

$
(80,613)

(7)
%
Nonowner-occupied

342,481

345,965

(3,484)

(1)

Commercial real estate (1)

1,800,801

1,785,289

15,512

1

Construction & land development

237,998

217,338

20,660

10

Commercial & industrial

453,971

464,078

(10,107)

(2)

Lease financing receivables

88,272

88,591

(319)

(0)

Aircraft

246,060

250,051

(3,991)

(2)

Home equity

309,083

295,133

13,950

5

Consumer:

Credit cards

16,858

16,654

204

1

Overdrafts

629

694

(65)

(9)

Automobile loans

2,054

2,664

(610)

(23)

Other consumer

11,372

7,428

3,944

53

Total Traditional Banking

4,573,650

4,618,569

(44,919)

(1)

Warehouse lines of credit*

463,249

339,723

123,526

36

Total Core Banking

5,036,899

4,958,292

78,607

2

Republic Processing Group*:

Tax Refund Solutions:

Refund Advances

52,101

103,115

(51,014)

(49)

Other TRS commercial & industrial loans

5,396

46,092

(40,696)

(88)

Republic Credit Solutions

129,896

132,362

(2,466)

(2)

Total Republic Processing Group

187,393

281,569

(94,176)

(33)

Total loans**

5,224,292

5,239,861

(15,569)

(0)

Allowance for credit losses

(108,702)

(82,130)

(26,572)

32

Total loans, net

$
5,115,590

$
5,157,731

$
(42,141)

(1)

*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.
(1) The approximate percentage of Nonowner-occupied CRE loans to total CRE loans was 64% and 63%, respectively, for March 31, 2024 and December 31, 2023. The approximate percentage of Owner-occupied CRE loans to total CRE loans was 36% and 37%, respectively, for March 31, 2024 and December 31, 2023.

Gross loans decreased by $16 million, or less than 1%, during the first quarter of 2024 to $5.2 billion as of March 31, 2024. The most significant components comprising the change in loans by reportable segment follow:

Traditional Banking segment

Period-end balances for Traditional Banking loans decreased $45 million, or 1%, from December 31, 2023 to March 31, 2024. The following primarily drove the change in loan balances during the first quarter of 2023:

● During the last half of March 2024, Management made the decision to sell $69 million of correspondent loans that were previously classified as held for investment. As a result of this decision, the Company reclassified these loans into the mortgage loans held-for-sale category on the balance sheet as of March 31, 2024.

Warehouse Lending segment

Outstanding Warehouse period-end balances increased $124 million from December 31, 2023 to March 31, 2024. Due to the volatility and seasonality of the mortgage market, it is difficult to project future outstanding balances of Warehouse lines of credit. The growth of the Bank’s Warehouse Lending business greatly depends on the overall mortgage market and typically follows industry
80
Table of Contents
trends. Since its entrance into this business during 2011, the Bank has experienced volatility in the Warehouse portfolio consistent with overall demand for mortgage products. Weighted average quarterly usage rates on the Bank’s Warehouse lines have ranged from a low of 31% during the first quarter of 2023 to a high of 71% during the fourth quarter of 2019. On an annual basis, weighted-average usage rates on the Bank’s Warehouse lines have ranged from a low of 39% during 2022 to a high of 66% during 2020.

Tax Refund Solutions segment

Outstanding TRS loans decreased $92 million from December 31, 2023 to March 31, 2024 primarily reflecting the substantial paydown of ERAs originated during December 2023. In addition, TRS also received substantial paydowns of commercial loans made during the fourth quarter of 2023 to third-party tax-related businesses for their cash flow needs for the first quarter tax season. RAs, including ERAs, are only made during the December of the previous year and the first two months of each year, with all unpaid RAs charged off by June 30^th of each year.

Allowance for Credit Losses

As of March 31, 2024, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. The Bank also maintained an ACLS and an ACLC for expected losses in its securities portfolio and its off-balance sheet credit exposures, respectively. Management evaluates the adequacy of the ACLL monthly, and the adequacy of the ACLS and ACLC quarterly. All ACLs are presented and discussed with the Audit Committee and the Board of Directors quarterly.

The Company’s ACLL increased $26.6 million from $82.1 million as of December 31, 2023 to $108.7 million as of March 31, 2024. As a percent of total loans, the total Company’s ACLL increased to 2.08% as of March 31, 2024 compared to 1.57% as of December 31, 2023. An analysis of the ACL by reportable segment follows:

Traditional Banking segment

The Traditional Banking ACLL increased approximately $178,000 to $59.2 million as of March 31, 2024 driven primarily by general formula reserves applied to Traditional Bank loans. While loan balances at the Traditional Bank decreased in total during the first quarter, the segment experienced a change in loan mix growing in loan categories, such as construction and land development, with higher loan loss reserve requirements. Partially offsetting the change in loan mix, the Traditional Bank reclassed $69 million of correspondent mortgage loans from held for investment into held for sale.

Warehouse Lending segment

The Warehouse ACLL increased approximately $309,000 to $1.2 million as of March 31, 2024, and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparing March 31, 2024 to December 31, 2023. As of March 31, 2024, the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for the first quarter of 2024.

Tax Refund Solutions segment

TRS recorded an increase to its ACLL primarily for estimated RAs originated during the first quarter of 2024. Including ERAs originated during the fourth quarter of 2023, TRS had a total Allowance for RAs of $26.0 million as of March 31, 2024, representing 3.37% of all RAs originated related to the first quarter 2024 tax season. TRS’s loss rate as of June 30, 2023 was 3.22% of total originations and TRS finished 2023 with a final RA loss rate of 2.84% of total RAs originated.

RAs are only originated during December of the previous year and the first two months of the current year related to the first quarter tax season of a year. As is the case each year as of March 31^st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30th. The final charge-off figures posted during the second quarter of a calendar year can be meaningfully different (higher or lower) than its March 31^st estimate based on actual paydowns received during the second quarter. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are recorded as recoveries of previously charged-off loans.

Republic Credit Solutions segment

The RCS ACLL was $18.3 million as of March 31, 2024 compared to $18.3 million as of December 31, 2023. RCS maintained ACLLs for two distinct credit products offered as of March 31, 2024, including its line-of-credit products and its healthcare-
81
Table of Contents
receivables products. As of March 31, 2024, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables products to as high as 53.64% for its line-of-credit products. The lower reserve percentage of 0.25% was provided for RCS’s healthcare receivables, as such receivables have recourse back to the third-party providers.

Asset Quality

Classified and Special Mention Loans

The Bank applies credit quality indicators, or ratings, to individual loans based on internal Bank policies. Such internal policies are informed by regulatory standards. Loans rated “Loss,” “Doubtful,” “Substandard,” and “PCD-Substandard” are considered “Classified.” Loans rated “Special Mention” or “PCD-Special Mention” are considered Special Mention. The Bank’s Classified and Special Mention loans increased approximately $5.6 million during the first quarter of 2024, driven primarily by commercial loan downgrades at the Core Bank.

See Footnote 5 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding Classified and Special Mention loans.

Table 9 — Classified and Special Mention Loans

(dollars in thousands)

March 31, 2024

December 31, 2023

$ Change

% Change

Loss

$
—

$
—

$
—

—
%

Doubtful

—

—

—

—

Substandard

22,193

20,253

1,940

10

PCD - Substandard

1,612

1,699

(87)

(5)

Total Classified Loans

23,805

21,952

1,853

8

Special Mention

55,194

51,447

3,747

7

PCD - Special Mention

438

447

(9)

(2)

Total Special Mention Loans

55,632

51,894

3,738

7

Total Classified and Special Mention Loans

$
79,437

$
73,846

$
5,591

8
%

Nonperforming Loans

Nonperforming loans include loans on nonaccrual status and loans past due 90-days-or-more and still accruing. The nonperforming loan category includes loan modifications (formerly TDRs) totaling approximately $0 million and $2 million as of March 31, 2024 and December 31, 2023.

Nonperforming loans to total loans increased to 0.41% at March 31, 2024 from 0.36% at December 31, 2023, as the total balance of nonperforming loans increased by $756,000, or 4%, while total loans decreased $16 million during the first quarter of 2024.

The ACLL to total nonperforming loans increased to 509% as of March 31, 2024 from 398% as of December 31, 2023, as the total ACLL increased $26.6 million, or 32%, and the balance of nonperforming loans increased by $756,000, or 4%. The driver of the increase in ACLL was primarily RAs originated through the Company’s TRS segment while the driver of the increase in nonperforming loans was primarily a $647,000 increase in RCS nonperforming loans.

82
Table of Contents
Table 10 — Nonperforming Loans and Nonperforming Assets Summary

(dollars in thousands)

March 31, 2024

December 31, 2023


Loans on nonaccrual status*

$
19,258

$
19,150

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

2,116

1,468

Total nonperforming loans

21,374

20,618

Other real estate owned

1,486

1,370

Total nonperforming assets

$
22,860

$
21,988

Credit Quality Ratios - Total Company:

ACLL to total loans

2.08
%

1.57
%
Nonaccrual loans to total loans

0.37

0.37

ACLL to nonaccrual loans

564

429

Nonperforming loans to total loans

0.41

0.39

Nonperforming assets to total loans (including OREO)

0.44

0.42

Nonperforming assets to total assets

0.33

0.33

Credit Quality Ratios - Core Bank:

ACLL to total loans

1.20
%

1.21
%
Nonaccrual loans to total loans

0.38

0.39

ACLL to nonaccrual loans

313

313

Nonperforming loans to total loans

0.38

0.39

Nonperforming assets to total loans (including OREO)

0.41

0.41

Nonperforming assets to total assets

0.33

0.35

*
Loans on nonaccrual status include ~~impaired~~collateral-dependent loans. See Footnote 5 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding collateral-dependent loans.
**
Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.

Table 11 — Nonperforming Loan Composition

March 31, 2024
December 31, 2023

Percent of

Percent of



Total

Total
(dollars in thousands)

Balance

Loan Class
Balance

Loan Class



Traditional Banking:

Residential real estate:



Owner-occupied


$
15,533

1.46
%

$
15,056

1.32
%
Nonowner-occupied



60

0.02

64

0.02

Commercial real estate



795

0.04

850

0.05

Construction & land development



—

—

—

—

Commercial & industrial



744

0.16

1,221

0.26

Lease financing receivables



15

0.02

—

—

Aircraft

—

—

—

—

Home equity



2,103

0.68



1,948

0.66

Consumer:



Credit cards

—

—

—

—

Overdrafts

—

—

—

—

Automobile loans

8

0.39

10

0.38

Other consumer

—

—

1

0.01

Total Traditional Banking

19,258

0.42

19,150

0.41

Warehouse lines of credit



—

—

—

—

Total Core Banking

19,258

0.38

19,150

0.39

Republic Processing Group:

Tax Refund Solutions:



Refund Advances



—

—

—

—

Other TRS commercial & industrial loans

—

—

—

—

Republic Credit Solutions



2,116

1.63

1,468

1.11

Total Republic Processing Group



2,116

1.13

1,468

0.52



Total nonperforming loans


$
21,374

0.41
%

$
20,618

0.39
%



83
Table of Contents
Table 12 — Stratification of Nonperforming Loans

Number of Nonperforming Loans and Recorded Investment








Balance








March 31, 2024

Balance

> $100 &

Balance

Total

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

Traditional Banking:

Residential real estate:

Owner-occupied

133

$
4,979

46

$
7,341

3

$
3,213

182

$
15,533

Nonowner-occupied

3

60

—

—

—

—

3

60

Commercial real estate

—

—

1

180

1

615

2

795

Construction & land development

—

—

—

—

—

—

—

—

Commercial & industrial

2

61

2

683

—

—

4

744

Lease financing receivables

1

15

—

—

—

—

1

15

Aircraft

—

—

—

—

—

—

—

—

Home equity

42

1,408

3

695

—

—

45

2,103

Consumer:

Credit cards

—

—

—

—

—

—

—

—

Overdrafts

—

—

—

—

—

—

—

—

Automobile loans

2

8

—

—

—

—

2

8

Other consumer

—

—

—

—

—

—

—

—

Total Traditional Banking

183

6,531

52

8,899

4

3,828

239

19,258

Warehouse lines of credit

—

—

—

—

—

—

—

—

Total Core Banking

183

6,531

52

8,899

4

3,828

239

19,258

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

—

—

—

—

—

—

—

—

Other TRS commercial & industrial loans

—

—

—

—

—

—

—

—

Republic Credit Solutions

NM

—

—

—

NM

2,116

NM

2,116

Total Republic Processing Group

NM

—

—

—

—

2,116

NM

2,116

Total

183

$
6,531

52

$
8,899

4

$
5,944

239

$
21,374

Number of Nonperforming Loans and Recorded Investment








Balance








December 31, 2023

Balance

> $100 &

Balance

Total

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

Traditional Banking:

Residential real estate:

Owner-occupied

125

$
4,569

45

$
7,200

3

$
3,287

173

$
15,056

Nonowner-occupied

3

64

—

—

—

—

3

64

Commercial real estate

—

—

1

191

1

659

2

850

Construction & land development

—

—

—

—

—

—

—

—

Commercial & industrial

2

61

1

339

1

821

4

1,221

Lease financing receivables

—

—

—

—

—

—

—

—

Aircraft

—

—

—

—

—

—

—

—

Home equity

36

1,236

3

712

—

—

39

1,948

Consumer:

Credit cards

—

—

—

—

—

—

—

—

Overdrafts

—

—

—

—

—

—

—

—

Automobile loans

3

10

—

—

—

—

3

10

Other consumer

1

1

—

—

—

—

1

1

Total Traditional Banking

170

5,941

50

8,442

5

4,767

225

19,150

Warehouse lines of credit

—

—

—

—

—

—

—

—

Total Core Banking

170

5,941

50

8,442

5

4,767

225

19,150

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

—

—

—

—

—

—

—

—

Other TRS commercial & industrial loans

—

—

—

—

—

—

—

—

Republic Credit Solutions

NM

—

—

—

NM

1,468

NM

1,468

Total Republic Processing Group

NM

—

—

—

—

1,468

NM

1,468

Total

170

$
5,941

50

$
8,442

5

$
6,235

225

$
20,618

84
Table of Contents
Table 13 — Roll-forward of Nonperforming Loans


Three Months Ended

March 31,
(in thousands)

2024

2023

Nonperforming loans at the beginning of the period

$
20,618

$
16,318
Loans added to nonperforming status during the period that remained nonperforming at the end of the period

1,791

2,669
Loans removed from nonperforming status during the period that were nonperforming at the beginning of the period (see table below)

(686)

(2,015)
Principal balance paydowns of loans nonperforming at both period ends

(1,012)

(383)
Net change in principal balance of other nonperforming loans*

663

21

Nonperforming loans at the end of the period

$
21,374

$
16,610
26
*
~~Table of Contents~~
~~The following table presents the recorded investment in nonaccrual loans and loans past due 90-days-or-more and still on accrual by class of loans:~~

Past Due 90-Days-or-More

Nonaccrual

and Still Accruing Interest*

(in thousands)

September 30, 2017

December 31, 2016


September 30, 2017

December 31, 2016

Traditional Banking:

Residential real estate:

Owner occupied

$
9,528

$
10,955

$
—

$
—

Owner occupied - correspondent

—

—

—

—

Nonowner occupied

21

852

—

—

Commercial real estate

4,411

2,725

—

—

Construction & land development

68

77

—

—

Commercial & industrial

46

154

—

—

Lease financing receivables

—

—

—

—

Home equity

1,308

1,069

—

—

Consumer:

Credit cards

—

—

—

—

Overdrafts

—

—

—

—

Automobile loans

72

—

—

—

Other consumer

21

60

55

85

Total Traditional Banking

15,475

15,892

55

85

Warehouse lines of credit

—

—

—

—

Total Core Banking

15,475

15,892

55

85

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

Commercial & industrial

—

—

—

—

Republic Credit Solutions

—

—

851

82

Total Republic Processing Group

—

—

851

82

Total

$
15,475

$
15,892

$
906

$
167

* ~~Loans past due 90-days-or-more and still accruing consist of smaller balance~~Includes relatively small consumer ~~loans.~~
Nonaccrual loans and loans past due 90-days-or-more and still on accrual include both smaller balance, primarily retail, homogeneous loans that are collectively evaluated for impairment and individually classified impaired 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. Troubled Debt Restructurings (“TDRs”) on nonaccrual status are reviewed for return to accrual status on an individual basis, with additional consideration given to performance under the modified terms.
27
~~Table of Contents~~
~~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









September 30, 2017
Days

Days

Days

Total

Total

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

Traditional Banking:

Residential real estate:

Owner occupied

$
1,422

$
442

$
1,715

$
3,579

$
930,147

$
933,726

Owner occupied - correspondent

—

—

—

—

125,643

125,643

Nonowner occupied

658

—

—

658

192,721

193,379

Commercial real estate

—

379

1,708

2,087

1,159,138

1,161,225

Construction & land development

—

—

—

—

138,837

138,837

Commercial & industrial

37

—

—

37

327,177

327,214

Lease financing receivables

—

—

—

—

15,367

15,367

Home equity

130

181

526

837

345,317

346,154

Consumer:

Credit cards

56

40

—

96

19,802

19,898

Overdrafts

208

1

—

209

683

892

Automobile loans

23

25

25

73

63,566

63,639

Other consumer

82

44

54

180

13,067

13,247

Total Traditional Banking

2,616

1,112

4,028

7,756

3,331,465

3,339,221

Warehouse lines of credit

—

—

—

—

571,160

571,160

Total Core Banking

2,616

1,112

4,028

7,756

3,902,625

3,910,381

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

Commercial & industrial

—

—

—

—

265

265

Republic Credit Solutions

2,793

626

851

4,270

42,596

46,866

Total Republic Processing Group

2,793

626

851

4,270

42,861

47,131

Total

$
5,409

$
1,738

$
4,879

$
12,026

$
3,945,486

$
3,957,512

Delinquency ratio***

0.14
%

0.04
%

0.12
%

0.30
%

*~~All loans past due 90-days-or-more, excluding PCI loans and 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.~~
28
~~Table of Contents~~


30 - 59

60 - 89

90 or More









December 31, 2016
Days

Days

Days

Total

Total

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

Traditional Banking:

Residential real estate:

Owner occupied

$
1,696

$
337

$
2,521

$
4,554

$
995,594

$
1,000,148

Owner occupied - correspondent

—

—

—

—

149,028

149,028

Nonowner occupied

—

—

46

46

156,559

156,605

Commercial real estate

8

—

417

425

1,060,071

1,060,496

Construction & land development

—

—

—

—

119,650

119,650

Commercial & industrial

342

—

—

342

258,684

259,026

Lease financing receivables

—

—

—

—

13,614

13,614

Home equity

316

160

494

970

340,315

341,285

Consumer:

Credit cards

14

4

—

18

13,396

13,414

Overdrafts

159

1

1

161

642

803

Automobile loans

—

—

—

—

52,579

52,579

Other consumer

114

106

85

305

19,439

19,744

Total Traditional Banking

2,649

608

3,564

6,821

3,179,571

3,186,392

Warehouse lines of credit

—

—

—

—

585,439

585,439

Total Core Banking

2,649

608

3,564

6,821

3,765,010

3,771,831

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

Commercial & industrial

—

—

—

—

6,695

6,695

Republic Credit Solutions

1,751

304

82

2,137

30,115

32,252

Total Republic Processing Group

1,751

304

82

2,137

36,810

38,947

Total

$
4,400

$
912

$
3,646

$
8,958

$
3,801,820

$
3,810,778

Delinquency ratio***

0.12
%

0.02
%

0.10
%

0.24
%

*~~All loans past due 90-days-or-more, excluding PCI loans and 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.~~
~~Impaired Loans~~
~~Information regarding the Bank’s impaired loans follows:~~

(in thousands)

September 30, 2017

December 31, 2016

Loans with no allocated Allowance

$
19,419

$
21,416

Loans with allocated Allowance

28,300

31,268

Total impaired loans

$
47,719

$
52,684

Amount of the allocated Allowance

$
4,584

$
4,925

Approximately $2 million and $4 million of impaired loans at September 30, 2017 and December 31, 2016 were PCI loans. Approximately $2 million and $3 million of impaired loans at September 30, 2017 and December 31, 2016 were formerly PCI loans that became classified as “Impaired” through a post-acquisition troubled debt restructuring.
29
~~Table of Contents~~
~~The following tables present the balance in the Allowance and the recorded investment in loans by portfolio class based on impairment method:~~

Allowance for Loan and Lease Losses

Loans

Individually



PCI with

PCI without




Individually



PCI with

PCI without



September 30, 2017

Evaluated

Collectively

Post Acquisition

Post Acquisition

Total

Evaluated

Collectively

Post Acquisition

Post Acquisition

Total
(dollars in thousands)

Excluding PCI

Evaluated

Impairment

Impairment

Allowance

Excluding PCI

Evaluated

Impairment

Impairment

Loans

Traditional Banking:

Residential real estate:

Owner occupied

$
2,721

$
3,519

$
333

$
—

$
6,573

$
29,581

$
902,290

$
1,673

$
182

$
933,726
Owner occupied - correspondent

—

314

—

—

314

—

125,643

—

—

125,643
Nonowner occupied

7

1,323

7

—

1,337

1,526

191,343

259

251

193,379
Commercial real estate

438

8,295

37

—

8,770

10,898

1,145,554

142

4,631

1,161,225
Construction & land development

112

1,964

—

—

2,076

742

138,095

—

—

138,837
Commercial & industrial

90

1,840

—

—

1,930

356

326,835

—

23

327,214
Lease financing receivables

—

162

—

—

162

—

15,367

—

—

15,367
Home equity

539

3,211

98

—

3,848

1,743

344,223

97

91

346,154
Consumer:

Credit cards

—

606

—

—

606

—

19,898

—

—

19,898
Overdrafts

—

892

—

—

892

—

892

—

—

892
Automobile loans

30

639

—

—

669

97

63,542

—

—

63,639
Other consumer

169

769

3

—

941

602

12,642

3

—

13,247
Total Traditional Banking

4,106

23,534

478

—

28,118

45,545

3,286,324

2,174

5,178

3,339,221
Warehouse lines of credit

—

1,428

—

—

1,428

—

571,160

—

—

571,160
Total Core Banking

4,106

24,962

478

—

29,546

45,545

3,857,484

2,174

5,178

3,910,381

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

—

—

—

—
Commercial & industrial

—

—

—

—

—

—

265

—

—

265
Republic Credit Solutions

—

10,645

—

—

10,645

—

46,866

—

—

46,866
Total Republic Processing Group

—

10,645

—

—

10,645

—

47,131

—

—

47,131
Total

$
4,106

$
35,607

$
478

$
—

$
40,191

$
45,545

$
3,904,615

$
2,174

$
5,178

$
3,957,512

Allowance for Loan and Lease Losses

Loans

Individually



PCI with

PCI without




Individually



PCI with

PCI without



December 31, 2016

Evaluated

Collectively

Post Acquisition

Post Acquisition

Total

Evaluated

Collectively

Post Acquisition

Post Acquisition

Total
(dollars in thousands)

Excluding PCI

Evaluated

Impairment

Impairment

Allowance

Excluding PCI

Evaluated

Impairment

Impairment

Loans

Traditional Banking:

Residential real estate:

Owner occupied

$
3,203

$
3,797

$
158

$
—

$
7,158

$
31,908

$
965,755

$
2,297

$
188

$
1,000,148
Owner occupied - correspondent

—

373

—

—

373

—

149,028

—

—

149,028
Nonowner occupied

65

1,067

7

—

1,139

1,601

154,481

268

255

156,605
Commercial real estate

532

7,501

45

—

8,078

11,769

1,041,678

1,164

5,885

1,060,496
Construction & land development

120

1,730

—

—

1,850

882

118,768

—

—

119,650
Commercial & industrial

227

1,284

—

—

1,511

686

258,317

—

23

259,026
Lease financing receivables

—

136

—

—

136

—

13,614

—

—

13,614
Home equity

433

3,225

99

—

3,757

1,929

339,163

99

94

341,285
Consumer:

Credit cards

—

490

—

—

490

—

13,414

—

—

13,414
Overdrafts

—

675

—

—

675

—

803

—

—

803
Automobile loans

—

526

—

—

526

—

52,579

—

—

52,579
Other consumer

36

735

—

—

771

81

19,662

—

1

19,744
Total Traditional Banking

4,616

21,539

309

—

26,464

48,856

3,127,262

3,828

6,446

3,186,392
Warehouse lines of credit

—

1,464

—

—

1,464

—

585,439

—

—

585,439
Total Core Banking

4,616

23,003

309

—

27,928

48,856

3,712,701

3,828

6,446

3,771,831

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

—

—

—

—
Commercial & industrial

—

25

—

—

25

—

6,695

—

—

6,695
Republic Credit Solutions

—

4,967

—

—

4,967

—

32,252

—

—

32,252
Total Republic Processing Group

—

4,992

—

—

4,992

—

38,947

—

—

38,947
Total

$
4,616

$
27,995

$
309

$
—

$
32,920

$
48,856

$
3,751,648

$
3,828

$
6,446

$
3,810,778
30
~~Table of Contents~~
The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016. The difference between the “Unpaid Principal Balance” and “Recorded Investment” columns represents life-to-date partial write downs/charge offs taken on individual impaired credits.

As of

Three Months Ended

Nine Months Ended

September 30, 2017

September 30, 2017

September 30, 2017

Cash Basis

Cash Basis


Unpaid







Average

Interest

Interest

Average

Interest

Interest


Principal

Recorded

Allocated

Recorded

Income

Income

Recorded

Income

Income

(in thousands)

Balance

Investment

Allowance

Investment

Recognized

Recognized

Investment

Recognized

Recognized

Impaired loans with no allocated Allowance:

Residential real estate:

Owner occupied

$
11,438

$
10,620

$
—

$
11,166

$
39

$
—

$
11,713

$
117

$
—

Owner occupied - correspondent

—

—

—

—

—

—

—

—

—

Nonowner occupied

1,512

1,445

—

1,494

23

—

1,444

62

—

Commercial real estate

6,787

5,618

—

5,127

19

—

5,140

58

—

Construction & land development

596

596

—

597

7

—

537

22

—

Commercial & industrial

45

45

—

195

—

—

128

1

—

Lease financing receivables

—

—

—

—

—

—

—

—

—

Home equity

1,026

953

—

1,213

2

—

1,281

10

—

Consumer

142

142

—

92

2

—

67

5

—

Impaired loans with allocated Allowance:

Residential real estate:

Owner occupied

20,689

20,634

3,054

20,682

177

—

20,943

529

—

Owner occupied - correspondent

—

—

—

—

—

—

—

—

—

Nonowner occupied

340

340

14

410

5

—

450

15

—

Commercial real estate

5,422

5,422

475

4,895

66

—

5,819

196

—

Construction & land development

146

146

112

149

1

—

275

3

—

Commercial & industrial

311

311

90

230

2

—

308

7

—

Lease financing receivables

—

—

—

—

—

—

—

—

—

Home equity

929

887

637

834

—

—

820

11

—

Consumer

560

560

202

349

2

—

206

8

—

Total impaired loans

$
49,943

$
47,719

$
4,584

$
47,433

$
345

$
—

$
49,131

$
1,044

$
—

As of

Three Months Ended

Nine Months Ended

December 31, 2016

September 30, 2016

September 30, 2016

Cash Basis

Cash Basis


Unpaid







Average

Interest

Interest

Average

Interest

Interest


Principal

Recorded

Allocated

Recorded

Income

Income

Recorded

Income

Income

(in thousands)

Balance

Investment

Allowance

Investment

Recognized

Recognized

Investment

Recognized

Recognized

Impaired loans with no allocated Allowance:

Residential real estate:

Owner occupied

$
13,727

$
12,629

$
—

$
13,702

$
37

$
—

$
13,376

$
104

$
—

Owner occupied - correspondent

—

—

—

—

—

—

—

—

—

Non owner occupied

1,399

1,376

—

891

—

—

1,431

—

—

Commercial real estate

6,610

5,536

—

6,349

32

—

6,764

109

—

Construction & land development

476

476

—

476

5

—

874

15

—

Commercial & industrial

67

67

—

192

2

—

103

5

—

Lease financing receivables

—

—

—

—

—

—

—

—

—

Home equity

1,358

1,287

—

1,610

3

—

1,874

14

—

Consumer

45

45

—

47

—

—

69

—

—

Impaired loans with allocated Allowance:

Residential real estate:

Owner occupied

21,595

21,576

3,361

22,803

204

—

23,936

600

—

Owner occupied - correspondent

—

—

—

—

—

—

—

—

—

Non owner occupied

491

493

73

832

11

—

977

31

—

Commercial real estate

7,397

7,397

577

9,191

93

—

9,369

280

—

Construction & land development

405

406

120

421

5

—

482

15

—

Commercial & industrial

619

619

227

179

—

—

841

—

—

Lease financing receivables

—

—

—

—

—

—

—

—

—

Home equity

742

741

532

236

5

—

203

11

—

Consumer

37

36

35

39

—

—

42

1

—

Total impaired loans

$
54,968

$
52,684

$
4,925

$
56,968

$
397

$
—

$
60,341

$
1,185

$
—

31
~~Table of Contents~~
~~Troubled Debt Restructurings~~
A TDR is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of their debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Bank’s internal underwriting policy.
All TDRs are considered “Impaired,” including PCI loans subsequently restructured. The majority of the Bank’s commercial related and construction TDRs involve a restructuring of financing terms such as a reduction in the payment amount to require only interest and escrow (if required) and/or extending the maturity date of the debt. The substantial majority of the Bank’s residential real estate TDR concessions involve reducing the client’s loan payment through a rate reduction for a set period based on the borrower’s ability to service the modified loan payment. Retail loans may also be classified as TDRs due to legal modifications, such as bankruptcies.
Nonaccrual loans modified as TDRs typically remain on nonaccrual status and continue to be reported as nonperforming loans for a minimum of six consecutive months. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. At September 30, 2017 and December 31, 2016, $7 million and $10 million of TDRs were on nonaccrual status.
~~Detail of TDRs differentiated by loan type and accrual status follows:~~


Troubled Debt

Troubled Debt

Total

Restructurings on

Restructurings on

Troubled Debt

Nonaccrual Status

Accrual Status

Restructurings


Number of

Recorded

Number of

Recorded

Number of

Recorded

September 30, 2017 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

61

$
4,918

201

$
22,384

262

$
27,302

Commercial real estate

6

2,219

13

7,057

19

9,276

Construction & land development

1

68

3

674

4

742

Commercial & industrial

—

—

2

274

2

274

Total troubled debt restructurings

68

$
7,205

219

$
30,389

287

$
37,594


Troubled Debt

Troubled Debt

Total

Restructurings on

Restructurings on

Troubled Debt

Nonaccrual Status

Accrual Status

Restructurings


Number of

Recorded

Number of

Recorded

Number of

Recorded

December 31, 2016 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

79

$
7,199

198

$
21,554

277

$
28,753

Commercial real estate

6

2,430

17

8,835

23

11,265

Construction & land development

1

77

4

804

5

881

Commercial & industrial

1

154

2

533

3

687

Total troubled debt restructurings

87

$
9,860

221

$
31,726

308

$
41,586

32
~~Table of Contents~~
The Bank considers a TDR to be performing to its modified terms if the loan is in accrual status and not past due 30-days-or-more as of the reporting date. A summary of the categories of TDR loan modifications outstanding and respective performance under modified terms at September 30, 2017 and December 31, 2016 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

September 30, 2017 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

1

$
6

1

$
467

2

$
473

Rate reduction

155

19,103

35

3,271

190

22,374

Principal deferral

18

1,937

2

123

20

2,060

Legal modification

23

1,140

27

1,255

50

2,395

Total residential TDRs

197

22,186

65

5,116

262

27,302

Commercial related and construction/land development loans:

Interest only payments

3

864

1

379

4

1,243

Rate reduction

7

3,701

2

210

9

3,911

Principal deferral

8

3,440

4

1,698

12

5,138

Total commercial TDRs

18

8,005

7

2,287

25

10,292

Total troubled debt restructurings

215

$
30,191

72

$
7,403

287

$
37,594


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, 2016 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

2

$
155

1

$
493

3

$
648

Rate reduction

148

18,125

57

6,213

205

24,338

Principal deferral

7

616

7

306

14

922

Legal modification

17

806

38

2,039

55

2,845

Total residential TDRs

174

19,702

103

9,051

277

28,753

Commercial related and construction/land development loans:

Interest only payments

5

2,666

1

413

6

3,079

Rate reduction

8

4,769

2

228

10

4,997

Principal deferral

10

2,737

5

2,020

15

4,757

Total commercial TDRs

23

10,172

8

2,661

31

12,833

Total troubled debt restructurings

197

$
29,874

111

$
11,712

308

$
41,586

As of September 30, 2017 and December 31, 2016, 80% and 72% of the Bank’s TDRs were performing according to their modified terms. The Bank had provided $3 million and $4 million of specific reserve allocations to clients whose loan terms have been modified in TDRs as of September 30, 2017 and December 31, 2016. The Bank had no commitments to lend any additional material amounts to its existing TDR relationships at September 30, 2017 or December 31, 2016.
33
~~Table of Contents~~
~~A summary of the categories of TDR loan modifications by respective performance as of September 30, 2017 and 2016 that were modified during the three months ended September 30, 2017 and 2016 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

September 30, 2017 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

—

$
—

—

$
—

—

$
—

Rate reduction

—

—

—

—

—

—

Principal deferral

7

701

—

—

7

701

Legal modification

6

337

1

131

7

468

Total residential TDRs

13

1,038

1

131

14

1,169

Commercial related and construction/land development loans:

Interest only payments

—

—

—

—

—

—

Rate reduction

—

—

—

—

—

—

Principal deferral

1

242

—

—

1

242

Total commercial TDRs

1

242

—

—

1

242

Total troubled debt restructurings

14

$
1,280

1

$
131

15

$
1,411


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

September 30, 2016 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

—

$
—

—

$
—

—

$
—

Rate reduction

1

262

—

—

1

262

Principal deferral

—

—

—

—

—

—

Legal modification

3

263

1

135

4

398

Total residential TDRs

4

525

1

135

5

660



Commercial related and construction/land development loans:

Interest only payments

—

—

—

—

—

—

Rate reduction

1

88

1

137

2

225

Principal deferral

—

—

1

1,504

1

1,504

Total commercial TDRs

1

88

2

1,641

3

1,729

Total troubled debt restructurings

5

$
613

3

$
1,776

8

$
2,389

~~The tables above are inclusive of loans that were TDRs at the end of previous periods and were re-modified,~~portfolios, e.g., RCS loans.

Table 14 — Detail of Loans Removed from Nonperforming Status


Three Months Ended

March 31,
(in thousands)

2024

2023

Loans charged off

$
(13)

$
—
Loans transferred to OREO

(169)

—
Loan payoffs and paydowns

(154)

(770)
Loans returned to accrual status

(350)

(1,245)

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

$
(686)

$
(2,015)

Based on the Bank’s review as of March 31, 2024, management believes that its reserves are adequate to absorb expected losses on all nonperforming loans.

Delinquent Loans

Total Company delinquent loans to total loans decreased to 0.41% as of March 31, 2024 from 0.42% as of December 31, 2023. Core Bank delinquent loans to total Core Bank loans decreased to 0.15% as of March 31, 2024 from 0.16% as of December 31, 2023. With the exception of small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of March 31, 2024 and December 31, 2023 were on nonaccrual status.
85
Table of Contents
Table 15 — Delinquent Loan Composition*

March 31, 2024
December 31, 2023

Percent of

Percent of

Total

Total
(dollars in thousands)

Balance

Loan Class
Balance

Loan Class

Traditional Banking:

Residential real estate:

Owner-occupied


$
5,821

0.55
%

$
5,803

0.51
%
Nonowner-occupied



—

—



—

—

Commercial real estate



—

—



—

—

Construction & land development



—

—



—

—

Commercial & industrial



746

0.16



1,360

0.29

Lease financing receivables

22

0.02

18

0.02

Aircraft

—

—

—

—

Home equity

990

0.32

767

0.26

Consumer:

Credit cards

35

0.21

35

0.21

Overdrafts

118

18.76

131

18.88

Automobile loans

2

0.10

2

0.08

Other consumer

62

0.55

60

0.81

Total Traditional Banking

7,796

0.17

8,176

0.18

Warehouse lines of credit

—

—

—

—

Total Core Banking

7,796

0.15

8,176

0.16

Republic Processing Group:



Tax Refund Solutions:



Refund Advances



—

—



—

—

Other TRS commercial & industrial loans



283

5.24



—

—

Republic Credit Solutions



13,333

10.26



13,916

10.51

Total Republic Processing Group



13,616

7.27



13,916

4.94





Total delinquent loans


$
21,412

0.41
%

$
22,092

0.42
%

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

86
Table of Contents
Table 16 — Roll-forward of Delinquent Loans

Three Months Ended

March 31,
(in thousands)

2024

2023

Delinquent loans at the beginning of the period

$
22,092

$
15,260
Loans that became delinquent during the period - Refund Advances*

—

18,450
Loans added to delinquency status during the period and remained in delinquency status at the end of the period

2,499

2,675
Loans removed from delinquency status during the period that were in delinquency status at the beginning of the period (see table below)

(2,250)

(3,094)
Principal balance paydowns of loans delinquent at both period ends

(598)

(31)
Net change in principal balance of other delinquent loans*

(331)

2,864
Delinquent loans at the end of period

$
21,412

$
36,124
*
RAs do not have a ~~maturity~~contractual due date ~~extension during the current period.~~
As of September 30, 2017 and 2016, 91% and 26% of the Bank’s TDRs that occurred during the third quarters of 2017 and 2016 were performing according to their modified terms. The Bank provided approximately $155,000 and $75,000 in specific reserve allocations to clients whose loan terms were modified in TDRs during the third quarters of 2017 and 2016.
~~There was no significant change between the pre and post modification loan balances for the three months ending September 30, 2017 and 2016.~~
34
~~Table of Contents~~
~~A summary of the categories of TDR loan modifications by respective performance as of September 30, 2017 and 2016 that were modified during the nine months ended September 30, 2017 and 2016 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

September 30, 2017 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

—

$
—

—

$
—

—

$
—

Rate reduction

1

220

—

—

1

220

Principal deferral

9

1,506

—

—

9

1,506

Legal modification

6

337

1

131

7

468

Total residential TDRs

16

2,063

1

131

17

2,194



Commercial related and construction/land development loans:

Interest only payments

—

—

—

—

—

—

Rate reduction

—

—

—

—

—

—

Principal deferral

1

242

—

—

1

242

Total commercial TDRs

1

242

—

—

1

242

Total troubled debt restructurings

17

$
2,305

1

$
131

18

$
2,436


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

September 30, 2016 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

—

$
—

—

$
—

—

$
—

Rate reduction

5

494

3

151

8

645

Principal deferral

—

—

—

—

—

—

Legal modification

5

350

3

212

8

562

Total residential TDRs

10

844

6

363

16

1,207

Commercial related and construction/land development loans:

Interest only payments

—

—

—

—

—

—

Rate reduction

1

88

1

137

2

225

Principal deferral

—

—

1

1,504

1

1,504

Total commercial TDRs

1

88

2

1,641

3

1,729

Total troubled debt restructurings

11

$
932

8

$
2,004

19

$
2,936

As of September 30, 2017 and 2016, 95% and 32% of the Bank’s TDRs that occurred during the first nine months of 2017 and 2016 were performing according to their modified terms. The Bank provided approximately $186,000 and $75,000 in specific reserve allocations to clients whose loan terms were modified in TDRs during the first nine months of 2017 and 2016.
~~There was no significant change between the pre and post modification loan balances for the nine months ending September 30, 2017 and 2016.~~
35
~~Table of Contents~~
The following table presents loans by class modified as troubled debt restructurings within the previous 12 months of September 30, 2017 and 2016 and for which there was a payment default during the three and/or nine months ended September 30, 2017 and 2016.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016




Recorded

Number of

Recorded

Number of

Recorded

Number of

Recorded

(dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate:

Owner occupied

1

$
131

3

$
150

1

$
131

4

$
359

Owner occupied - correspondent

—

—

—

—

—

—

—

—

Nonowner occupied

—

—

—

—

—

—

—

—

Commercial real estate

—

—

—

—

—

—

1

88

Construction & land development

—

—

—

—

—

—

—

—

Commercial & industrial

—

—

—

—

—

—

—

—

Lease financing receivables

—

—

—

—

—

—

—

—

Home equity

—

—

1

135

—

—

1

135

Consumer

—

—

—

—

—

—

—

—

Total

1

$
131

4

$
285

1

$
131

6

$
582

~~Foreclosures~~
~~The following table presents the carrying amount of foreclosed properties held at September 30, 2017 and December 31, 2016 as a result of the Bank obtaining physical possession of such properties:~~

(in thousands)

September 30, 2017

December 31, 2016

Residential real estate

$
167

$
1,391

Total other real estate owned

$
167

$
1,391

The following table presents the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction as of September 30, 2017 and December 31, 2016:

(in thousands)

September 30, 2017

December 31, 2016

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

$
1,259

$
1,677

36
~~Table of Contents~~
~~Easy Advances~~
The Company’s TRS segment offered its EA product during the first two months of 2017 and 2016. The Company based its estimated provision for loan losses of EAs on current year EA delinquency information and prior year IRS funding patterns of federal tax refunds subsequent to the first quarter.
~~Additional information regarding EAs follows:~~

Three Months Ended

Nine Months Ended


September 30,


September 30,

(dollars in thousands)

2017

2016


2017

2016

Easy Advances originated

$
—

$
—

$
328,523

$
123,230

Net Charge (Credit) to the Provision for Easy Advances

(840)

(89)

7,041

3,127

Provision to total Easy Advances originated

NA

NA

2.14
%

2.54
%

Easy Advances net charge-offs (recoveries)

$
(840)

$
(89)

$
7,041

$
3,127

Easy Advances net charge-offs to total Easy Advances originated

NA

NA

2.14
%

2.54
%

~~NA – Not applicable~~
37
~~Table of Contents~~
6.~~DEPOSITS~~
~~Ending deposit balances at September 30, 2017 and December 31, 2016 were as follows:~~

(in thousands)

September 30, 2017

December 31, 2016

Core Bank:

Demand

$
940,081

$
872,709

Money market accounts

540,521

541,622

Brokered money market accounts

302,469

360,597

Savings

182,153

164,410

Individual retirement accounts*

46,967

42,642

Time deposits, $250 and over*

76,362

37,200

Other certificates of deposit*

177,606

140,894

Brokered certificates of deposit*

41,561

28,666

Total Core Bank interest-bearing deposits

2,307,720

2,188,740

Total Core Bank noninterest-bearing deposits

991,218

943,459

Total Core Bank deposits

3,298,938

3,132,199

Republic Processing Group ("RPG"):

Money market accounts

1,595

—

Total RPG interest-bearing deposits

1,595

—

Brokered prepaid card deposits

1,167

15

Other noninterest-bearing deposits

48,029

28,478

Total RPG noninterest-bearing deposits

49,196

28,493

Total RPG deposits

50,791

28,493

Total deposits

$
3,349,729

$
3,160,692

*Represents a time deposit.
~~The following table summarizes deposits assumed in the Company’s May 17, 2016 Cornerstone acquisition, finalized as of October 1, 2016:~~

May 17, 2016
(in thousands)

Contractual Principal

Fair Value Adjustment

Acquisition-Day Fair Value

Demand

$
59,507

$
—

$
59,507
Money market accounts

53,773

—

53,773
Savings

12,352

—

12,352
Individual retirement accounts*

3,897

13

3,910
Time deposits, $250 and over*

3,385

12

3,397
Other certificates of deposit*

19,343

67

19,410

Total interest-bearing deposits

152,257

92

152,349
Total noninterest-bearing deposits

52,908

—

52,908

Total deposits

$
205,165

$
92

$
205,257
*Represents a time deposit.
38
~~Table of Contents~~
~~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.
~~At September 30, 2017 and December 31, 2016, all securities sold under agreements to repurchase had overnight maturities. Information regarding securities sold under agreements to repurchase follows:~~

(dollars in thousands)

September 30, 2017


December 31, 2016


Outstanding balance at end of period

$
173,311

$
173,473

Weighted average interest rate at end of period

0.37
%

0.05
%

Fair value of securities pledged:

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

$
74,655

$
116,025

Mortgage backed securities - residential

58,437

45,894

Collateralized mortgage obligations

55,551

41,155

Total securities pledged

$
188,643

$
203,074

Three Months Ended

Nine Months Ended

September 30,

September 30,

(dollars in thousands)

2017


2016


2017

2016

Average outstanding balance during the period

$
208,160

$
215,343

$
202,018

$
296,574

Average interest rate during the period

0.31
%

0.02
%

0.22
%

0.02
%
Maximum outstanding at any month end during the period

$
173,311

$
169,691

$
183,709

$
367,373

8.~~FEDERAL HOME LOAN BANK ADVANCES~~
~~At September 30, 2017 and December 31, 2016, FHLB advances were as follows:~~

(dollars in thousands)

September 30, 2017

December 31, 2016

Overnight advances

$
350,000

$
285,000

Variable interest rate advance indexed to 3-Month LIBOR plus 0.14% due in December 2017

10,000

10,000

Fixed interest rate advances

397,500

457,500

Putable fixed interest rate advances

—

50,000

Total FHLB advances

$
757,500

$
802,500

39
~~Table of Contents~~
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. At September 30, 2017 and December 31, 2016, Republic had available borrowing capacity of $337 million and $378 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million and $150 million available through various other financial institutions as of September 30, 2017 and December 31, 2016.
~~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

2017 (Overnight)

$
350,000

1.17
%
2017 (Term)

30,000

1.32

2018

117,500

1.53

2019

100,000

1.80

2020

120,000

1.81

2021

20,000

1.86

2022

10,000

2.08

Thereafter

10,000

2.14

Total

$
757,500

1.46

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:

(dollars in thousands)

September 30, 2017


December 31, 2016

Outstanding balance at end of period

$
350,000

$
285,000

Weighted average interest rate at end of period

1.17
%

0.64
%

Three Months Ended

Nine Months Ended

September 30,

September 30,

(dollars in thousands)

2017


2016


2017


2016

Average outstanding balance during the period

$
224,402

$
99,946

$
149,707

$
78,960

Average interest rate during the period

1.17
%

0.44
%

1.03
%

0.42
%
Maximum outstanding at any month end during the period

$
350,000

$
430,000

$
625,000

$
495,000

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

(in thousands)

September 30, 2017

December 31, 2016

First lien, single family residential real estate

$
1,127,811

$
1,172,161

Home equity lines of credit

315,289

300,681

Multi-family commercial real estate

—

14,913

40
~~Table of Contents~~
9.~~OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES~~
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.  Additionally, the Company makes binding purchase commitments to third-party loan correspondent originators.  These commitments assure that the Company will purchase a loan from such correspondent originators at a specific price for a specific period of time.  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)

September 30, 2017

December 31, 2016

Unused warehouse lines of credit

$
518,840

$
453,110

Unused home equity lines of credit

364,319

341,434

Unused loan commitments - other

792,405

560,629

Commitments to purchase loans*

893

3,176

Standby letters of credit

11,195

15,568

Total commitments

$
1,687,652

$
1,373,917

*Commitments made through the Bank's Correspondent Lending channel.
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.
41
~~Table of Contents~~
~~10.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 fair value:~~
~~Securities available for sale:~~ ~~Quoted market prices in an active market are available for the Bank’s Community Reinvestment Act (“CRA”) mutual fund investment and fall within Level 1 of the fair value hierarchy.~~
Except for the Bank’s CRA mutual fund investment, its private label mortgage backed security and its TRUP investment, the fair value of securities available for sale 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 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 Measurements and Disclosures. 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.~~
~~For its TRUP investment,~~ the Company considered ~~the most recent bid price for the same instrument to approximate market value at September 30, 2017. The Company’s TRUP investment is considered highly illiquid~~a RA delinquent in 2023, and ~~also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.~~
~~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~~will do so again in ~~the fair value hierarchy.~~
~~Consumer loans held for sale, at fair value:~~ During 2016, RCS initiated an installment loan program and elected to carry all loans originated through this program at fair value. Such loans are generally sold within 21 days of origination, with their fair value based on contractual terms, Level 3 inputs.
~~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.
42
~~Table of Contents~~
~~Impaired loans:~~ Collateral-dependent impaired loans generally reflect partial charge-downs to their respective fair value, which is commonly based on recent real estate appraisals or broker price opinions (“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.
~~Premises and Equipment carried at fair value:~~ Premises and equipment are accounted for at the lower of cost less accumulated depreciation or fair value less estimated costs to sell. The fair value of Bank premises are commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers 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.
~~Other real estate owned:~~ Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.
Appraisals for collateral-dependent impaired loans, impaired premises and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Bank. Once the appraisal is received, a member of the Bank’s Credit Administration Department 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:~~ On at least a quarterly basis, 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). There were no MSR tranches carried at fair value at September 30, 2017 and December 31, 2016.
43
~~Table of Contents~~
~~Assets and liabilities measured at fair value on a~~ ~~recurring basis, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below:~~

Fair Value Measurements at

September 30, 2017 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:

Securities available for sale:

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

$
—

$
236,259

$
—

$
236,259

Private label mortgage backed security

—

—

4,575

4,575

Mortgage backed securities - residential

—

104,002

—

104,002

Collateralized mortgage obligations

—

92,234

—

92,234

Freddie Mac preferred stock

—

407

—

407

Community Reinvestment Act mutual fund

2,481

—

—

2,481

Corporate bonds

—

15,261

—

15,261

Trust preferred security

—

—

3,500

3,500

Total securities available for sale

$
2,481

$
448,163

$
8,075

$
458,719

Mortgage loans held for sale

$
—

$
4,083

$
—

$
4,083

Consumer loans held for sale

—

—

3,368

3,368

Rate lock loan commitments

—

484

—

484

Interest rate swap agreements

—

620

—

620

Financial liabilities:

Mandatory forward contracts

$
—

$
44

$
—

$
44

Interest rate swap agreements

—

905

—

905

Fair Value Measurements at

December 31, 2016 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:

Securities available for sale:

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

$
—

$
294,544

$
—

$
294,544

Private label mortgage backed security

—

—

4,777

4,777

Mortgage backed securities - residential

—

73,004

—

73,004

Collateralized mortgage obligations

—

87,654

—

87,654

Freddie Mac preferred stock

—

483

—

483

Community Reinvestment Act mutual fund

2,455

—

—

2,455

Corporate bonds

—

15,158

—

15,158

Trust preferred security

—

—

3,200

3,200

Total securities available for sale

$
2,455

$
470,843

$
7,977

$
481,275

Mortgage loans held for sale

$
—

$
11,662

$
—

$
11,662

Consumer loans held for sale

—

—

2,198

2,198

Rate lock loan commitments

—

299

—

299

Mandatory forward contracts

—

204

—

204

Interest rate swap agreements

—

305

—

305

Financial liabilities:

Interest rate swap agreements

$
—

$
597

$
—

597

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 and nine months ended September 30, 2017 and 2016.
44
~~Table of Contents~~
~~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) for the periods ended September 30, 2017 and 2016:


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Balance, beginning of period

$
4,540

$
4,946

$
4,777

$
5,132

Total gains or losses included in earnings:

Net change in unrealized gain

91

57

244

(91)

Principal paydowns

(56)

(135)

(446)

(173)

Balance, end of period

$
4,575

$
4,868

$
4,575

$
4,868

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 Fair Isaac Corporation (“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 lower/higher fair value measurement.
The following tables present quantitative information about recurring Level 3 fair value measurement inputs for the Bank’s single private label mortgage backed security at September 30, 2017 and December 31, 2016:


Fair

Valuation




September 30, 2017 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

Private label mortgage backed security

$
4,575

Discounted cash flow

(1) Constant prepayment rate

3.5% - 6.5%

(2) Probability of default

2.5% - 8.0%

(3) Loss severity

60% - 85%


Fair

Valuation




December 31, 2016 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

Private label mortgage backed security

$
4,777

Discounted cash flow

(1) Constant prepayment rate

2.0% - 6.5%

(2) Probability of default

3.0% - 9.0%

(3) Loss severity

60% - 90%

45
~~Table of Contents~~
~~Trust Preferred Security~~
The Company invested in its TRUP in November 2015. The following table presents a reconciliation of the Company’s TRUP measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017 and 2016:


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Balance, beginning of period

$
3,453

$
3,150

$
3,200

$
3,405

Total gains or losses included in earnings:

Discount accretion

11

11

33

33

Net change in unrealized loss

36

(61)

267

(338)

Balance, end of period

$
3,500

$
3,100

$
3,500

$
3,100

~~The fair value of the Company’s TRUP investment is based on the most recent bid price for this instrument, as provided by a third-party broker.~~
~~Mortgage Loans Held for Sale~~
The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the 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 September 30, 2017 and December 31, 2016.
~~As of September 30, 2017 and December 31, 2016, the aggregate fair value, contractual balance, and unrealized gain was as follows:~~

(in thousands)

September 30, 2017

December 31, 2016

Aggregate fair value

$
4,083

$
11,662

Contractual balance

3,980

11,568

Unrealized gain

103

94

The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2017 and 2016 for mortgage loans held for sale are presented in the following table:


Three Months Ended

Nine Months Ended


September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Interest income

$
102

$
76

$
255

$
148

Change in fair value

(102)

57

9

155

Total included in earnings

$
—

$
133

$
264

$
303

46
~~Table of Contents~~
~~Consumer Loans Held for Sale~~
During 2016, the RCS segment of the Company’s RPG segment initiated an installment loan program and elected to carry all loans originated through this program at fair value. Such loans are generally sold within 21 days of origination, with their fair value based on contractual terms. 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 September 30, 2017 and 2016.
A reconciliation of the Company’s consumer loans held for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September, 2017 and 2016 is included in ~~Footnote 4~~ ~~of this section of the filing.~~
The significant unobservable inputs in the fair value measurement of the Bank’s 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 as of September 30, 2017 and December 31, 2016:~~


Fair

Valuation




September 30, 2017 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$
3,368

Contractual Terms

(1) Net Premium

0.9%

(2) Discounted Sales

5.0%


Fair

Valuation




December 31, 2016 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$
2,198

Contractual Terms

(1) Net Premium

0.9%

(2) Discounted Sales

5.0%
~~As of September 30, 2017 and December 31, 2016 the aggregate fair value, contractual balance, and unrealized gain on consumer loans held for sale, at fair value, was as follows:~~

(in thousands)

September 30, 2017

December 31, 2016

Aggregate fair value

$
3,368

$
2,198

Contractual balance

3,189

2,084

Unrealized gain

179

114

The total amount of net gains from changes in fair value included in earnings for the three and nine months ended September 30, 2017 and 2016 for consumer loans held for sale, at fair value, are presented in the following table:


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Interest income

$
240

$
378

$
748

$
537

Change in fair value

7

(279)

65

83

Total included in earnings

$
247

$
99

$
813

$
620

47
~~Table of Contents~~
~~Assets measured at fair value on a~~ ~~non-recurring basis~~ ~~are summarized below:~~

Fair Value Measurements at

September 30, 2017 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

Impaired loans:

Residential real estate:

Owner occupied

$
—

$
—

$
4,206

$
4,206

Nonowner occupied

—

—

26

26

Commercial real estate

—

—

2,668

2,668

Home equity

—

—

449

449

Total impaired loans*

$
—

$
—

$
7,349

$
7,349

Other real estate owned:

Residential real estate

$
—

$
—

$
83

$
83

Total other real estate owned

$
—

$
—

$
83

$
83

Premises and equipment

$
—

$
—

$
3,196

$
3,196

Fair Value Measurements at

December 31, 2016 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

Impaired loans:

Residential real estate:

Owner occupied

$
—

$
—

$
4,787

$
4,787

Nonowner occupied

—

—

8

8

Commercial real estate

—

—

2,643

2,643

Home equity

—

—

426

426

Total impaired loans*

$
—

$
—

$
7,864

$
7,864

Other real estate owned:

Residential real estate

$
—

$
—

$
400

$
400

Total other real estate owned

$
—

$
—

$
400

$
400

Premises and equipment

$
—

$
—

$
2,407

$
2,407

* The difference between the carrying value and the fair value of impaired loans measured at fair value is reconciled in a subsequent table of this Footnote.
48
~~Table of Contents~~
~~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

September 30, 2017 (dollars in thousands)

Value

Technique

Inputs

Average)

Impaired loans - residential real estate owner occupied

$
4,206

Sales comparison approach

Adjustments determined for differences between comparable sales

0% - 53% (6%)

Impaired loans - residential real estate nonowner occupied

$
26

Sales comparison approach

Adjustments determined for differences between comparable sales

4% (4%)

Impaired loans - commercial real estate

$
1,357

Sales comparison approach

Adjustments determined for differences between comparable sales

0% - 23% (8%)

Impaired loans - commercial real estate

$
1,311

Income approach

Adjustments for differences between net operating income expectations

17% (17%)

Impaired loans - home equity

$
449

Sales comparison approach

Adjustments determined for differences between comparable sales

0% - 71% (24%)

Other real estate owned - residential real estate

$
83

Sales comparison approach

Adjustments determined for differences between comparable sales

86% (86%)

Premises and equipment

$
3,196

Sales comparison approach

Adjustments determined for differences between comparable sales

0% - 61% (18%)

49
~~Table of Contents~~









Range

Fair

Valuation

Unobservable

(Weighted
December 31, 2016 (dollars in thousands)

Value

Technique

Inputs

Average)

Impaired loans - residential real estate owner occupied

$
4,787

Sales comparison approach

Adjustments determined for differences between comparable sales

0% - 53% (6%)

Impaired loans - residential real estate nonowner occupied

$
8

Sales comparison approach

Adjustments determined for differences between comparable sales

0% (0%)

Impaired loans - commercial real estate

$
1,214

Sales comparison approach

Adjustments determined for differences between comparable sales

3% - 49% (30%)

Impaired loans - commercial real estate

$
1,429

Income approach

Adjustments for differences between net operating income expectations

17% (17%)

Impaired loans - home equity

$
426

Sales comparison approach

Adjustments determined for differences between comparable sales

0% - 29% (16%)

Other real estate owned - residential real estate

$
400

Sales comparison approach

Adjustments determined for differences between comparable sales

17% (17%)

Premises and equipment

$
2,407

Sales comparison approach

Adjustments determined for differences between comparable sales

6% - 50% (22%)
50
~~Table of Contents~~
~~Impaired Loans~~
Collateral-dependent impaired loans are generally measured for impairment using the fair value for reasonable disposition of the underlying collateral. The Bank’s practice is to obtain new or updated appraisals or BPOs on the loans subject to the initial impairment review and then to evaluate the need for an update to this value on an as-necessary or possibly annual basis thereafter (depending on the market conditions impacting the value of the collateral). The Bank may discount the valuation amount as necessary for selling costs and past due real estate taxes. If a new or updated appraisal or BPO is not available at the time of a loan’s impairment review, the Bank may apply a discount to the existing value of an old valuation to reflect the property’s current estimated value2024, if it is believed to have deteriorated in either: (i) the physical or economic aspects of the subject property or (ii) material changes in market conditions. The impairment review generally results in a partial charge-off of the loan if fair value less selling costs are below the loan’s carrying value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.
~~Impaired collateral-dependent loans are as follows:~~

(in thousands)

September 30, 2017

December 31, 2016


Carrying amount of loans measured at fair value

$
6,576

$
6,963

Estimated selling costs considered in carrying amount

862

936

Valuation allowance

(89)

(35)

Total fair value

$
7,349

$
7,864

Three Months Ended

Nine Months Ended

September 30,

September 30,
(in thousands)
2017

2016

2017

2016

Provisions on collateral-dependent, impaired loans
$
59

$
(16)

$
281

$
(40)
~~Other Real Estate Owned~~
Other real estate owned, which is carried at the lower of cost or fair value, is periodically assessed for impairment based on fair value at the reporting date. Fair value is determined from external appraisals or BPOs using judgments and estimates of external professionals. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3.
~~Details of other real estate owned carrying value and write downs follow:~~



(in thousands)

September 30, 2017

December 31, 2016


Other real estate owned carried at fair value

$
83

$
400

Other real estate owned carried at cost

84

991

Total carrying value of other real estate owned

$
167

$
1,391


Three Months Ended

Nine Months Ended


September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Other real estate owned write-downs during the period

$
76

$
200

$
155

$
200

51
~~Table of Contents~~
~~Premises and Equipment~~
The Company’s Traditional Banking segment classified four of its former banking centers as held for sale as of September 30, 2017, with three of these former banking centers classified as held for sale as of December 31, 2016. Impairment charges are recorded when the value of a piece of property is reappraised or reassessed below the property’s then-carrying value. Impairment charges related to these properties were as follows:


Three Months Ended

Nine Months Ended


September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Impairment charges on premises and equipment

$
965

$
58

$
1,082

$
133

52
~~Table of Contents~~
~~The carrying amounts and estimated fair values of all financial instruments at September 30, 2017 and December 31, 2016 follows:~~

Fair Value Measurements at

September 30, 2017:













Total

Carrying

Fair

(in thousands)

Value

Level 1

Level 2

Level 3

Value

Assets:

Cash and cash equivalents

$
329,862

$
329,862

$
—

$
—

$
329,862

Securities available for sale

458,719

2,481

448,163

8,075

458,719

Securities held to maturity

65,177

—

65,949

—

65,949

Mortgage loans held for sale, at fair value

4,083

—

4,083

—

4,083

Consumer loans held for sale, at fair value

3,368

—

—

3,368

3,368

Consumer loans held for sale, at the lower of cost or fair value

5,684

—

5,684

—

5,684

Loans, net

3,917,321

—

—

3,895,200

3,895,200

Federal Home Loan Bank stock

32,067

—

—

—

NA

Accrued interest receivable

11,357

—

11,357

—

11,357

Liabilities:

Noninterest-bearing deposits

$
1,040,414

—

$
1,040,414

—

$
1,040,414

Transaction deposits

1,966,819

—

1,966,819

—

1,966,819

Time deposits

342,496

—

341,510

—

341,510

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

173,311

—

173,311

—

173,311

Federal Home Loan Bank advances

757,500

—

753,504

—

753,504

Subordinated note

41,240

—

36,188

—

36,188

Accrued interest payable

936

—

936

—

936

Fair Value Measurements at

December 31, 2016:














Total

Carrying

Fair

(in thousands)

Value

Level 1

Level 2

Level 3

Value

Assets:

Cash and cash equivalents

$
289,309

$
289,309

$
—

$
—

$
289,309

Securities available for sale

481,275

2,455

470,843

7,977

481,275

Securities held to maturity

52,864

—

53,249

—

53,249

Mortgage loans held for sale, at fair value

11,662

—

11,662

—

11,662

Consumer loans held for sale, at fair value

2,198

—

—

2,198

2,198

Consumer loans held for sale, at the lower of cost or fair value

1,310

—

1,310

—

1,310

Loans, net

3,777,858

—

—

3,757,698

3,757,698

Federal Home Loan Bank stock

28,208

—

—

—

NA

Accrued interest receivable

10,356

—

10,356

—

10,356

Liabilities:

Noninterest-bearing deposits

$
971,952

—

$
971,952

—

$
971,952

Transaction deposits

1,939,338

—

1,939,338

—

1,939,338

Time deposits

249,417

—

248,684

—

248,684

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

173,473

—

173,473

—

173,473

Federal Home Loan Bank advances

802,500

—

798,594

—

798,594

Subordinated note

41,240

—

30,821

—

30,821

Accrued interest payable

948

—

948

—

948

~~NA - Not applicable~~
53
~~Table of Contents~~
Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the Bank’s estimates.
The assumptions used in the estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are not available, fair values are based on estimates using discounted cash flow and other valuation techniques. Discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered representative of the liquidation value of the Company’s financial instruments, but rather a good-faith estimate of the fair value of financial instruments held by the Company.
~~In addition to those previously disclosed, the following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:~~
~~Cash and cash equivalents —~~ ~~The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.~~
~~Consumer loans held for sale, at lower of cost or fair value~~ ~~– Consumer loans held for sale at the lower of cost or fair value constitute consumer loans generally sold within two business~~remained unpaid 35 days ~~of origination. The carrying amounts of these loans, due to their nature, approximate fair value and result in a Level 2 classification.~~
~~Loans, net of Allowance~~ — The fair value of loans is calculated using discounted cash flows by loan type resulting in a Level 3 classification. The discount rate used to determine the present value of the loan portfolio is an estimated market rate that reflects the credit and interest rate risk inherent in the loan portfolio without considering widening credit spreads due to market illiquidity. The estimated maturity is based on the Bank’s historical experience with repayments adjusted to estimate the effect of current market conditions. The Allowance is considered a reasonable discount for credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
~~Federal Home Loan Bank stock —~~ ~~It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.~~
~~Accrued interest receivable/payable~~ ~~— The carrying amounts of accrued interest, due to their short-term nature, approximate fair value and result in a Level 2 classification.~~
~~Deposits~~ — Fair values for time deposits have been determined using discounted cash flows. The discount rate used is based on estimated market rates for deposits of similar remaining maturities and are classified as Level 2. The carrying amounts of all other deposits, due to their short-term nature, approximate their fair values and are also classified as Level 2.
~~Securities sold under agreements to repurchase and other short-term borrowings~~ — The carrying amount for securities sold under agreements to repurchase and other short-term borrowings generally maturing within ninety days approximates its fair value resulting in a Level 2 classification.
~~Federal Home Loan Bank advances~~ — The fair value of the FHLB advances is obtained from the FHLB and is calculated by discounting contractual cash flows using an estimated interest rate based on the current rates available to the Company for debt of similar remaining maturities and collateral terms resulting in a Level 2 classification.
~~Subordinated note~~ — The fair value for the subordinated note is calculated using discounted cash flows based upon current market spreads to LIBOR for debt of similar remaining maturities and collateral terms resulting in a Level 2 classification.
The fair value estimates presented herein are based on pertinent information available to management as of the respective period ends. Although management is not aware of any factors that would dramatically affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, estimates of fair value may differ significantly from the amounts presented.
54
~~Table of Contents~~
~~11.MORTGAGE BANKING ACTIVITIES~~
~~Activity for mortgage loans held for sale, at fair value, was as follows:~~


Three Months Ended

Nine Months Ended
  ��

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Balance, beginning of period

$
6,057

$
12,280

$
11,662

$
4,083

Origination of mortgage loans held for sale

43,489

58,820

119,265

154,607

Transferred from held for investment to held for sale

—

71,201

—

71,201

Proceeds from the sale of mortgage loans held for sale

(46,428)

(136,946)

(130,065)

(227,096)

Net gain on sale of mortgage loans held for sale

965

3,087

3,221

5,647

Balance, end of period

$
4,083

$
8,442

$
4,083

$
8,442

~~The following table presents the components of Mortgage Banking income:~~


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Net gain realized on sale of mortgage loans held for sale

$
1,161

$
1,754

$
3,275

$
3,861

Net gain realized on sale of mortgage loans transferred from held for investment to held for sale

—

1,129

—

1,129

Net change in fair value recognized on loans held for sale

(102)

57

9

155

Net change in fair value recognized on rate lock loan commitments

(98)

69

185

604

Net change in fair value recognized on forward contracts

4

78

(248)

(102)

Net gain recognized

965

3,087

3,221

5,647

Loan servicing income

527

511

1,590

1,455

Amortization of mortgage servicing rights

(390)

(517)

(1,104)

(1,200)

Net servicing income recognized

137

(6)

486

255

Total Mortgage Banking income

$
1,102

$
3,081

$
3,707

$
5,902

~~Activity for capitalized mortgage servicing rights was as follows:~~


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Balance, beginning of period

$
5,158

$
4,998

$
5,180

$
4,912

Additions

360

857

1,052

1,626

Amortized to expense

(390)

(517)

(1,104)

(1,200)

Balance, end of period

$
5,128

$
5,338

$
5,128

$
5,338

~~There was no balance or activity in the valuation allowance for capitalized mortgage servicing rights for the three and nine months ended September 30, 2017 and 2016.~~
55
~~Table of Contents~~
~~Other information relating to mortgage servicing rights follows:~~

(dollars in thousands)
September 30, 2017

December 31, 2016

Fair value of mortgage servicing rights portfolio
$
7,729

$
7,478

Monthly weighted average prepayment rate of unpaid principal balance*

204
%

158
%

Discount rate

10
%

13
%

Weighted average default rate

3.72
%

1.50
%

Weighted average life in years

5.42

6.75

* 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 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. 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 at fair value and mortgage banking derivatives as of the period ends presented:~~

September 30, 2017

December 31, 2016

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

$
3,980

$
4,083

$
11,568

$
11,662

Included in other assets:

Rate lock loan commitments

$
19,810

$
484

$
19,521

$
299

Mandatory forward contracts

—

—

25,618

204

Included in other liabilities:

Mandatory forward contracts

$
24,724

$
44

$
—

$
—

56
~~Table of Contents~~
~~12.INTEREST RATE SWAPS~~
Interest rate swap derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a cash flow hedging relationship. For a derivative designated as a cash flow hedge, the effective portion of the derivative’s unrealized gain or loss is recorded as a component of other comprehensive income (“OCI”). For derivatives not designated as hedges, the gain or loss is recognized in current period earnings.
~~Interest Rate Swaps Used as Cash Flow Hedges~~
The Bank entered into two interest rate swap agreements (“swaps”) during 2013 as part of its interest rate risk management strategy. The Bank designated the swaps as cash flow hedges intended to reduce the variability in cash flows attributable to either FHLB advances tied to the 3-month LIBOR or the overall changes in cash flows on certain money market deposit accounts tied to 1-month LIBOR.  The counterparty for both swaps met the Bank’s credit standards and the Bank believes that the credit risk inherent in the swap contracts is not significant.
The swaps were determined to be fully effective during all periods presented; therefore, no amount of ineffectiveness was included in net income. The aggregate fair value of the swaps is recorded in other liabilities with changes in fair value recorded in OCI. The amount included in AOCI would be reclassified to current earnings should the hedge no longer be considered effective. The Bank expects the hedges to remain fully effective during the remaining term of the swaps.
~~The following table reflects information about swaps designated as cash flow hedges as of September 30, 2017 and December 31, 2016:~~

September 30, 2017

December 31, 2016

Unrealized

Unrealized

Notional

Pay

Receive

Assets /

Gain (Loss)

Assets /

Gain (Loss)
(dollars in thousands)


Amount

Rate


Rate

Term


(Liabilities)


AOCI


(Liabilities)


in AOCI

Interest rate swap on money market deposits

$
10,000

2.17
%

1M LIBOR

12/2013 - 12/2020

$
(126)

$
(82)

$
(186)

$
(121)
Interest rate swap on FHLB advance

10,000

2.33
%

3M LIBOR

12/2013 - 12/2020

(159)

(103)

(207)

(135)

$
20,000

$
(285)

$
(185)

$
(393)

$
(256)

~~The following table reflects the total interest expense recorded on these swap transactions in the consolidated statements of income for the three and nine months ended September 30, 2017 and 2016:~~


Three Months Ended

Nine Months Ended


September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Interest rate swap on money market deposits

$
27

$
42

$
87

$
128

Interest rate swap on FHLB advance

24

41

88

128

Total interest expense on swap transactions

$
51

$
83

$
175

$
256

The following table presents the net gains (losses) recorded in OCI and the consolidated statements of income relating to the swaps designated as cash flow hedges for the three and nine months ended September 30, 2017 and 2016:

\

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Gains (losses) recognized in OCI on derivative (effective portion)

$
9

$
127

$
(67)

$
(663)

Losses reclassified from OCI on derivative (effective portion)

(51)

(83)

(175)

(256)

Gains (losses) recognized in income on derivative (ineffective portion)

—

—

—

—

~~The estimated net amount of existing losses reported in AOCI at September 30, 2017 expected to be reclassified into earnings within the next 12 months is $156,000~~.
57
~~Table of Contents~~
~~Non-hedge Interest Rate Swaps~~
The Bank enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Bank enters into offsetting positions in order to minimize the Bank’s interest rate risk. These swaps are derivatives, but are not designated as hedging instruments, and therefore changes in fair value are reported in current year earnings.
Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counter party or client owes the Bank, and results in credit risk to the Bank. When the fair value of a derivative instrument contract is negative, the Bank owes the client or counterparty, and therefore, has no credit risk.
~~A summary of the Bank’s interest rate swaps related to clients as of September 30, 2017 and December 31, 2016 is included in the following table:~~


September 30, 2017

December 31, 2016

Notional

Notional

(in thousands)

Bank Position

Amount

Fair Value

Amount

Fair Value

Interest rate swaps with Bank clients

Pay variable/receive fixed

$
53,536

$
477

$
31,553

$
156

Offsetting interest rate swaps with institutional swap dealer

Pay fixed/receive variable

53,536

(477)

31,553

(55)

Total

$
107,072

$
—

$
63,106

$
101

The Bank is required to pledge securities as collateral when the Bank is in a net loss position exceeding $250,000 for all swaps with dealer counterparties. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $1.5 million and $1.8 million at September 30, 2017 and December 31, 2016.
58
~~Table of Contents~~
~~13.EARNINGS PER SHARE~~
Class A and Class B Shares participate equally in undistributed earnings. The difference in earnings per share between the two classes of common stock results solely 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

Nine Months Ended

September 30,

September 30,

(in thousands, except per share data)

2017

2016

2017

2016


Net income

$
10,706

$
9,828

$
40,794

$
35,903

Weighted average shares outstanding

21,153

20,925

20,921

20,946

Effect of dilutive securities

83

13

79

11

Average shares outstanding including dilutive securities

21,236

20,938

21,000

20,957

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

~~Stock options excluded from the detailed earnings per share calculation because their impact was antidilutive are as follows:~~


Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Antidilutive stock options

4,500

5,000

4,500

7,500

Average antidilutive stock options

3,833

2,500

1,667

5,000

59
~~Table of Contents~~
~~14. STOCK PLANS AND STOCK BASED COMPENSATION~~
In January 2015, the Company’s Board of Directors adopted the Republic Bancorp, Inc. 2015 Stock Incentive Plan (the “2015 Plan”), which became effective April 2015 when the Company’s shareholders approved the 2015 Plan. The 2015 Plan replaced the Company’s 2005 Stock Incentive Plan, which expired March 2015.
The number of authorized shares under the 2015 Plan is fixed at 3,000,000, with such number subject to adjustment in the event of certain events, such as stock dividends, stock splits or the like. There is a minimum three-year vesting period for awards granted to employees under the 2015 Plan that vest based solely on the completion of a specified period of service, with options generally exercisable five to six years after the issue date. Stock options generally must be exercised within one year from the date the options become exercisable and have an exercise price that is at least equal to the fair market value of the Company’s stock on their grant date.  Forfeitures of stock-based awards are accounted for when incurred in lieu of using forfeiture estimates.
All shares issued under the above-mentioned plans were from authorized and reserved unissued shares. The Company has a sufficient number of authorized and reserved unissued shares to satisfy all anticipated option exercises. There are no Class B stock options outstanding or available for exercise under the Company’s plans.
~~Stock Options~~
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes based stock option valuation model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. Expected volatilities are based on historical volatility of Republic’s stock and other factors. Expected dividends are based on dividend trends and the market price of Republic’s stock price at grant. Republic uses historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant.
All share-based payments to employees, including grants of employee stock options, are recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values.
~~The following table summarizes stock option activity from January 1, 2016 through September 30, 2017:~~







Weighted



Weighted

Average

Options

Average

Remaining

Aggregate

Class A

Exercise

Contractual

Intrinsic


Shares

Price

Term

Value


Outstanding, January 1, 2016

323,400

$
24.40

Granted

5,000

26.43

Exercised

(4,000)

20.12

Forfeited or expired

(11,800)

24.47

Outstanding, December 31, 2016

312,600

$
24.49

3.77

$
4,705,807

Outstanding, January 1, 2017

312,600

$
24.49

Granted

4,500

35.54

Exercised

(2,000)

16.61

Forfeited or expired

(2,000)

24.93

Outstanding, September 30, 2017

313,100

$
24.69

3.01

$
4,445,192

Fully vested and unvested

313,100

$
24.69

3.01

$
4,445,192

Exercisable (vested) at September 30, 2017

1,500

$
23.65

0.95

$
22,860

60
~~Table of Contents~~
~~Information related to stock options for each period follows:~~

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share data)

2017

2016

2017

2016


Intrinsic value of options exercised

$
—

$
—

$
44

$
18

Cash received from options exercised, net of shares redeemed

—

—

33

80

Weighted-average fair value per share of options granted

—

—

3.99

3.27

~~Restricted Stock Awards~~
Restricted stock awards generally vest five to six years after issue, with accelerated vesting due to “change in control” or “death or disability of a participant” as defined and outlined in the 2015 Plan.
~~The following table summarizes restricted stock awards activity from January 1, 2016 through September 30, 2017:~~


Restricted


Stock Awards

Weighted-Average

Class A Shares

Grant Date Fair Value
Outstanding, January 1, 2016

79,000

$
20.02
Granted

—

—
Forfeited

(2,000)

19.85
Earned and issued

—

—
Outstanding, December 31, 2016

77,000

$
20.02

Outstanding, January 1, 2017

77,000

$
20.02
Granted

7,413

35.77
Forfeited

—

—
Earned and issued

(4,803)

35.68
Outstanding, September 30, 2017

79,610

$
20.54

Unvested

79,610

$
20.54
61
~~Table of Contents~~
~~Performance Stock Units~~
The Company first granted performance stock units (“PSUs”) under the 2015 Plan in January 2016. Shares of stock underlying the PSUs may be earned over a four-year performance period commencing on January 1, 2017 and ending on December 31, 2020 as follows:
·
If the Company achieves a Return on Average Assets (“ROAA”), as defined in the award agreement, of 1.25% for a calendar year in the performance period, then between March 1 and March 15 of the following year, provided that the recipient is still employed in good standing on the payment date, the Company will issue shares of fully-vested stock to the participant equal to 50% of the number of the PSUs initially granted to the participant; and
·
If the ROAA of 1.25% is met again at the end of another calendar year during the remaining term of the performance period, the Company will similarly issue fully vested stock in an amount equal to the remaining 50% of the initial PSUs granted to the participant.
~~The following table summarizes PSU activity from January 1, 2016 through September 30, 2017:~~

Performance

Stock Units

Weighted-Average

Class A Shares

Grant Date Fair Value
Outstanding, January 1, 2016

—

$
—
Granted

55,000

23.13
Forfeited

—

—
Earned and issued

—

—
Outstanding, December 31, 2016

55,000

$
23.13

Outstanding, January 1, 2017

55,000

$
23.13
Granted

—

—
Forfeited

(2,500)

25.29
Earned and issued

—

—
Outstanding, September 30, 2017

52,500

$
23.08

Unvested

52,500

$
23.08
~~Expense Related to the 2015 Stock Incentive Plan~~
~~The Company recorded expense related to the 2015 Plan for the three and nine months ended September 30, 2017 and 2016 as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Stock option expense

$
65

$
58

$
191

$
184

Restricted stock award expense

81

72

373

189

Performance stock unit expense

127

127

364

381

Total expense

$
273

$
257

$
928

$
754

62
~~Table of Contents~~
~~Unrecognized expenses related to unvested awards (net of estimated forfeitures) under the 2015 Plan are estimated as follows:~~


Stock


Restricted
Performance


Year Ended (in thousands)

Options

Stock Awards
Stock Units

Total

2017

$
65

$
70

$
127

$
262

2018

257

138

198

593

2019

148

35

—

183

2020

37

27

—

64

2021

5

12

—

17

2022

1

2

—

3

Total

$
513

$
284

$
325

$
1,122

~~15. OTHER COMPREHENSIVE INCOME~~
~~OCI components and related tax effects were as follows:~~


Three Months Ended

Nine Months Ended


September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Available for Sale Securities:

Change in unrealized gain (loss) on securities available for sale

$
(237)

$
(788)

$
892

$
1,920

Change in unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings

90

57

244

(91)

Net unrealized gains (losses)

(147)

(731)

1,136

1,829

Tax effect

51

255

(399)

(640)

Net of tax

(96)

(476)

737

1,189

Cash Flow Hedges:

Change in fair value of derivatives used for cash flow hedges

9

127

(67)

(663)

Reclassification amount for derivative losses realized in income

51

83

175

256

Net unrealized gains (losses)

60

210

108

(407)

Tax effect

(21)

(75)

(37)

143

Net of tax

39

135

71

(264)

Total other comprehensive income (loss) components, net of tax

$
(57)

$
(341)

$
808

$
925

~~Significant amounts reclassified out of each component of AOCI for the three and nine months ended September 30, 2017 and 2016:~~

Amounts Reclassified From Accumulated

Other Comprehensive Income

Affected Line Items

Three Months Ended

Nine Months Ended

in the Consolidated

September 30,

September 30,

(in thousands)

Statements of Income

2017

2016

2017

2016

Cash Flow Hedges:

Interest rate swap on money market deposits

Interest expense on deposits

$
(27)

$
(42)

$
(87)

$
(128)

Interest rate swap on FHLB advance

Interest expense on FHLB advances

(24)

(41)

(88)

(128)

Total derivative losses on cash flow hedges

Total interest expense

(51)

(83)

(175)

(256)

Tax effect

Income tax expense

18

29

61

90

Net of tax

Net income

$
(33)

$
(54)

$
(114)

$
(166)

63
~~Table of Contents~~
~~The following is a summary of the AOCI balances, net of tax:~~




2017


(in thousands)

December 31, 2016

Change

September 30, 2017

Unrealized gain on securities available for sale

$
237

$
579

$
816

Unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings

706

158

864

Unrealized loss on cash flow hedge

(256)

71

(185)

Total unrealized gain

$
687

$
808

$
1,495




2016


(in thousands)

December 31, 2015

Change

September 30, 2016

Unrealized gain on securities available for sale

$
1,727

$
1,247

$
2,974

Unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings

712

(58)

654

Unrealized loss on cash flow hedge

(390)

(264)

(654)

Total unrealized gain

$
2,049

$
925

$
2,974

64
~~Table of Contents~~
~~16.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 September 30, 2017, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking, Tax Refund Solutions (“TRS”) and Republic Credit Solutions (“RCS”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute Republic Processing Group (“RPG) operations. The Bank’s Correspondent Lending channel and the Company’s national branchless banking platform, MemoryBank, are considered part of the Traditional Banking segment.
Prior to the third quarter of 2017, management reported RPG as a segment consisting of its largest division, TRS, along with its relatively smaller divisions, Republic Payment Solutions (“RPS”) and RCS. During the third quarter of 2017, due to RCS’s growth in revenues relative to the total Company’s revenues, management identified TRS and RCS as separate reportable segments under the newly-classified RPG operations. Also, as part of the updated segmentation, management will report the RPS division, which remained below thresholds to be classified a separate reportable segment, within the newly-classified TRS segment. The reportable segments within RPG operations and divisions within those segments operate through the Bank. All prior periods have been reclassified to conform to the current presentation.
~~The nature of segment operations and the primary drivers of net revenues by reportable segment are provided below:~~
~~Reportable Segment:~~
~~Nature of Operations:~~
~~Primary Drivers of Net Revenues:~~
~~Core Banking:~~
~~Traditional Banking~~
Provides traditional banking products to clients primarily in its market footprint via its network of banking centers and to clients outside of its market footprint primarily via its Digital and Correspondent Lending 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.  The RPS division of TRS offers general-purpose reloadable cards. TRS and RPS products are primarily provided to clients outside of the Bank’s market footprint.
~~Loans, refund transfers, and prepaid cards.~~
~~Republic Credit Solutions~~
~~Offers short-term credit products. RCS products are primarily provided to clients outside of the Bank’s market footprint.~~
~~Unsecured small-dollar, consumer loans.~~
The accounting policies used for Republic’s reportable segments are the same as those described in the summary of significant accounting policies in the Company’s 2016 Annual Report on Form 10-K.  Segment performance is evaluated using operating income. Goodwill is allocated to the Traditional Banking segment. Income taxes are generally allocated based on income before income tax expense unless specific segment allocations can be reasonably made. Transactions among reportable segments are made at carrying value.
65
~~Table of Contents~~
~~Segment information for the three months ended September 30, 2017 and 2016 follows:~~

Three Months Ended September 30, 2017

Core Banking

Republic Processing Group ("RPG")

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

$
37,396

$
4,737

$
102


$
42,235

$
60

$
6,012

$
6,072

$
48,307

Provision for loan and lease losses

683

(74)

—

609

(840)

4,452

3,612

4,221

Net refund transfer fees

—

—

—

—

177

—

177

177

Mortgage banking income

—

—

1,102

1,102

—

—

—

1,102

Program fees

—

—

—

—

63

1,534

1,597

1,597

Other noninterest income

7,130

11

65

7,206

16

276

292

7,498

Total noninterest income

7,130

11

1,167

8,308

256

1,810

2,066

10,374

Total noninterest expense

32,280

848

1,149

34,277

2,851

898

3,749

38,026

Income (loss) before income tax expense

11,563

3,974

120

15,657

(1,695)

2,472

777

16,434

Income tax expense (benefit)

3,951

1,454

41

5,446

(615)

897

282

5,728

Net income (loss)

$
7,612

$
2,520

$
79

$
10,211

$
(1,080)

$
1,575

$
495

$
10,706

Segment end-of-period assets

$
4,361,591

$
570,676

$
9,395

$
4,941,662

$
13,090

$
38,422

$
51,512

$
4,993,174

Net interest margin

3.70
%

3.54
%

NM

3.68
%

NM

NM

NM

4.17
%

Three Months Ended September 30, 2016

Core Banking

Republic Processing Group ("RPG")









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

$
31,134

$
4,924

$
76

$
36,134

$
38

$
3,226

$
3,264

$
39,398

Provision for loan and lease losses

289

188

—

477

(89)

2,101

2,012

2,489

Net refund transfer fees

—

—

—

—

132

—

132

132

Mortgage banking income

—

—

3,081

3,081

—

—

—

3,081

Program fees

—

—

—

—

29

950

979

979

Other noninterest income

6,899

4

57

6,960

13

136

149

7,109

Total noninterest income

6,899

4

3,138

10,041

174

1,086

1,260

11,301

Total noninterest expense

28,939

727

1,184

30,850

2,075

609

2,684

33,534

Income (loss) before income tax expense

8,805

4,013

2,030

14,848

(1,774)

1,602

(172)

14,676

Income tax expense (benefit)

2,707

1,493

710

4,910

(642)

580

(62)

4,848

Net income (loss)

$
6,098

$
2,520

$
1,320

$
9,938

$
(1,132)

$
1,022

$
(110)

$
9,828

Segment end-of-period assets

$
4,109,464

$
660,410

$
15,003

$
4,784,877

$
26,608

$
15,792

$
42,400

$
4,827,277

Net interest margin

3.35
%

3.63
%

NM

3.38
%

NM

NM

NM

3.65
%

~~Segment assets are reported as of the respective period ends while income and margin data are reported for the respective periods.~~
~~NM — Not Meaningful~~
66
~~Table of Contents~~
~~Segment information for the nine months ended September 30, 2017 and 2016 follows:~~

Nine Months Ended September 30, 2017

Core Banking

Republic Processing Group ("RPG")









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

$
103,490

$
13,073

$
255

$
116,818

$
15,179

$
15,885

$
31,064

$
147,882

Provision for loan and lease losses

2,611

(36)

—

2,575

6,763

12,295

19,058

21,633

Net refund transfer fees

—

—

—

—

18,329

—

18,329

18,329

Mortgage banking income

—

—

3,707

3,707

—

—

—

3,707

Program fees

—

—

—

—

103

3,869

3,972

3,972

Other noninterest income

20,618

27

192

20,837

152

1,227

1,379

22,216

Total noninterest income

20,618

27

3,899

24,544

18,584

5,096

23,680

48,224

Total noninterest expense

93,552

2,448

3,347

99,347

10,891

2,461

13,352

112,699

Income before income tax expense

27,945

10,688

807

39,440

16,109

6,225

22,334

61,774

Income tax expense

8,684

3,909

282

12,875

5,846

2,259

8,105

20,980

Net income

$
19,261

$
6,779

$
525

$
26,565

$
10,263

$
3,966

$
14,229

$
40,794

Segment end-of-period assets

$
4,361,591

$
570,676

$
9,395

$
4,941,662

$
13,090

$
38,422

$
51,512

$
4,993,174

Net interest margin

3.48
%

3.58
%

NM

3.49
%

NM

NM

NM

4.34
%

Nine Months Ended September 30, 2016

Core Banking

Republic Processing Group ("RPG")









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

$
89,279

$
11,369

$
148

$
100,796

$
6,589

$
7,024

$
13,613

$
114,409

Provision for loan and lease losses

1,567

686

—

2,253

2,905

4,331

7,236

9,489

Net refund transfer fees

—

—

—

—

19,119

—

19,119

19,119

Mortgage banking income

—

—

5,902

5,902

—

—

—

5,902

Program fees

—

—

—

—

174

1,768

1,942

1,942

Other noninterest income

19,380

14

212

19,606

176

279

455

20,061

Total noninterest income

19,380

14

6,114

25,508

19,469

2,047

21,516

47,024

Total noninterest expense

81,551

2,157

3,576

87,284

9,029

1,628

10,657

97,941

Income before income tax expense

25,541

8,540

2,686

36,767

14,124

3,112

17,236

54,003

Income tax expense

7,733

3,174

940

11,847

5,125

1,128

6,253

18,100

Net income

$
17,808

$
5,366

$
1,746

$
24,920

$
8,999

$
1,984

$
10,983

$
35,903

Segment end-of-period assets

$
4,109,464

$
660,410

$
15,003

$
4,784,877

$
26,608

$
15,792

$
42,400

$
4,827,277

Net interest margin

3.22
%

3.64
%

NM

3.26
%

NM

NM

NM

3.62
%

~~Segment assets are reported as of the respective period ends while income and margin data are reported for the respective periods.~~
~~NM — Not Meaningful~~
67
~~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 (“RB&T” or the “Bank”) and Republic Insurance Services, Inc. (the “Captive”). All significant intercompany balances and transactions are eliminated in consolidation. 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; and the term the “Bank” refers to the Company’s subsidiary bank, RB&T.
~~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~~.”
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 United States.
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.
~~Republic Bancorp Capital Trust (“RBCT”) is a Delaware statutory business trust that is a wholly-owned unconsolidated finance subsidiary of Republic Bancorp, Inc.~~
Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss future events or conditions, the statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” “potential,” or similar expressions. Do not rely on forward-looking statements. Forward-looking statements detail management’s expectations regarding the future and are not guarantees. Forward-looking statements are assumptions based on information known to management only as of the date the statements are made and management may not update them to reflect changes that occur subsequent to the date the statements are made.
~~Broadly speaking, forward-looking statements include:~~
·
~~projections of revenue, income, expenses, losses, earnings per share, capital expenditures, dividends, capital structure or other financial items;~~
·
~~descriptions of plans or objectives for future operations, products or services;~~
·
~~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:
·
~~changes in political and economic conditions;~~
·
~~the  magnitude and frequency of changes to the Federal Funds Target Rate (“FFTR”) implemented by the Federal Open Market Committee (“FOMC”) of the Federal Reserve Bank (“FRB”);~~
·
~~long-term and short-term interest rate fluctuations as well as the overall steepness of the yield curve;~~
·
~~competitive product and pricing pressures in each of the Company’s five reportable segments;~~
·
~~equity and fixed income market fluctuations;~~
·
~~client bankruptcies and loan defaults;~~
·
~~inflation;~~
·
~~recession;~~
·
~~natural disasters impacting Company operations;~~
·
~~future acquisitions;~~
·
~~integrations of acquired businesses;~~
·
~~changes in technology;~~
68
~~Table of Contents~~
·
~~changes in applicable laws and regulations or the interpretation and enforcement thereof;~~
·
~~changes in fiscal, monetary, regulatory and tax policies;~~
·
~~changes in accounting standards;~~
·
~~monetary fluctuations;~~
·
~~changes to the Company’s overall internal control environment;~~
·
~~success in gaining regulatory approvals when required;~~
·
~~information security breaches or cyber security attacks involving either the Company or one of the Company’s third-party service providers; and~~
·
~~other risks and uncertainties reported from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”), including Part 1 Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.~~
69
~~Table of Contents~~
~~SEGMENT COMPOSITION~~
As of September 30, 2017, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking, Tax Refund Solutions (“TRS”) and Republic Credit Solutions (“RCS”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute Republic Processing Group (“RPG) operations. The Bank’s Correspondent Lending channel and the Company’s national branchless banking platform, MemoryBank®~~, are considered part of the Traditional Banking segment.~~
Prior to the third quarter of 2017, management reported RPG as a segment consisting of its largest division, TRS, along with its relatively smaller divisions, Republic Payment Solutions (“RPS”) and RCS. During the third quarter of 2017, due to RCS’s growth in revenues relative to the total Company’s revenues, management identified TRS and RCS as separate reportable segments under the newly-classified RPG operations. Also, as part of the updated segmentation, management will report the RPS division, which remained below thresholds to be classified a separate reportable segment, within the newly-classified TRS segment. The reportable segments within RPG operations and divisions within those segments operate through the Bank. All prior periods have been reclassified to conform to the current presentation.
~~Table 1 — Segment Information~~

Three Months Ended September 30, 2017

Core Banking

Republic Processing Group ("RPG")










Total


Tax

Republic






Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

Net income (loss)

$
7,612

$
2,520

$
79

$
10,211

$
(1,080)

$
1,575

$
495

$
10,706

Segment end-of-period assets

4,361,591

570,676

9,395

4,941,662

13,090

38,422

51,512

4,993,174

Net interest margin

3.70
%

3.54
%

NM

3.68
%

NM

NM

NM

4.17
%

Three Months Ended September 30, 2016

Core Banking

Republic Processing Group ("RPG")











Total


Tax

Republic






Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

Net income (loss)

$
6,098

$
2,520

$
1,320

$
9,938

$
(1,132)

$
1,022

$
(110)

$
9,828

Segment end-of-period assets

4,109,464

660,410

15,003

4,784,877

26,608

15,792

42,400

4,827,277

Net interest margin

3.35
%

3.63
%

NM

3.38
%

NM

NM

NM

3.65
%

Nine Months Ended September 30, 2017

Core Banking

Republic Processing Group ("RPG")











Total


Tax

Republic






Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

Net income

$
19,261

$
6,779

$
525

$
26,565

$
10,263

$
3,966

$
14,229

$
40,794

Segment end-of-period assets

4,361,591

570,676

9,395

4,941,662

13,090

38,422

51,512

4,993,174

Net interest margin

3.48
%

3.58
%

NM

3.49
%

NM

NM

NM

4.34
%

Nine Months Ended September 30, 2016

Core Banking

Republic Processing Group ("RPG")











Total


Tax

Republic






Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

Net income

$
17,808

$
5,366

$
1,746

$
24,920

$
8,999

$
1,984

$
10,983

$
35,903

Segment end-of-period assets

4,109,464

660,410

15,003

4,784,877

26,608

15,792

42,400

4,827,277

Net interest margin

3.22
%

3.64
%

NM

3.26
%

NM

NM

NM

3.62
%
~~Segment assets are reported as of the respective period ends while income and margin data are reported for the respective periods.~~
~~NM — Not Meaningful~~
~~For expanded segment financial data see Footnote 16 “Segment Information” of Part I Item 1 “Financial Statements.”~~
70
~~Table of Contents~~
~~(I) Traditional Banking segment~~
The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of September 30, 2017, Republic had 45 full-service banking centers and one loan production office (“LPO”) with locations as follows:
~~Kentucky — 33~~
~~Metropolitan Louisville — 19~~
~~Central Kentucky — 9~~
~~Elizabethtown — 1~~
~~Frankfort — 1~~
~~Georgetown — 1~~
~~Lexington — 5~~
~~Shelbyville — 1~~
~~Western Kentucky — 2~~
~~Owensboro — 2~~
~~Northern Kentucky — 3~~
~~Covington — 1~~
~~Florence — 1~~
~~Independence — 1~~
~~Southern Indiana — 3~~
~~Floyds Knobs — 1~~
~~Jeffersonville — 1~~
~~New Albany — 1~~
~~Metropolitan Tampa, Florida — 6~~
~~Metropolitan Cincinnati, Ohio — 1~~
Metropolitan Nashville, Tennessee — 3*
*Includes one LPO
~~Republic’s headquarters are located in Louisville, which is the largest city in Kentucky based on population.~~
As of September 30, 2017 and through the date of this filing, generally all Traditional Banking products and services, except for the EarnMore and MemoryBuilder deposit accounts, were offered through the Company’s traditional RB&T brand.  The EarnMore and MemoryBuilder deposit accounts were offered through the Bank’s separately branded national branchless banking platform, MemoryBank.
~~The Bank’s principal lending activities consist of the following:~~
~~Retail Mortgage Lending~~ — Through its retail banking centers, its Correspondent Lending channel and its Internet Banking channel, the Bank originates single family, residential real estate loans.  In addition, the Bank originates home equity amortizing loans (“HEALs”) and home equity lines of credit (“HELOCs”) through its retail banking centers. Such loans are generally collateralized by owner occupied property.
~~Commercial Lending~~ ~~— The Bank conducts commercial lending activities primarily through its Commercial and Corporate Banking Department and its Business Banking Department.~~
The Commercial and Corporate Banking Department is composed of the following divisions: Corporate Banking; Commercial Finance; Municipal Lending; and Republic Realty. All credit approvals and processing for the Commercial and Corporate Banking Department are prepared and underwritten through the Bank’s Credit Administration Department (“CAD”).  Clients are generally located within the Bank’s market footprint, including adjacent areas within an approximately two-hour drive of a specific market.
The Business Banking Department focuses on locally based small-to-medium sized businesses in the Bank’s market footprint with annual revenues between $1 million to $20 million. The needs of Business Banking clients range from expansion or acquisition, equipment financing, owner-occupied real estate financing, and operating lines of credit.  Business Banking utilizes all appropriate
71
~~Table of Contents~~
programs of the Small Business Administration (“SBA”) to reduce credit risk exposure.  Additionally, Business Banking includes making loans to real estate investors for various types of investment properties, including rental homes and apartments, shopping centers, and office buildings.  Business Banking also makes loans to various not-for-profit agencies located within the Bank’s market footprint.  The targeted credit size for a relationship in this area is between $500,000 and $5 million.
~~Construction and Land Development Lending~~ — The Bank originates business loans for the construction of both single family residential properties and commercial properties.  On a much smaller scale, the Bank may originate loans for the acquisition and development of residential or commercial land into buildable lots.
~~Internet Lending~~ — The Bank accepts online loan applications for its RB&T brand through its website at www.republicbank.com. Historically, the majority of loans originated through the Internet have been within the Bank’s traditional markets of Kentucky, Florida and Indiana. Other states where loans are marketed include California, Colorado, Georgia, Illinois, Michigan, Minnesota, North Carolina, Ohio, Tennessee and Virginia, as well as, the District of Columbia.
~~Correspondent Lending~~ — Primarily from its Warehouse clients, the Core Bank acquires for investment single family, first lien mortgage loans that meet the Core Bank’s specifications through its Correspondent Lending channel. Substantially all loans purchased through the Correspondent Lending channel are purchased at a premium. The volume of loans purchased through the Correspondent Lending channel may fluctuate from time to time based on several factors, including, but not limited to, borrower demand, other investment options and the Bank’s current and forecasted liquidity position.
~~Consumer Lending~~ — Traditional consumer loans made by the Bank include home improvement and home equity loans, other secured and unsecured personal loans, and credit cards. With the exception of home equity loans, which are actively marketed in conjunction with single family, first lien residential real estate loans, other traditional consumer loan products, while available, are not and have not been actively promoted in the Bank’s markets.
The Bank has, from time to time, acquired unsecured consumer installment loans for investment from a third-party originator. Such consumer loans were purchased at par and were selected by the Bank based on certain underwriting characteristics.
~~Dealer Services~~ — The Bank offers dealer floor plan loans, consumer indirect automobile loans, and consumer aircraft loans through its Dealer Services Department. Dealer floor plan loans are commercial loans to automobile dealers in the Bank’s market footprint secured by the dealer’s current inventory of vehicles. The indirect automobile program involves establishing relationships with automobile dealers in the Bank’s market footprint and obtaining consumer automobile loans in a low-cost delivery method. First offered by the Bank in August 2017, consumer aircraft loans typically range in amounts from $55,000 to $500,000, with terms up to 20 years, to purchase or refinance aircrafts, along with engine overhauls and avionic upgrades. The aircraft loan program is open to all states, except for Alaska and Hawaii.
~~The Bank’s other Traditional Banking activities generally consist of the following:~~
~~MemoryBank~~ — In October 2016, the Bank opened the “digital doors” of MemoryBank, a national branchless banking platform.  MemoryBank is a separately branded division of the Bank, which from a marketing perspective, focuses on technologically savvy clients that prefer to carry larger balances in highly-liquid bank accounts. The Bank promotes the EarnMore and MemoryBuilder accounts solely through its MemoryBank brand.
~~Private Banking~~ — The Bank provides financial products and services to high-net-worth individuals through its Private Banking Department. The Bank’s Private Banking officers have extensive banking experience and are trained to meet the unique financial needs of this clientele.
~~Treasury Management Services —~~ The Bank provides various deposit products designed for commercial business clients located throughout its market areas. Lockbox processing, business on-site deposit, business on-line banking, Internet bill pay, payroll processing, virtual vault, courier service, controlled disbursement accounts, corporate purchasing credit cards, account reconciliation and Automated Clearing House (“ACH”) processing are additional services offered to commercial businesses through the Bank’s Treasury Management Department.
~~Internet Banking —~~ ~~The Bank expands its market penetration and service delivery of its RB&T brand by offering clients Internet Banking services and products through its website, www.republicbank.com.~~
72
~~Table of Contents~~
~~Mobile Banking —~~ ~~The Bank allows clients to easily and securely access and manage their accounts through its mobile banking application.~~
~~Other Banking Services —~~ ~~The Bank also provides title insurance and other financial institution related products and services.~~
~~Bank Acquisitions —~~ ~~The Bank maintains an acquisition strategy to selectively grow its franchise as a complement to its organic growth strategies.~~
~~See additional detail regarding the Traditional Banking segment under Footnote 16 “Segment Information” of Part I Item 1 “Financial Statements.”~~
~~(II) Warehouse Lending segment~~
The 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 or purchased by the Bank through its Correspondent Lending channel. Individual loans are expected to remain on the warehouse line for an average of 15 to 30 days. Reverse mortgage loans typically remain on the line longer than conventional mortgage loans.  Interest income and loan fees are accrued for each individual loan during the time the loan remains on the warehouse line and collected when the loan is sold. The Bank receives the sale proceeds of each loan directly from the investor and applies the funds to pay off the warehouse advance and related accrued interest and fees. The remaining proceeds are credited to the mortgage-banking client.
~~See additional detail regarding the Warehouse Lending segment under Footnote 16 “Segment Information” of Part I Item 1 “Financial Statements.”~~
~~(III) Mortgage Banking segment~~
Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term single family, first lien residential real estate loans that are sold into the secondary market, primarily to the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) and the Federal National Mortgage Association (“FNMA” or “Fannie Mae”). 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. A fee is received by the Bank for performing these standard servicing functions.
~~See additional detail regarding Mortgage Banking under Footnote 11 “Mortgage Banking Activities” and Footnote 16 “Segment Information” of Part I Item 1 “Financial Statements.”~~
~~(IV) Tax Refund Solutions segment~~
Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the 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 refund directly from the governmental paying authority.
~~“Easy Advance” Product~~
~~The Easy Advance (“EA”) tax credit product is a loan that allows a taxpayer to receive an advance of a portion of their refund, with the~~ taxpayer’s ~~Tax Provider paying all fees to RB&T for the advance.~~
73
~~Table of Contents~~
TRS first offered its 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 allow 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~~
**
Includes relatively-small consumer portfolios, e.g., RCS loans.

Table 17 — Detail of Loans Removed from Delinquent Status


Three Months Ended

March 31,

(in thousands)

2024

2023

Loans charged off

$
(15)

$
(1)

Loans transferred to OREO

(169)

—

Loan payoffs and paydowns

(89)

(510)

Loans paid current

(1,977)

(2,583)

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

$
(2,250)

$
(3,094)

Deposits

Table 18 — Deposit Composition

(in thousands)
March 31, 2024

December 31, 2023

$ Change

% Change

Core Bank:

Demand
$
1,179,771

$
1,158,051

$
21,720

2
%
Money market accounts

1,078,549

1,007,356

71,193

7

Savings

355,260

263,238

92,022

35

Reciprocal money market

221,779

188,078

33,701

18

Individual retirement accounts (1)

34,208

33,793

415

1

Time deposits, $250 and over (1)

113,096

101,787

11,309

11

Other certificates of deposit (1)

239,258

225,614

13,644

6

Reciprocal time deposits (1)

90,857

90,857

—

—

Wholesale brokered deposits (1)

349,298

88,767

260,531

293

Total Core Bank interest-bearing deposits

3,662,076

3,157,541

504,535

16

Total Core Bank noninterest-bearing deposits

1,180,237

1,239,466

(59,229)

(5)

Total Core Bank deposits

4,842,313

4,397,007

445,306

10

Republic Processing Group:

Wholesale brokered deposits (1)

—

199,960

(199,960)

(100)

Interest-bearing prepaid card deposits

379,677

—

379,677

—

Money market accounts

19,380

18,664

716

4

Total RPG interest-bearing deposits

399,057

218,624

180,433

83

Noninterest-bearing prepaid card deposits

—

318,769

(318,769)

(100)

Other noninterest-bearing deposits

179,279

118,763

60,516

51

Total RPG noninterest-bearing deposits

179,279

437,532

(258,253)

(59)

Total RPG deposits

578,336

656,156

(77,820)

(12)

Total deposits
$
5,420,649

$
5,053,163

$
367,486

7
%
(1) Includes time deposit

87
Table of Contents

Total Bank deposits increased $367 million from December 31, 2023 to $5.4 billion as of March 31, 2024. Total Core Bank deposits increased by $445 million, or 10%, from December 31, 2023. Within the Core Bank’s deposits, interest-bearing deposits increased $505 million and noninterest-bearing deposits decreased $59 million. The increase in Core Bank deposits was primarily driven by a $261 million increase in brokered deposits and a $110 million increase in transaction deposits obtained from a third-party listing service.

Retail-related categories continued a trend from the second half of 2023 in which noninterest bearing deposits declined while interest bearing categories increased. Overall, Management believes two factors generally continue to drive this trend. The first is a general decline in liquidity among both businesses and consumers as the excess liquidity created during the COVID pandemic continued to wane. Second, Management believes that the substantial increase in market interest rates caused the difference between what a client can earn for an interest-bearing deposit versus the client’s lack of a financial return for a noninterest-bearing deposit to become large enough to cause some clients to pursue other opportunities for their cash outside the Bank.

RPG Deposits

As previously noted in the Company’s 2023 Report on Form 10-K filed on March 14, 2024, RPS began sharing a significant portion of the interest revenue it earns on its prepaid card balances with its prepaid card marketer-servicers during the first quarter of 2024. This revenue share is being reported as interest expense on deposits. As a result, all prepaid card deposit balances subject to a revenue share arrangement will be reported as interest-bearing deposits on an on-going basis, as long as they remain subject to a revenue share arrangement. Conversely, for any periods reported prior to 2024, these deposits will remain noninterest-bearing as they were not subject to a revenue share arrangement during those periods.

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

Federal Home Loan Bank Advances

The Bank’s total FHLB advances were $270 million as of March 31, 2024 compared to $380 million as of December 31, 2023. There were no overnight borrowings as of March 31, 2024 compared to $110 million as of December 31, 2023. The Company has utilized FHLB advances over the past year to fund its deposit outflow and overall loan growth. As of March 31, 2024, the Company’s $270 million of FHLB advances had a weighted-average maturity of 3.72 years and a weighted-average cost of 4.33%.

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

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.

See Footnote 12 “Interest Rate Swaps” of Part I Item 1 “Financial Statements” for additional discussion regarding the Bank’s interest rate swaps.

Liquidity

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

88
Table of Contents
Table 19 — Liquid Assets and Borrowing Capacity

The Company’s liquid assets and borrowing capacity included the following:

(in thousands)

March 31, 2024

December 31, 2023

Cash and cash equivalents

$
546,363

$
316,567

Unencumbered debt securities

501,634

491,783

Total liquid assets

1,047,997

808,350

Available borrowing capacity with the FHLB

1,007,633

730,265

Available borrowing capacity through unsecured credit lines

100,000

100,000

Total available borrowing capacity

1,107,633

830,265

Total liquid assets and available borrowing capacity

$
2,155,630

$
1,638,615

The Company generally carried higher average interest-earning cash balances during the first quarter of 2024 as the result of a strategic decision to maintain additional on-balance sheet liquidity above required minimums in response to the uncertainty of the economic environment.

The Bank had a loan to deposit ratio (excluding brokered deposits) of 103% as of March 31, 2024 and 106% as of December 31, 2023. Republic’s banking centers and its website, www.republicbank.com, provide access to retail deposit markets. These retail deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were cancelled, or if the Bank cannot obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.

As of March 31, 2024, the Bank had approximately $746 million in deposits from 175 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded $2 million for a depositor’s taxpayer identification number. Total uninsured deposits for the Bank were $1.8 billion, or 34%, of total deposits as of March 31, 2024. The 20 largest non-sweep deposit relationships represented approximately $228 million, or 4%, of the Company’s total deposit balances as of as of March 31, 2024. These accounts do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances were moved from the Bank, the Bank would likely utilize overnight borrowing lines in the short-term to replace the balances. On a longer-term basis, the Bank would likely utilize wholesale-brokered deposits to replace withdrawn balances, or alternatively, higher-cost internet-sourced deposits. Based on past experience utilizing brokered deposits and internet-sourced deposits, the Bank believes it can quickly obtain these types of deposits if needed. The overall cost of gathering these types of deposits, however, could be substantially higher than the Traditional Bank deposits they replace, potentially decreasing the Bank’s earnings.

The Bank’s liquidity is impacted by its ability to sell certain investment securities, which is limited due to the level of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings, and for other purposes, as required by law. As of March 31, 2024 and December 31, 2023, these pledged investment securities had a fair value of $86 million and $100 million.

Capital

Total stockholders’ equity increased from $913 million as of December 31, 2023 to $936 million as of March 31, 2024. The increase in stockholders’ equity was primarily attributable to net income earned during 2023 reduced primarily by cash dividends declared.

Common Stock — The Class A Common shares are entitled to cash dividends equal to 110% of the cash dividend paid per share on Class B Common Stock. Class A Common shares have one vote per share and Class B Common shares have ten votes per share. Class B Common shares may be converted, at the option of the holder, to Class A Common shares on a share for share basis. The Class A Common shares are not convertible into any other class of Republic’s capital stock.

Dividend Restrictions — The Parent Company’s principal source of funds for dividend payments are dividends received from RB&T. Banking regulations limit the amount of dividends that may be paid to the Parent Company by the Bank without prior approval of the respective states’ banking regulators. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. As of April 1, 2024, RB&T could, without prior approval, declare dividends of approximately $92 million. Any payment of dividends in the future will depend, in large
89
Table of Contents
part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors.

Regulatory Capital Requirements — The Company and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Republic’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Parent Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk weightings, and other factors.

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

Republic continues to exceed the regulatory requirements for Total Risk-Based Capital, Common Equity Tier I Risk-Based Capital, Tier I Risk Based-Capital and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer. Republic’s average stockholders’ equity to average assets ratio was 12.92% as of March 31, 2024 compared to 14.21% as of December 31, 2023. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.

Table 20 — Capital Ratios (1)

As of March 31, 2024

As of December 31, 2023
(dollars in thousands)

Amount

Ratio

Amount

Ratio

Total capital to risk-weighted assets

Republic Bancorp, Inc.

$
989,290

16.44
%

$
968,844

16.10
%
Republic Bank & Trust Company

949,574

15.88

931,923

15.50

Common equity tier 1 capital to risk-weighted assets

Republic Bancorp, Inc.

$
914,053

15.19
%

$
893,658

14.85
%
Republic Bank & Trust Company

874,421

14.62

856,744

14.25

Tier 1 (core) capital to risk-weighted assets

Republic Bancorp, Inc.

$
914,053

15.19
%

$
893,658

14.85
%
Republic Bank & Trust Company

874,421

14.62

856,744

14.25

Tier 1 leverage capital to average assets

Republic Bancorp, Inc.

$
914,053

12.73
%

$
893,658

13.89
%
Republic Bank & Trust Company

874,421

12.15

856,744

13.25

(1) The Company and the Bank elected in 2020 to defer the impact of CECL on regulatory capital. The deferral period is five years, with the total estimated CECL impact 100% deferred for the first two years, then phased in over the next three years. If not for this election, the Company’s regulatory capital ratios would have ~~a contractual due date but are eligible~~been approximately 6 basis points and 6 basis points lower than those presented in the table above as of March 31, 2024 and December 31, 2023.

90
Table of Contents
Asset/Liability Management and Market Risk

Asset/liability management is designed to ensure safety and soundness, maintain liquidity, meet regulatory capital standards, and achieve acceptable net interest income based on the Bank’s risk tolerance. Interest rate risk is the exposure to adverse changes in net interest income as a result of market fluctuations in interest rates. The Bank, on an ongoing basis, monitors interest rate and liquidity risk in order to implement appropriate funding and balance sheet strategies. Management considers interest rate risk to be a significant risk to the Bank’s overall earnings and balance sheet.

The interest sensitivity profile of the Bank at any point in time will be impacted by a number of factors. These factors include the mix of interest sensitive assets and liabilities, as well as their relative pricing schedules. It is also influenced by changes in market interest rates, deposit and loan balances, and other factors.

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

As of March 31, 2024, a dynamic simulation model was run for interest rate changes from “Down 400” basis points to “Up 400” basis points. The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning April 1, 2024 and ending March 31, 2025 based on instantaneous movements in interest rates from Down 400 to Up 400 basis points equally across all points on the yield curve. The Bank’s dynamic earnings simulation model includes secondary market loan fees, which are a component of mortgage banking income within noninterest income, and excludes Traditional Bank loan fees.

Table 21 — Bank Interest Rate Sensitivity

Change in Rates

-400

-300

-200

-100

+100

+200

+300

+400


Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

% Change from base net interest income as of March 31, 2024
2.1
%

0.2
%

(4.3)
%

(2.6)
%

1.2
%

0.7
%

0.9
%

1.2
%

% Change from base net interest income as of December 31, 2023
6.4
%

5.0
%

0.1
%

0.2
%

(1.0)
%

(2.1)
%

(3.1)
%

(4.1)
%

Notable changes for the Bank’s interest rate sensitivity projections from December 31, 2023 to March 31, 2024 occurred in all the scenarios. In general, the period-to-period improvements in the up-rate scenarios were generally tied to the Company’s average interest-earning cash balances, which increased from December 2023 to March 2024. As a result, the benefit the Company expects to receive from rising short-term interest rates, as a result of its higher balances in immediately repricing interest-earning cash, increased. The benefit from the higher interest-earning cash balances was partially offset by lower projected interest income on loans as loan growth assumptions were lowered based on recent loan growth trends.

In the down rate scenarios, the Company’s interest rate risk position notably deteriorated as the higher interest-earning cash balances that benefited net interest income in the up-rate scenarios are projected to cause similar corresponding declines to net interest income in the down-rate rate scenarios. In addition, the Company’s projected net interest income in down-rate scenarios was also negatively impacted by revisions to the Bank’s deposit beta assumptions, as these assumptions were lowered, meaning deposit costs would remain higher, due to the Bank’s current competitive environment for deposits.
91
Table of Contents
For additional discussion regarding the Bank’s net interest income, see the sections titled “Net Interest Income” in this section of the filing under “RESULTS OF OPERATIONS (Three months ended March 31, 2024 Compared to Three months ended March 31, 2023.”)

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

Information required by this item is included under Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4.Controls and Procedures.

As of the end of the period covered by this report, an evaluation was carried out by Republic Bancorp, Inc.’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

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

Item 1A.Risk Factors.

FACTORS THAT MAY AFFECT FUTURE RESULTS

There have been no material changes in the Company’s risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of its Annual Report on Form 10-K for the fiscal year ended December 31, 2023. You should carefully consider the risk factors discussed in Republic’s 2023 Form 10-K, which could materially affect its business, financial condition, or future results.

92
Table of Contents
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Details of Republic’s Class A Common Stock purchases during the first quarter of 2024 are included in the following table:

Total Number of

Maximum Number

Shares Purchased

of Shares that May

as Part of Publicly

Yet Be Purchased

Total Number of

Average Price

Announced Plans

Under the Plan
Period
Shares Purchased
Paid Per Share
or Programs
or Programs

January 1 - January 31
—
$
—
—

434,410

February 1 - February 29
—

—
—

434,410

March 1 - March 31
—

—
—

434,410

Total
—
$
—
—
434,410

The Company did not repurchase any of its shares during the first quarter of 2024. In addition, in connection with employee stock awards, there were 22,993 shares withheld upon exercise of stock options to satisfy the withholding taxes. On January 24, 2024, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase shares of its Class A Common Stock by 400,000 shares. The repurchase program will remain effective until the total number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of March 31, 2024, the Company had 434,410 shares which could be repurchased under its current share repurchase programs.

During the first quarter of 2024, there were 3,893 shares of Class A Common Stock issued upon conversion of shares of Class B Common Stock by stockholders of Republic in accordance with the share-for-share conversion option of the Class B Common Stock. The exemption from registration of newly issued Class A Common Stock relies upon Section (3)(a)(9) of the Securities Act of 1933.

There were no equity securities of the registrant sold without registration during the quarter covered by this report.

Item 5.Other Information.

Rule 10b5-1 Trading Plans

During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.

93
Table of Contents
Item 6.Exhibits.

The following exhibits are filed or furnished as a part of this report:

Exhibit Number

Description of Exhibit

10.1

Early Termination Agreement for ~~delinquency consideration three weeks after the taxpayer customer’s tax return is submitted~~lease between Jaytee-Springhurst, LLC, and Republic Bank & Trust Company, dated March 15, 2024, relating to 9600 Brownsboro Road, Louisville, KY

31.1

Certification of Principal Executive Officer pursuant 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~~Sarbanes-Oxley Act of ~~each year. Unpaid EAs are charged-off within 81 days after the taxpayer customer’s tax return is submitted~~2002

31.2

Certification of Principal Financial Officer pursuant to the ~~applicable taxing authority, with the majority~~Sarbanes-Oxley Act of ~~charge-offs typically recorded during the second quarter~~2002

32*

Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the ~~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 muchSarbanes-Oxley Act 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.  For the first quarter 2018 tax season, the Company plans to modify the EA product offering to increase the maximum advance amount, which is expected to increase overall EA loan volume, absent any other changes.  Any EA losses in 2018 would be heightened by an increase in overall EA loan volume.
~~See additional detail regarding the Easy Advance (“EA”) product under Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements.”~~
~~Republic Payment Solutions division~~— RPS is managed and operated within the TRS segment. The RPS division is an issuing bank offering general-purpose reloadable prepaid cards through third-party program managers. For the projected near-term, as the prepaid card program matures, the operating results of the RPS division are expected to be immaterial to the Company’s overall results of operations 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.
~~(V) Republic Credit Solutions segment~~
Through the RCS segment, the Bank offers consumer credit products. In general, the credit products are unsecured, small dollar consumer loans with maturities 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, with a significant portion of RCS clients considered subprime or near-prime borrowers. Additional information regarding consumer loan products offered through RCS follows:
·
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 value.2002

74
~~Table of Contents~~
·
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.
101

·
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.
·
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.
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.”
~~OVERVIEW (Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016)~~
Total Company net income for the third quarter of 2017 was $10.7 million, an $878,000, or 9%, increase from the same period in 2016. Diluted earnings per Class A Common Share increased to $0.51 for the quarter ended September 30, 2017 compared to $0.47 for the same period in 2016.
The Company maintains six banking centers in the Tampa, Florida metropolitan statistical area.  The Company’s results of operations for the quarter ended September 30, 2017 were not meaningfully impacted by hurricane Irma, which struck Florida during the third quarter of 2017.
~~General highlights by reportable segment for the quarter ended September 30, 2017 consisted of the following:~~
~~Traditional Banking segment~~
·
~~Net income increased $1.5 million, or 25%, for the third quarter of 2017 compared to the same period in 2016.~~
·
~~Net interest income increased $6.3 million, or 20%, for the third quarter of 2017 compared to the same period in 2016.~~
·
~~Provision for Loan and Lease Losses (“Provision”) was $683,000 for the third quarter of 2017 compared to $289,000 for the same period in 2016.~~
·
~~Total noninterest income increased $231,000, or 3%, for the third quarter of 2017 compared to the same period in 2016.~~
·
~~Total noninterest expense increased $3.3 million, or 12%, during the third quarter of 2017 compared to the third quarter of 2016.~~
~~Warehouse Lending segment~~
·
~~Net income was $2.5 million for the third quarter of 2017 and the same period in 2016.~~
·
~~Net interest income decreased $187,000, or 4%, for the third quarter of 2017 compared to the same period in 2016.~~
·
~~The Provision was a net credit of $74,000 for the third quarter of 2017 compared to a net charge of $188,000 for the same period in 2016.~~
·
~~Total noninterest expense increased $121,000, or 17%, during the third quarter of 2017 compared to the third quarter of 2016.~~
75
~~Table of Contents~~
~~Mortgage Banking segment~~
·
Within the Mortgage Banking segment, mortgage banking income decreased $2.0 million during the third quarter of 2017 compared to the same period in 2016.  Approximately $1.1 million of the decrease in mortgage banking income was attributable to a nonrecurring gain recorded during the third quarter of 2016 from the bulk sale of $71 million in mortgage loans, which represented a portion of the Company’s correspondent loan portfolio.  The remainder of the decrease in mortgage banking income was consistent with a decrease in consumer refinance activity.
·
Overall, excluding the aforementioned bulk loan sale, Republic’s originations of secondary market loans totaled $43 million during the third quarter of 2017 compared to $59 million during the same period in 2016.
~~Tax Refund Solutions segment~~
·
~~Net loss remained at $1.1 million for the third quarter of 2017 compared to the same period in 2016.~~
·
~~Net interest income increased $22,000 for the third quarter of 2017 compared to the same period in 2016.~~
·
~~Overall, TRS recorded a credit to the Provision of $840,000 during the third quarter of 2017, compared to a credit to the Provision of $89,000 for the same period in 2016.~~
·
~~Noninterest income increased $82,000 for the third quarter of 2017 compared to the same period in 2016.~~
·
~~Noninterest expense increased $776,000, or 37%, for the third quarter of 2017 compared to the same period in 2016.~~
~~Republic Credit Solutions segment~~
·
~~Net income increased $553,000, or 54%, for the third quarter of 2017 compared to the same period in 2016.~~
·
~~Net interest income increased $2.8 million, or 86%, for the third quarter of 2017 compared to the same period in 2016.~~
·
~~Overall, RCS recorded a Provision of $4.5 million during the third quarter of 2017, compared to $2.1 million for the same period in 2016.~~
·
~~Noninterest income increased $724,000, or 67%, for the third quarter of 2017 compared to the same period in 2016.~~
·
~~Noninterest expense increased $289,000, or 47%, for the third quarter of 2017 compared to for the same period in 2016.~~
~~RESULTS OF OPERATIONS (Three Months Ended September 30, 2017 Compared to Three Months Ended June 30, 2016)~~
~~Net Interest Income~~
Banking operations are significantly dependent upon net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and the interest expense on interest-bearing liabilities used to fund those assets, such as interest-bearing deposits, securities sold under agreements to repurchase and Federal Home Loan Bank (“FHLB”) advances. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities, as well as market interest rates.
Total Company net interest income increased $8.9 million, or 23%, during the third quarter of 2017 compared to the same period in 2016. Growth in average loans across the Traditional Banking and RCS segments was the primary contributor to the Company’s growth in net interest income. Such growth was further enhanced by a 52-basis-point increase in the Company’s net interest margin to 4.17% during the third quarter of 2017 compared to 3.65% for the same period in 2016.
~~The most significant components affecting the total Company’s net interest income by reportable segment follow:~~
76
~~Table of Contents~~
~~Traditional Banking segment~~
Net interest income within the Traditional Banking segment increased $6.3 million, or 20%, for the third quarter of 2017 compared to the same period in 2016.  The Traditional Banking net interest margin was 3.70% for the third quarter of 2017, an increase of 35 basis points from the same period in 2016.
~~The Traditional Banking segment’s~~following financial instruments were favorably impacted by increases in short-term interest rates during 2017, with the increase in yield on interest-earning assets outpacing the increase in cost on interest-bearing liabilities. The changes in the Traditional Bank’s net interest income and net interest margin during the third quarter of 2017 were primarily attributable to the following:
·
Average Traditional Bank loans outstanding, excluding loans from the Company’s 2012 FDIC-assisted transactions, were $3.3 billion with a weighted average yield of 4.41% during the third quarter of 2017 compared to $3.1 billion with a weighted average yield of 4.17% during the third quarter of 2016. The overall effect of these changes in rate and volume was an increase of $3.6 million, or 11%, in interest income. This increase in average loans for the third quarter of 2017 over the third quarter of 2016 was driven primarily by growth in the Bank’s Commercial Real Estate (“CRE”), Commercial and Industrial (“C&I”), and Construction and Land Development (“Construction”) portfolios over the previous 12 months.
·
Net interest income related to loans from the Company’s 2012 FDIC-assisted transactions was significantly higher during the third quarter of 2017 compared to the same period in 2016 primarily due to the early payoff of one loan. When loans from these transactions are paid off, all unearned discount on such loans is immediately accreted into income. Discount accretion recorded in interest income during the third quarter of 2017 was $1.7 million, with $1.6 million of such accretion connected to the payoff of the previously mentioned loan.   Discount accretion on this portfolio totaled $47,000 for the same period in 2016. Overall, the average balance of the portfolio was $11 million with a yield of 65.33% during the third quarter of 2017 compared to $19 million with a yield of 7.08% for 2016. The overall effect of these changes in rate and volume was an increase of $1.5 million in interest income.
~~As of September 30, 2017, the remaining unearned accretable discount related to loans~~statements from the Company’s ~~2012 FDIC-assisted transactions totaled $1.6 million, with 95% of this discount attributable to one loan.~~
·
The weighted average cost of interest-bearing deposits during the third quarter of 2017 compared to the same period in 2016 increased to 0.46% from 0.30%, while the average outstanding interest-bearing deposits increased $94 million when comparing the two periods. The net effect of these changes in rate and volume was a decrease in net interest income of $966,000.
The FFTR, the index that many of the Bank’s short-term deposit rates track, increased three times between December 2016 and June 2017. Additionally, the FOMC of the FRB has provided further guidance that additional FFTR increases are possible during the remainder of 2017 andquarterly report on Form 10-Q were formatted in 2018. While an increase in short-term interest rates is generally believed by management to be favorable to the Bank’s net interest income and net interest margin in the near-term, such increases in short-term interest rates could have a negative impact to net interest income and net interest margin if the Bank is unable to maintain its overall funding costs at those levels assumed in its interest rate risk model or the yield curve flattens causing the spread between long-term interest rates and short-term interest rates to decrease.  Unknown variables, which may impact the Bank’s net interest income and net interest margin in the future, include, but are not limited to, the actual steepness of the yield curve, future demand for the Bank’s financial products and the Bank’s overall future liquidity needs.
~~Warehouse Lending segment~~
Net interest income within the Warehouse Lending segment decreased $187,000, or 4%, for the third quarter of 2017 compared to the same period in 2016. The decrease in net interest income was partially attributable to reduced spreads on outstanding warehouse balances and partially attributable to lower usage rates on warehouse lines compared to the same period in 2016.
The net interest spread on outstanding warehouse balances, which is equal to the yield on average outstanding balances less the cost of funding those balances, decreased 17 basis points to 3.35% during the third quarter of 2017 from 3.52% for the same period in 2016. The reduced spread was driven by competitive market pricing to attract and retain Warehouse clients.
Total Warehouse line commitments increased to $1.1 billion at September 30, 2017 from $915 million at September 30, 2016, with the Company continuing to grow its Warehouse client base over the previous 12 months. Average line usage on Warehouse
77
~~Table of Contents~~
commitments decreased to 49% during the third quarter of 2017 compared to 62% during the third quarter of 2016. These usage rates equated to a decrease of $7 million, or 1%, in average outstanding warehouse balances from the third quarter of 2016 to the third quarter of 2017, with usage rates during the third quarter of 2017 negatively impacted by a general industry decline in mortgage refinance activity. For the remainder of 2017, management believes that usage rates for Warehouse lines will likely continue to be lower than comparable periods in 2016, as the mortgage industry anticipates higher long-term interest rates.
~~Republic Credit Solutions segment~~
Net interest income within the RCS segment increased $2.8 million, or 86%, for the third quarter of 2017 compared to the same period in 2016. The increase was primarily attributable to significant growth in consumer credit products, which earned $6.0 million in net interest income during the third quarter of 2017 compared to $3.2 million for the same period in 2016. Average RCS loans were $48 million during the third quarter of 2017 compared to $19 million for the same period in 2016.
78
~~Table of Contents~~
~~Table 2 — Total Company Average~~iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2024 and ~~Interest Rates~~December 31, 2023, (ii) Consolidated Statements of Income and Comprehensive Income for the Three Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~

Three Months Ended September 30, 2017

Three Months Ended September 30, 2016


Average



Average


Average



Average

(dollars in thousands)

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS

Interest-earning assets:

Investment securities, including FHLB stock(1)

$
552,821

$
2,793

2.02
%

$
554,508

$
2,216

1.60
%

Federal funds sold and other interest-earning deposits

208,688

661

1.27

58,910

122

0.83

Other RPG loans and fees(2)(5)

48,371

6,072

50.21

18,855

3,201

67.91

Outstanding Warehouse lines of credit and fees(3)(5)

535,703

6,170

4.61

542,894

5,457

4.02

All other Traditional Bank loans and fees(4)(5)

3,291,346

38,029

4.62

3,140,344

32,936

4.20

Total interest-earning assets

4,636,929

53,725

4.63

4,315,511

43,932

4.07

Allowance for loan and lease losses

(38,797)

(29,544)

Noninterest-earning assets:

Noninterest-earning cash and cash equivalents

63,244

74,055

Premises and equipment, net

44,674

43,506

Bank owned life insurance

62,798

61,225

Other assets(1)

65,805

67,205

Total assets

$
4,834,653

$
4,531,958

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:

Transaction accounts

$
1,122,087

$
753

0.27
%

$
1,012,417

$
275

0.11
%

Money market accounts

549,534

426

0.31

552,115

289

0.21

Time deposits

278,566

843

1.21

230,386

560

0.97

Brokered money market and brokered certificates of deposit

299,249

565

0.76

360,371

497

0.55

Total interest-bearing deposits

2,249,436

2,587

0.46

2,155,289

1,621

0.30

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

208,160

161

0.31

215,343

10

0.02

Federal Home Loan Bank advances

618,750

2,383

1.54

584,946

2,662

1.82

Subordinated note

41,240

287

2.78

44,288

241

2.18

Total interest-bearing liabilities

3,117,586

5,418

0.70

2,999,866

4,534

0.60

Noninterest-bearing liabilities and Stockholders’ equity:

Noninterest-bearing deposits

1,052,162

900,432

Other liabilities

31,031

30,617

Stockholders’ equity

633,874

601,043

Total liabilities and stockholders’ equity

$
4,834,653

$
4,531,958

Net interest income

$
48,307

$
39,398

Net interest spread

3.93
%

3.47
%

Net interest margin

4.17
%

3.65
%

~~(1)~~
~~For the purpose of this calculation, the fair market value adjustment on investment securities resulting from ASC Topic 320, Investments — Debt and~~2023, (iii) Consolidated Statements of Stockholders’ Equity ~~Securities, is included as a component of other assets.~~
~~(2)~~
~~Interest income includes loan fees of $5.4 million and $2.8 million for the three months ended September 30, 2017 and 2016.~~
~~(3)~~
~~Interest income includes loan fees of $828,000 and $975,000 for the three months ended September 30, 2017 and 2016.~~
~~(4)~~
~~Interest income includes loan fees of $2.9 million and $1.0 million for the three months ended September 30, 2017 and 2016.~~
~~(5)~~
~~Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs.~~
79
~~Table of Contents~~
Table 3 illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities impacted Republic’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume) and (iii) net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
~~Table 3 — Total Company Volume/Rate Variance Analysis~~ for the Three Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~

Three Months Ended September 30, 2017

Compared to

Three Months Ended September 30, 2016

Total Net

Increase / (Decrease) Due to

(in thousands)

Change

Volume

Rate


Interest income:

Investment securities, including FHLB stock

$
578

$
(7)

$
585

Federal funds sold and other interest-earning deposits

539

446

93

Other RPG loans and fees

2,871

3,892

(1,021)

Outstanding Warehouse lines of credit and fees

713

(73)

786

All other Traditional Bank loans and fees

5,090

1,635

3,455

Net change in interest income

9,791

5,893

3,898

Interest expense:

Transaction accounts

478

33

445

Money market accounts

137

(1)

138

Time deposits

283

130

153

Brokered money market and brokered certificates of deposit

69

(94)

163

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

150

—

150

Federal Home Loan Bank advances

(281)

147

(428)

Subordinated note

46

(18)

64

Net change in interest expense

882

197

685

Net change in net interest income

$
8,909

$
5,696

$
3,213

80
~~Table~~2023, (iv) Consolidated Statements of ~~Contents~~
~~Provision for Loan and Lease Losses~~
The Company recorded a Provision of $4.2 million for the third quarter of 2017, compared to $2.5 million for the same period in 2016.  The significant components comprising the Company’s Provision by reportable segment were as follows:
~~Traditional Banking segment~~
The Traditional Banking Provision during the third quarter of 2017 was $683,000, compared to $289,000 for the third quarter of 2016. An analysis of the Provision for the third quarter of 2017 compared to the same period in 2016 follows:
·
Related to the Bank’s pass-rated and non-rated credits, the Bank recorded net charges of $622,000 and $499,000 to the Provision for the third quarters of 2017 and 2016.  Loan growth primarily drove the net charges to the Provision in both periods, as gross loans increased $66 million during the third quarter of 2017 and $52 million during the third quarter of 2016.
·
Provision activity related to the Bank’s loans rated Substandard and Special Mention, as well as purchased-credit-impaired (“PCI”) loans, was immaterial during the third quarters of 2017 and 2016.
As a percentage of total loans, the Traditional Banking Allowance for Loan and Lease Losses (“Allowance”) was 0.84% at September 30, 2017 compared to 0.83% at December 31, 2016 and 0.81% at September 30, 2016. The Company believes, based on information presently available, that it has adequately provided for Traditional Bank loan losses at September 30, 2017.
~~Warehouse Lending segment~~
The Warehouse Provision was a credit of $74,000 for the third quarter of 2017, a $262,000 decrease from the same period in 2016. Provision expense for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $29 million during the third quarter of 2017 compared to an increase of $75 million during the third quarter of 2016.
As a percentage of total Warehouse outstanding balances, the Warehouse Allowance was 0.25% at September 30, 2017, December 31, 2016 and September 30, 2016.  The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses at September 30, 2017.
~~Tax Refund Solutions segment~~
TRS recorded a credit to the Provision of $840,000 during the third quarter of 2017 compared to a credit of $89,000 for the same period in 2016. These credits primarily represent recoveries on EAs previously charged off in the first or second quarter of each year.
~~Republic Credit Solutions segment~~
RCS recorded a Provision of $4.5 million during the third quarter of 2017, an increase of $2.4 million compared to the same period in 2016. Provision expense was higher at RCS due to an increase in general loss reserves for growth in RCS loans and an increase in the historical loss factors within the loan loss reserve calculation resulting from a rise in charge-offs from the prior year.
While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products.  As a percentage of total RCS loans, the RCS Allowance was 22.71% at September 30, 2017 compared to 15.40% at December 31, 2016 and 19.80% at September 30, 2016.  The Company believes, based on information presently available, that it has adequately provided for RCS loan losses at September 30, 2017.
See the sections titled “Allowance for Loan and Lease Losses” and “Asset Quality” in this section of the filing under “Comparison of Financial Condition” for additional discussion regarding the Provision and the Bank’s credit quality.
81
~~Table of Contents~~
~~Table 4 — Summary of Loan and Lease Loss Experience~~Cash Flows for the Three Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~


Three Months Ended

September 30,

(dollars in thousands)

2017

2016

Allowance at beginning of period

$
37,898

$
29,308

Charge-offs:

Traditional Banking:

Residential real estate

(52)

(56)

Commercial real estate

—

—

Construction & land development

—

—

Commercial & industrial

(152)

—

Lease financing receivables

—

—

Home equity

(4)

(145)

Consumer

(481)

(522)

Total Traditional Banking

(689)

(723)

Warehouse lines of credit

—

—

Total Core Banking

(689)

(723)

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

Commercial & industrial

—

—

Republic Credit Solutions

(2,681)

(1,352)

Total Republic Processing Group

(2,681)

(1,352)

Total charge-offs

(3,370)

(2,075)

Recoveries:

Traditional Banking:

Residential real estate

107

142

Commercial real estate

77

34

Construction & land development

3

10

Commercial & industrial

12

121

Lease financing receivables

—

—

Home equity

51

31

Consumer:

125

142

Total Traditional Banking

375

480

Warehouse lines of credit

—

—

Total Core Banking

375

480

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

841

93

Refund Anticipation Loans

—

—

Commercial & industrial

—

—

Republic Credit Solutions

226

141

Total Republic Processing Group

1,067

234

Total recoveries

1,442

714

Net loan charge-offs

(1,928)

(1,361)

Provision - Core Banking

609

477

Provision - RPG

3,612

2,012

Total Provision

4,221

2,489

Allowance at end of period

$
40,191

$
30,436

Credit Quality Ratios - Total Company:

Allowance to total loans

1.02
%

0.80
%
Allowance to nonperforming loans

245

169

Net loan charge-offs to average loans

0.20

0.15

Credit Quality Ratios - Core Banking:

Allowance to total loans

0.76
%

0.71
%
Allowance to nonperforming loans

190

152

Net loan charge-offs to average loans

0.03

0.03

82
~~Table of Contents~~
~~Noninterest Income~~
Total Company noninterest income decreased $927,000, or 8%, during the third quarter of 2017 compared to the same period in 2016. The most significant components comprising the total Company’s noninterest income by reportable segment were as follows:
~~Traditional Banking segment~~
Traditional Banking segment noninterest income increased $231,000, or 3%, for the third quarter of 2017 compared to the same period in 2016.  The most significant categories affecting the change in noninterest income for the quarter were as follows:
·
Service charges on deposit accounts remained at $3.4 million for the third quarter of 2017 compared to the same period in 2016.  The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient funds check or electronic debit presented for payment. Total per item fees, net of refunds, included in service charges on deposits remained at $2.1 million for the quarters ended September 30, 2017 and 2016. Total daily overdraft charges, net of refunds, included in interest income were $465,000 and $445,000 for the quarters ended September 30, 2017 and 2016.
·
~~The Traditional Bank recorded a positive swing of $147,000 on the net gain/loss on sale of other real estate owned (“REO”) from the third quarter of 2017 compared to the same period in 2016.~~
~~Mortgage Banking segment~~
Within the Mortgage Banking segment, mortgage banking income decreased $2.0 million during the third quarter of 2017 compared to the same period in 2016.  Approximately $1.1 million of the decrease in mortgage banking income was attributable to a gain recorded during the third quarter of 2016 from a nonrecurring bulk sale of $71 million in mortgage loans, which represented a portion of the Company’s correspondent loan portfolio.  The remainder of the decrease in mortgage banking income was consistent with a decrease in consumer refinance activity.
Overall, excluding the aforementioned bulk loan sale, Republic’s originations of secondary market loans totaled $43 million during the third quarter of 2017 compared to $59 million during the same period in 2016. Excluding the bulk sale, the ratio of net gain on sale of mortgage loans originated for sale was 2.22% and 3.33% during the third quarters of 2017 and 2016.
~~Republic Credit Solutions segment~~
Within the RCS segment, noninterest income increased $724,000, or 67%, during the third quarter of 2017 compared to the same period in 2016 driven by a $584,000, or 61%, increase in Program fees. These fees represent gains from the sale of consumer loans.  The increase in program fees resulted from an increase in volume from RCS’ small-dollar consumer loan programs.  During the third quarter of 2017, loans sold through the RCS programs increased $53 million, or 42%, to $178 million compared to $125 million during the third quarter of 2016.
~~Noninterest Expense~~
Total Company noninterest expense increased $4.5 million, or 13%, during the third quarter of 2017 compared to the same period in 2016. The most significant components comprising the increase in noninterest expense by reportable segment were as follows:
~~Traditional Banking segment~~
For the third quarter of 2017 compared to the same period in 2016, Traditional Banking noninterest expense increased $3.3 million, or 12%. The most significant categories affecting the change in noninterest expense for the quarter were as follows:
·
Salaries and benefits expense increased $1.8 million, or 12%, primarily due to an increase of 67 full-time-equivalent (“FTE”) employees from September 30, 2016 to September 30, 2017. The increase in FTEs was driven by additional staffing needed to implement the Company’s strategic initiatives.
·
Marketing and development expense increased $531,000, or 53%, with a substantial portion of this increase focused on driving loan and deposit growth in markets outside of the Company’s Louisville, Kentucky footprint.  In addition, the Company also instituted a marketing awareness campaign in its Louisville, Kentucky market as part of a mortgage lending initiative.
83
~~Table of Contents~~
·
~~Impairment of premises held for sale increased $907,000 resulting from a mark-to-market charge for a bank property that the Company plans to market for sale in the coming months.~~
~~Tax Refund Solutions segment~~
Within the TRS segment, noninterest expense increased $776,000, or 37%, during the third quarter of 2017 compared to the same period in 2016.  The increase was partially due to a $334,000 increase in salaries and benefits expense, driven by additional staff added during the previous 12 months to support growth. The remaining increase was primarily in the other expense category and was related to an accrual for future Tax Provider payments triggered by the attainment of certain agreed upon incentive metrics for the applicable program.
~~See additional detail regarding the Easy Advance (“EA”) product under Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements.”~~
~~Republic Credit Solutions segment~~
Within the RCS segment, noninterest expense increased $289,000, or 47%, during the third quarter of 2017 compared to the same period in 2016.  The increase was primarily due to a $198,000 increase in data processing expenses and $102,000 increase in salaries and employee benefits expense, with both increases consistent with growth in RCS products.
~~OVERVIEW (Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016)~~
Total Company net income for the first nine months of 2017 was $40.8 million, a $4.9 million, or 14%, increase from the same period in 2016. Diluted earnings per Class A Common Share increased to $1.96 for the nine months ended September 30, 2017 compared to $1.73 for the same period in 2016.
The Company maintains six banking centers in the Tampa, Florida metropolitan statistical area.  The Company’s results of operations for the nine months ended September 30, 2017 were not meaningfully impacted by hurricane Irma, which struck Florida during the third quarter of 2017.
~~General highlights by reportable segment for the nine months ended September 30, 2017 consisted of the following:~~
~~Traditional Banking segment~~
·
~~Net income increased $1.5 million, or 8%, for the first nine months of 2017 compared to the same period in 2016.~~
·
~~Net interest income increased $14.2 million, or 16%, for the first nine months of 2017 compared to the same period in 2016.~~
·
~~The Provision was $2.6 million for the first nine months of 2017 compared to $1.6 million for the same period in 2016.~~
·
~~Total noninterest income increased $1.2 million, or 6%, for the first nine months of 2017 compared to the same period in 2016.~~
·
~~Total noninterest expense increased $12.0 million, or 15%, during the first nine months of 2017 compared to the first nine months of 2016.~~
~~Warehouse Lending segment~~
·
~~Net income increased $1.4 million, or 26%, for the first nine months of 2017 compared to the same period in 2016.~~
·
~~Net interest income increased $1.7 million, or 15%, for the first nine months of 2017 compared to the same period in 2016.~~
·
~~The Provision was a net credit of $36,000 for the first nine months of 2017 compared to a net charge of $686,000 for the same period in 2016.~~
84
~~Table of Contents~~
~~Mortgage Banking segment~~
·
~~Within the Mortgage Banking segment, mortgage banking income decreased $2.2 million during the first nine months of 2017 compared to the same period in 2016.~~
·
Overall, excluding the aforementioned bulk loan sale that occurred during the third quarter of 2016, Republic’s originations of secondary market loans totaled $119 million during the first nine months of 2017 compared to $155 million during the same period in 2016.
~~Tax Refund Solutions segment~~
·
~~Net income increased $1.3 million, or 14%, for the first nine months of 2017 compared to the same period in 2016.~~
·
~~Net interest income increased $8.6 million for the first nine months of 2017 compared to the same period in 2016.~~
·
EA loan originations increased $206 million to $329 million for the first nine months of 2017 compared to $123 million for the same period in 2016. EAs were only offered during the first two months of each year.
·
~~The Provision was $6.8 million during the first nine months of 2017 compared to $2.9 million for the same period in 2016.~~
·
~~Noninterest income decreased $885,000, or 5%, for the first nine months of 2017 compared to the same period in 2016.~~
·
~~Noninterest expense increased $1.9 million, or 21%, for the first nine months of 2017 compared to the same period in 2016.~~
~~Republic Credit Solutions segment~~
·
~~Net income increased $2.0 million for the first nine months of 2017 compared to the same period in 2016.~~
·
~~Net interest income increased $8.9 million for the first nine months of 2017 compared to the same period in 2016.~~
·
~~The Provision was $12.3 million during the first nine months of 2017 compared to $4.3 million for the same period in 2016.~~
·
~~Noninterest income increased $3.0 million for the first nine months of 2017 compared to the same period in 2016.~~
·
~~Noninterest expense increased $833,000, or 51%, for the first nine months of 2017 compared to the same period in 2016.~~
~~RESULTS OF OPERATIONS (Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016)~~
~~Net Interest Income~~
Banking operations are significantly dependent upon net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and the interest expense on interest-bearing liabilities used to fund those assets, such as interest-bearing deposits, securities sold under agreements to repurchase and FHLB advances. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities, as well as market interest rates.
Total Company net interest income increased $33.5 million, or 29%, during the first nine months of 2017 compared to the same period in 2016.  Loan growth was the primary contributor to the Company’s growth in net interest income. The total Company net interest margin increased to 4.34% during the first nine months of 2017 compared to 3.62% for the same period in 2016, with additional fee income from consumer credit products offered through the TRS and RCS segments primarily driving the increase.
~~The most significant components affecting the total Company’s net interest income by reportable segment follow:~~
85
~~Table of Contents~~
~~Traditional Banking segment~~
Net interest income within the Traditional Banking segment increased $14.2 million, or 16%, for the first nine months of 2017 compared to the same period in 2016.  The Traditional Banking net interest margin was 3.48% for the first nine months of 2017, an increase of 26 basis points from the same period in 2016.
The Traditional Banking segment’s financial instruments were favorably impacted by increases in short-term interest rates during 2017, with the increase in yield on interest-earning assets outpacing the increase in cost on interest-bearing liabilities. The changes in the Traditional Bank’s net interest income and net interest margin during the first nine months of 2017 were primarily attributable to the following:
·
Average Traditional Bank loans outstanding, excluding loans from the Company’s 2012 FDIC-assisted transactions, were $3.2 billion with a weighted average yield of 4.28% during the first nine months of 2017 compared to $3.0 billion with a weighted average yield of 4.09% during the first nine months of 2016. The overall effect of these changes in rate and volume was an increase of $10.4 million, or 11%, in interest income. This increase in average loans for the first nine months of 2017 over the first nine months of 2016 was driven primarily by growth in the Bank’s CRE, Construction, and C&I portfolios over the previous 12 months.
·
Net interest income related to loans from the Company’s 2012 FDIC-assisted transactions was higher during the first nine months of 2017 compared to the same period in 2016 primarily due to the early payoff of one loan during the third quarter of 2017. When loans from these transactions are paid off, all unearned discount on such loans is immediately accreted into income. Discount accretion recorded in interest income during the first nine months of 2017 was $1.9 million, with $1.7 million of such accretion connected to the previously mentioned loan repaid in the third quarter of 2017.  Discount accretion on this portfolio totaled $966,000 for the first nine months of 2016. Overall, the average balance of the portfolio was $13 million with a yield of 26.47% during the first nine months of 2017 compared to $21 million with a yield of 12.80% for 2016. The overall effect of these changes in rate and volume was an increase of $585,000 in interest income.
As of September 30, 2017, the remaining unearned accretable discount related to loans from the Company’s 2012 FDIC-assisted transactions totaled $1.6 million, with 95% of this discount attributable to one loan.
·
The weighted average cost of interest-bearing deposits during the first nine months of 2017 compared to the same period in 2016 increased to 0.41% from 0.29%, while the average outstanding interest-bearing deposits increased $215 million when comparing the two periods. The net effect of these changes in rate and volume was a decrease in net interest income of $2.4 million.
·
The weighted average cost of FHLB advances during the first nine months of 2017 compared to the same period in 2016 declined to 1.54% from 1.95%, while the average outstanding FHLB advances decreased $16 million when comparing the two periods. The net effect of these changes in rate and volume was an increase in net interest income of $2.0 million.
The FFTR, the index that many of the Bank’s short-term deposit rates track, increased three times between December 2016 and June 2017.  Additionally, the FOMC of the FRB has provided further guidance that additional FFTR increases are possible during the remainder of 2017 and in 2018. While an increase in short-term interest rates is generally believed by management to be favorable to the Bank’s net interest income and net interest margin in the near-term, such increases in short-term interest rates could have a negative impact to net interest income and net interest margin if the Bank is unable to maintain its overall funding costs at those levels assumed in its interest rate risk model or the yield curve flattens causing the spread between long-term interest rates and short-term interest rates to decrease.  Unknown variables, which may impact the Bank’s net interest income and net interest margin in the future, include, but are not limited to, the actual steepness of the yield curve, future demand for the Bank’s financial products and the Bank’s overall future liquidity needs.
86
~~Table of Contents~~
~~Warehouse Lending segment~~
Net interest income within the Warehouse Lending segment increased $1.7 million, or 15%, for the first nine months of 2017 compared to the same period in 2016. The increase in net interest income was primarily attributable to higher average outstanding balances for the current period as compared to the same period in 2016. Overall, average outstanding Warehouse balances during the first nine months of 2017 increased $71 million, or 17%, compared to the same period in 2016.
Total Warehouse line commitments increased to $1.1 billion at September 30, 2017 from $915 million at September 30, 2016, with the Company continuing to grow its Warehouse client base over the previous 12 months. Average line usage on Warehouse commitments was 47% during the first nine months of 2017 compared to 56% during the first nine months of 2016. For the remainder of 2017, management believes that usage rates for Warehouse lines will likely continue to be lower than comparable periods in 2016, as the mortgage industry anticipates higher long-term interest rates.
~~Tax Refund Solutions segment~~
Net interest income within the TRS segment increased $8.6 million the first nine months of 2017 compared to the same period in 2016. The increase in TRS’s net interest income was primarily attributed to the following factors:
·
The TRS segment’s EA product earned $14.2 million in interest income during the first nine months of 2017, a $9.0 million increase from the same period in 2016.  The higher EA income was driven by an increase in EA origination volume as the Company originated $329 million in EAs during the first nine months of 2017 compared to $123 million during the first nine months of 2016.  Additional demand for EAs during 2017 was partially driven by the previously announced delays in certain taxpayer refunds from the U.S. Treasury due to additional fraud prevention measures taken by the Federal government. In addition, the Company’s increase in EA dollar volume during 2017 was driven by a higher weighted average advance amount as compared to 2016.
~~See additional detail regarding the EA product under Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements.”~~
·
Partially offsetting growth in EA-related interest income, the TRS segment did not renew a short-term commercial loan from which it earned $1.1 million in loan fees during the first nine months of 2016. However, TRS did earn $635,000 in loan fees during the first nine months of 2017 from other commercial loan relationships.
~~Republic Credit Solutions segment~~
Net interest income within the RCS segment increased $8.9 million for the first nine months of 2017 compared to the same period in 2016. The increase was driven by product expansion at RCS over the previous 12 months, particularly within the segment’s line-of-credit product.  Average RCS loans increased $26 million to $39 million during the first nine months of 2017 compared to $13 million for the same period in 2016.
87
~~Table of Contents~~
~~Table 5 — Total Company Average Balance Sheets and Interest Rates for the Nine Months Ended September 30, 2017 and 2016~~

Nine Months Ended September 30, 2017

Nine Months Ended September 30, 2016

Average



Average


Average



Average


(dollars in thousands)

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS

Interest-earning assets:

Investment securities, including FHLB stock(1)

$
578,963

$
8,051

1.85
%

$
571,740

$
6,611

1.54
%

Federal funds sold and other interest-earning deposits

174,538

1,368

1.05

147,180

706

0.64

TRS Easy Advance loans and fees(2)

26,210

14,220

72.34

7,040

5,210

98.67

Other RPG loans and fees(3)(6)

43,072

16,632

51.49

20,431

8,053

52.55

Outstanding Warehouse lines of credit and fees(4)(6)

487,545

16,253

4.44

416,665

12,569

4.02

All other Traditional Bank loans and fees(5)(6)

3,228,812

105,905

4.37

3,048,861

94,940

4.15

Total interest-earning assets

4,539,140

162,429

4.77

4,211,917

128,089

4.05

Allowance for loan and lease losses

(38,476)

(29,451)

Noninterest-earning assets:

Noninterest-earning cash and cash equivalents

111,947

105,537

Premises and equipment, net

44,224

36,986

Bank owned life insurance

62,378

57,112

Other assets(1)

64,221

58,780

Total assets

$
4,783,434

$
4,440,881

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:

Transaction accounts

$
1,085,030

$
1,697

0.21
%

$
941,138

$
660

0.09
%

Money market accounts

551,270

1,108

0.27

542,888

790

0.19

Time deposits

251,795

2,132

1.13

220,403

1,668

1.01

Brokered money market and brokered certificates of deposit

340,636

1,853

0.73

309,768

1,241

0.53

Total interest-bearing deposits

2,228,731

6,790

0.41

2,014,197

4,359

0.29

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

202,018

332

0.22

296,574

51

0.02

Federal Home Loan Bank advances

572,390

6,618

1.54

588,109

8,590

1.95

Subordinated note

41,240

807

2.61

42,926

680

2.11

Total interest-bearing liabilities

3,044,379

14,547

0.64

2,941,806

13,680

0.62

Noninterest-bearing liabilities and Stockholders’ equity:

Noninterest-bearing deposits

1,082,361

874,060

Other liabilities

32,531

29,779

Stockholders’ equity

624,164

595,236

Total liabilities and stock-holders’ equity

$
4,783,435

$
4,440,881

Net interest income

$
147,882

$
114,409

Net interest spread

4.13
%

3.43
%

Net interest margin

4.34
%

3.62
%

~~(1)~~
For the purpose of this calculation, the fair market value adjustment on investment securities resulting from ASC Topic 320, Investments — Debt and Equity Securities, is included as a component of other assets.
~~(2)~~
~~Interest income for Easy Advances is composed entirely of loan fees.~~
~~(3)~~
~~Interest income includes loan fees of $15.0 million and $7.4 million for the nine months ended September 30, 2017 and 2016.~~
~~(4)~~
~~Interest income includes loan fees of $2.5 million and $2.3 million for the nine months ended September 30, 2017 and 2016.~~
~~(5)~~
~~Interest income includes loan fees of $5.1 million and $3.4 million for the nine months ended September 30, 2017 and 2016.~~
~~(6)~~
~~Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs.~~
88
~~Table of Contents~~
Table 6 illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities impacted Republic’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume) and (iii) net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
~~Table 6 — Total Company Volume/Rate Variance Analysis for the Nine Months Ended September 30, 2017 and 2016~~

Nine Months Ended September 30, 2017

Compared to

Nine Months Ended September 30, 2016

Total Net

Increase / (Decrease) Due to

(in thousands)

Change

Volume

Rate

Interest income:

Investment securities, including FHLB stock

$
1,440

$
84

$
1,356

Federal funds sold and other interest-earning deposits

662

150

512

TRS Easy Advance loans and fees

9,010

10,739

(1,729)

Other RPG loans and fees

8,579

8,746

(167)

Outstanding Warehouse lines of credit and fees

3,684

2,277

1,407

All other Traditional Bank loans and fees

10,965

5,760

5,205

Net change in interest income

34,340

27,756

6,584

Interest expense:

Transaction accounts

1,037

115

922

Money market accounts

318

12

306

Time deposits

464

253

211

Brokered money market and brokered certificates of deposit

612

133

479

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

281

(22)

303

Federal Home Loan Bank advances

(1,972)

(224)

(1,748)

Subordinated note

127

(28)

155

Net change in interest expense

867

239

628

Net change in net interest income

$
33,473

$
27,517

$
5,956

89
~~Table of Contents~~
~~Provision for Loan and Lease Losses~~
The Company recorded a Provision of $21.6 million for the first nine months of 2017, compared to $9.5 million for the same period in 2016.  The significant components comprising the Company’s Provision by reportable segment were as follows:
~~Traditional Banking segment~~
The Traditional Banking Provision during the first nine months of 2017 was $2.6 million, compared to $1.6 million for the first nine months of 2016. An analysis of the Provision for the first nine months of 2017 compared to the same period in 2016 follows:
·
Related to the Bank’s pass-rated and non-rated credits, the Bank recorded net charges of $2.7 million and $1.7 million to the Provision for the first nine months of 2017 and 2016.  Loan growth primarily drove the net charges to the Provision in both periods, as gross loans increased $153 million during the first nine months of 2017 and $212 million during the same period in 2016. Growth during the first nine months of 2016 was primarily driven by the Company’s May 2016 Cornerstone acquisition, while growth during the same period in 2017 was primarily organic in nature. Since business-acquisition loans are purchased at fair value and the credit risk is a component of the valuation when determining the fair value, only a minimal Provision was recorded during 2016 for loan growth attributable to the Cornerstone acquisition.
·
~~Provision activity related to the Bank’s loans rated Substandard and Special Mention, as well as PCI loans, was immaterial during the first nine months of 2017 and 2016.~~
As a percentage of total loans, the Traditional Banking Allowance was 0.84% at September 30, 2017 compared to 0.83% at December 31, 2016 and 0.81% at September 30, 2016. The Company believes, based on information presently available, that it has adequately provided for Traditional Bank loan losses at September 30, 2017.
~~Warehouse Lending segment~~
The Warehouse Provision was a net credit of $36,000 for the first nine months of 2017, a $722,000 improvement from the same period in 2016. Provision expense for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $14 million during the first nine months of 2017 compared to an increase of $274 million during the first nine months of 2016.
As a percentage of total Warehouse outstanding balances, the Warehouse Allowance was 0.25% at September 30, 2017, December 31, 2016 and September 30, 2016.  The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses at September 30, 2017.
~~Tax Refund Solutions segment~~
~~TRS recorded a Provision of $6.8 million during the first nine months of 2017, an increase of $3.9 million compared to same period in 2016.~~
The increase in Provision at TRS was attributable to an increase in estimated losses for EA loans, as EA volume increased 167% for the first nine months of 2017 compared to the first nine months of 2016. As of September 30, 2017 and 2016, the Company had Provisions of 2.14% and 2.54% of total EAs originated during the first nine months of 2017 and 2016.
~~See additional detail regarding the EA product under Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements.”~~
90
~~Table of Contents~~
~~Republic Credit Solutions segment~~
RCS recorded a Provision of $12.3 million during the first nine months of 2017, an increase of $8.0 million compared to same period in 2016. Provision expense was higher at RCS due to an increase in general loss reserves for growth in RCS loans, as well as an increase in the historical loss factors for the general reserves for RCS loans resulting from a rise in charge-offs from the prior year.
While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products.  As a percentage of total RCS loans, the RCS Allowance was 22.71% at September 30, 2017 compared to 15.40% at December 31, 2016 and 19.80% at September 30, 2016.  The Company believes, based on information presently available, that it has adequately provided for RCS loan losses at September 30, 2017.
See the sections titled “Allowance for Loan and Lease Losses” and “Asset Quality” in this section of the filing under “Comparison of Financial Condition” for additional discussion regarding the Provision and the Bank’s credit quality.
91
~~Table of Contents~~
~~Table 7 — Summary of Loan and Lease Loss Experience for the Nine Months Ended September 30, 2017 and 2016~~

Nine Months Ended

September 30,

(dollars in thousands)

2017

2016

Allowance at beginning of period

$
32,920

$
27,491

Charge-offs:

Traditional Banking:

Residential real estate

(177)

(317)

Commercial real estate

—

(41)

Construction & land development

—

(44)

Commercial & industrial

(152)

(330)

Lease financing receivables

—

—

Home equity

(99)

(229)

Consumer

(1,483)

(1,178)

Total Traditional Banking

(1,911)

(2,139)

Warehouse lines of credit

—

—

Total Core Banking

(1,911)

(2,139)

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

(8,121)

(3,474)

Commercial & industrial

—

—

Republic Credit Solutions

(7,217)

(3,072)

Total Republic Processing Group

(15,338)

(6,546)

Total charge-offs

(17,249)

(8,685)

Recoveries:

Traditional Banking:

Residential real estate

231

301

Commercial real estate

115

140

Construction & land development

4

30

Commercial & industrial

34

125

Lease financing receivables

—

—

Home equity

128

135

Consumer:

442

454

Total Traditional Banking

954

1,185

Warehouse lines of credit

—

—

Total Core Banking

954

1,185

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

1,082

347

Refund Anticipation Loans

252

290

Commercial & industrial

—

—

Republic Credit Solutions

599

319

Total Republic Processing Group

1,933

956

Total recoveries

2,887

2,141

Net loan charge-offs

(14,362)

(6,544)

Provision - Core Banking

2,575

2,253

Provision - RPG

19,058

7,236

Total Provision

21,633

9,489

Allowance at end of period

$
40,191

$
30,436

Credit Quality Ratios - Total Company:

Allowance to total loans

1.02
%

0.80
%
Allowance to nonperforming loans

245

169

Net loan charge-offs to average loans

0.51

0.25

Credit Quality Ratios - Core Banking:

Allowance to total loans

0.76
%

0.71
%
Allowance to nonperforming loans

190

152

Net loan charge-offs to average loans

0.03

0.04

92
~~Table of Contents~~
~~Noninterest Income~~
Total Company noninterest income increased $1.2 million, or 3%, during the first nine months of 2017 compared to the same period in 2016. The most significant components comprising the total Company’s noninterest income by reportable segment were as follows:
~~Traditional Banking segment~~
Traditional Banking segment noninterest income increased $1.2 million, or 6%, for the first nine months of 2017 compared to the same period in 2016.  The most significant categories affecting the change in noninterest income for the period were as follows:
·
Service charges on deposit accounts increased $220,000, or 2%, to $10.0 million for the first nine months of 2017 compared to $9.8 million during the same period in 2016 driven by a 7% growth in the Company’s transactional account base from September 30, 2016 to September 30, 2017.  The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the nine months ended September 30, 2017 and 2016 were $6.1 million and $5.7 million. The total daily overdraft charges, net of refunds, included in interest income for the nine months ended September 30, 2017 and 2016 were $1.3 million and $1.2 million.
·
Interchange income increased $435,000, or 7%, due to an 11% increase in the number of active debit cards and a 9% increase in the number of transactions experienced by the Company for such cards.
~~Mortgage Banking segment~~
Within the Mortgage Banking segment, mortgage banking income decreased $2.2 million during the first nine months of 2017 compared to the same period in 2016. Approximately $1.1 million of the decrease in mortgage banking income was attributable to a nonrecurring gain recorded during the third quarter of 2016 from the bulk sale of $71 million in mortgage loans, which represented a portion of the Company’s correspondent loan portfolio.  The remainder of the decrease in mortgage banking income was consistent with a decrease in consumer refinance activity.
Overall, excluding the aforementioned bulk loan sale, Republic’s originations of secondary market loans totaled $119 million during the first nine months of 2017 compared to $155 million during the same period in 2016. Excluding the bulk sale, the ratio of net gain on sale of mortgage loans originated for sale was 2.70% and 2.92% during the first nine months of 2017 and 2016.
~~Tax Refund Solutions segment~~
Within the TRS segment, noninterest income decreased $885,000, or 5%, during the first nine months of 2017 compared to the same period in 2016.  The overall decrease was primarily attributable to a $790,000, or 4%, decrease in net RT revenue at TRS from the first nine months of 2016 to the first nine months of 2017, consistent with the 10% decrease in RT product volume for the same periods.
~~Republic Credit Solutions segment~~
Within the RCS segment, noninterest income increased $3.0 million, or 149%, during the first nine months of 2017 compared to the same period in 2016.  The overall increase was primarily attributable to an increase of $2.1 million in RCS program fees, which represents gains from the sale of consumer loans.  The increase in program fees resulted from an increase in volume from RCS’ small-dollar consumer loan programs.  During the first nine months of 2017, loans sold through the RCS programs increased $205 million, or 83%, to $453 million compared to $248 million during the first nine months of 2016. I~~n addition, RCS benefitted during the first nine months of 2017 from the final revenue payment of $427,000 from a program sponsor related to a first-year volume guarantee for its credit product.~~
93
~~Table of Contents~~
~~Noninterest Expense~~
Total Company noninterest expense increased $14.8 million, or 15%, during the first nine months of 2017 compared to the same period in 2016. The most significant components comprising the increase in noninterest expense by reportable segment were as follows:
~~Traditional Banking segment~~
For the first nine months of 2017 compared to the same period in 2016, Traditional Banking noninterest expense increased $12.0 million, or 15%. The most significant categories affecting the change in noninterest expense for the periods were as follows:
·
Salaries and benefits expense increased $7.0 million, or 16%, primarily due to an increase of 67 FTE employees from September 30, 2016 to September 30, 2017. The increase in FTEs was driven by additional staffing needed to implement the Company’s strategic initiatives.
·
Occupancy expense increased $1.6 million, or 11%, driven by increases in rent expense and depreciation expense resulting from new locations, existing banking center renovations and the cost of technology to support the Bank’s strategic initiatives.
·
Marketing and development expense increased $1.1 million, or 42%, with $660,000 of the increase attributable to the Company’s national branchless banking platform, MemoryBank.  The remainder of the increase was focused on driving loan and deposit growth in markets outside of the Company’s Louisville, Kentucky footprint.  In addition, the Company also instituted a marketing awareness campaign in its Louisville, Kentucky market as part of a mortgage lending initiative.
·
~~Impairment of premises held for sale increased $949,000 resulting from a mark-to-market charge for a bank property that the Company plans to market for sale in the coming months.~~
~~Tax Refund Solutions segment~~
Within the TRS segment, noninterest expense increased $1.9 million, or 21%, during the first nine months of 2017 compared to the same period in 2016.  The increase was primarily due to a $1.3 million increase in salaries and benefits expense, driven by additional staff added during the previous 12 months to support growth. The remaining increase was primarily in the other expense category and was related to an accrual for future Tax Provider payments triggered by the attainment of certain agreed upon incentive metrics for the applicable program.
~~Republic Credit Solutions segment~~
Within the RCS segment, noninterest expense increased $833,000, or 51%, during the first nine months of 2017 compared to the same period in 2016.  The increase was primarily due to increases of $439,000 in data processing expenses and $173,000 in marketing expenses, with both increases consistent with RCS product growth from the first nine months of 2016 to the same period in 2017.
94
~~Table of Contents~~
~~COMPARISON OF FINANCIAL CONDITION AT~~ ~~September 30, 2017~~ ~~AND~~ ~~December 31, 2016~~
~~Loan Portfolio~~
~~Table 8 — Loan Portfolio Composition~~

(in thousands)
September 30, 2017

December 31, 2016

Traditional Banking:

Residential real estate:

Owner occupied
$
933,726

$
1,000,148

Owner occupied - correspondent*

125,643

149,028

Nonowner occupied

193,379

156,605

Commercial real estate

1,161,225

1,060,496

Construction & land development

138,837

119,650

Commercial & industrial

327,214

259,026

Lease financing receivables

15,367

13,614

Home equity

346,154

341,285

Consumer:

Credit cards

19,898

13,414

Overdrafts

892

803

Automobile loans

63,639

52,579

Other consumer

13,247

19,744

Total Traditional Banking

3,339,221

3,186,392

Warehouse lines of credit*

571,160

585,439

Total Core Banking

3,910,381

3,771,831

Republic Processing Group*:

Tax Refund Solutions:

Easy Advances

—

—

Commercial & industrial

265

6,695

Republic Credit Solutions

46,866

32,252

Total Republic Processing Group

47,131

38,947

Total loans**

3,957,512

3,810,778

Allowance for loan and lease losses

(40,191)

(32,920)

Total loans, net
$
3,917,321

$
3,777,858

* Identifies loans to borrowers located primarily outside of the Bank’s market footprint.
** ~~Total loans are presented inclusive of premiums, discounts and net loan origination fees and costs.~~
~~Gross loans increased by $147 million, or 4%, during 2017 to $4.0 billion at September 30, 2017.~~
~~Traditional Banking segment~~
Traditional Banking loans increased $153 million, or 5%, during the first nine months of 2017. Within the Traditional Banking segment’s portfolio, CRE loans experienced the largest increase of $101 million, or 9%, with the Bank’s Commercial and Corporate Banking Department primarily driving growth.  The Bank’s owner occupied residential real estate loans, including correspondent loans, declined $90 million in total. These category fluctuations were generally in-line with the Company’s overall long-term loan growth strategy, which is to reduce the Bank’s reliance on residential real estate loans for balance sheet growth and to rely more on commercial type loans for future growth. While the Company does currently intend to reduce its reliance on residential real estate loans for future balance sheet growth, it also continues to make plans to expand its agency-eligible volume of first mortgage residential real estate loans, which it will sell into the secondary market in order to generate fee income.
95
~~Table of Contents~~
~~Warehouse Lending segment~~
As of September 30, 2017, the Bank had $571 million outstanding on total committed Warehouse credit lines of $1.1 billion.  As of December 31, 2016, the Bank had $585 million outstanding on total committed Warehouse credit lines of $915 million. The $14 million decrease in outstanding balances generally reflects lower usage rates on outstanding Warehouse lines during 2017, with usage rates negatively impacted by a general industry decline in mortgage refinance activity. For the remainder of 2017, management believes that usage rates for Warehouse lines will likely continue to be lower than comparable periods in 2016, as the mortgage industry anticipates higher long-term interest rates.
Due to the volatility and seasonality of the mortgage market, it is difficult to project future outstanding balances of Warehouse lines of credit. The growth of the Bank’s Warehouse Lending business greatly depends on the overall mortgage market and typically follows industry trends. Since its entrance into this business during 2011, the Bank has experienced volatility in the Warehouse portfolio consistent with overall demand for mortgage products. Weighted average quarterly usage rates on the Bank’s Warehouse lines have ranged from a low of 31% during the fourth quarter of 2013 to a high of 64% during the third quarter of 2015.   On an annual basis, weighted average usage rates on the Bank’s Warehouse lines have ranged from a low of 40% during 2013 to a high of 57% during 2016.
~~Republic Credit Solutions segment~~
RCS loans increased $15 million, or 45%, during the first nine months of 2017, with RCS expanding all four of its product lines during 2017. RCS’s line-of-credit product increased $6 million, or 32%, during the first nine months of 2017, with this product representing 54% and 60% of all RCS loans outstanding at September 30, 2017 and December 31, 2016.
~~Allowance for Loan and Lease Losses (“Allowance”)~~
The Bank maintains an Allowance for probable incurred credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the Allowance on a monthly basis and presents and discusses the analysis with the Audit Committee and the Board of Directors on a quarterly basis.
The Allowance consists of both specific and general components. The specific component relates to loans that are individually classified as impaired. The general component relates to pooled loans collectively evaluated on historical loss experience adjusted for qualitative factors.
~~Specific Component – Loans Individually Classified as Impaired~~
~~The Bank defines impaired loans as follows:~~
·
~~All loans internally rated as “Substandard,” “Doubtful” or “Loss”;~~
·
~~All loans on nonaccrual status;~~
·
~~All Troubled Debt Restructurings (“TDRs”);~~
·
~~All loans internally rated in a purchased credit impaired (“PCI”) category with cash flows that have deteriorated from management’s initial acquisition day estimate; and~~
·
~~Any other situation where the full collection of the total amount due for a loan is improbable or otherwise meets the definition of impaired.~~
Generally, loans are designated as “Classified” or “Special Mention” to ensure more frequent monitoring. These loans are reviewed to ensure proper accrual status and management strategy. If it is determined that there is serious doubt as to performance in accordance with original or modified contractual terms, then the loan is generally downgraded and may be charged down to its estimated value and placed on nonaccrual status.
~~Under GAAP, the Bank uses the following methods to measure specific loan impairment, including:~~
·
~~Cash Flow Method~~ — The recorded investment in the loan is measured against the present value of expected future cash flows discounted at the loan’s effective interest rate. The Bank employs this method for a significant portion of its TDRs. Impairment amounts under this method are reflected in the Bank’s Allowance as specific reserves on the respective impaired loan. These specific reserves are adjusted quarterly based upon reevaluation of the expected future cash flows and changes in the recorded investment.
96
~~Table of Contents~~
·
~~Collateral Method~~ — The recorded investment in the loan is measured against the fair value of the collateral less applicable selling costs. The Bank employs the fair value of collateral method for its impaired loans when repayment is based solely on the sale or operations of the underlying collateral. Collateral fair value is typically based on the most recent real estate valuation on file.  Measured impairment under this method is generally charged off unless the loan is a smaller-balance, homogeneous loan. The Bank’s selling costs for its collateral-dependent loans typically range from 10-13% of the fair value of the underlying collateral, depending on the asset class. Selling costs are not applicable for collateral-dependent loans whose repayment is based solely on the operations of the underlying collateral.
In addition to obtaining appraisals at the time of origination, the Bank typically updates appraisals and/or broker price opinions (“BPOs”) for loans with potential impairment. Updated valuations for commercial-related credits exhibiting an increased risk of loss are typically obtained within one year of the previous valuation. Collateral values for delinquent residential mortgage loans and home equity loans are generally updated prior to a loan becoming 90 days delinquent, but no more than 180 days past due. When measuring impairment, to the extent updated collateral values cannot be obtained due to the lack of recent comparable sales or for other reasons, the Bank discounts such stale valuations primarily based on age of valuation and market conditions of the underlying collateral.
~~General Component – Pooled Loans Collectively Evaluated~~
The general component of the Allowance covers loans collectively evaluated for impairment by loan class and is based on historical loss experience, with potential adjustments for current relevant qualitative factors. Historical loss experience is determined by loan performance and class and is based on the actual loss history experienced by the Bank. Large groups of smaller-balance, homogeneous loans are typically included in the general component but may be individually evaluated if classified as a TDR, on nonaccrual, or a case where the full collection of the total amount due for a such loan is improbable or otherwise meets the definition of impaired.
As this analysis, or any similar analysis, is an imprecise measure of loss, the Allowance is subject to ongoing adjustments. Therefore, management will often take into account other significant factors that may be necessary or prudent in order to reflect probable incurred losses in the total loan portfolio.
The Company’s Allowance increased $7 million, or 22%, from December 31, 2016 to $40 million at September 30, 2017, primarily driven by growth in RCS small-dollar credit products and general growth in commercial Core Bank portfolios.
As a percent of total loans, the total Company’s Allowance increased to 1.02% at September 30, 2017 compared to 0.86% at December 31, 2016. The increase in ratio of Allowance to total loans was primarily driven by reserves for RCS small-dollar consumer products.  An analysis of the Allowance by reportable segment follows:
~~Traditional Banking segment~~
The Allowance at the Traditional Banking segment increased to $28 million at September 30, 2017 compared to $26 million at December 31, 2016.  The Allowance to total Traditional Bank loans increased to 0.84% at September 30, 2017 from 0.83% at December 31, 2016.   The growth in the Allowance for the Traditional Banking segment was generally related to the growth in the overall loan portfolio with changes to the historical loss percentages and qualitative factors of the calculation providing minimal impact.
~~Warehouse Lending segment~~
The Allowance on loans originated through the Company’s Warehouse segment decreased to $1.4 million at September 30, 2017 from $1.5 million at December 31, 2016, with the Allowance to total outstanding Warehouse balances remaining at 0.25% at both period ends.  The decrease in the Allowance for the Warehouse Lending segment was entirely related to the decline in the overall loan portfolio.
97
~~Table of Contents~~
~~Republic Credit Solutions segment~~
The Allowance on loans originated through the Company’s RCS segment increased to $11 million at September 30, 2017 from $5 million at December 31, 2016, driven primarily by $6 million of estimated reserves for growth in RCS loans, as well as an increase in the historical loss factors for the general reserves for RCS loans resulting from a rise in charge-offs from the prior year. The Allowance to total RPG loans increased to 22.71% at September 30, 2017 from 15.40% at December 31, 2016.
RPG maintained an Allowance for three loan products offered through its RCS segment at September 30, 2017, including its line-of-credit product, its credit card product and its healthcare-receivables product.  At September 30, 2017, the Allowance to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables portfolio to as high as 36% for its line-of-credit portfolio. A lower reserve percentage was provided for RCS’s healthcare receivables at September 30, 2017, as such receivables have recourse back to the Company’s partners in the transactions.
~~Asset Quality~~
~~Classified and Special Mention Loans~~
The Bank applies credit quality indicators, or “ratings,” to individual loans based on internal Bank policies. Such internal policies are informed by regulatory standards. Loans rated “Loss,” “Doubtful,” “Substandard” and PCI-Substandard (“PCI-Sub”) are considered “Classified.” Loans rated “Special Mention” or PCI Group 1 (“PCI-1”) are considered Special Mention. The Bank’s Classified and Special Mention loans decreased $6 million during the first nine months of 2017, primarily due to the payoffs and paydowns of Special Mention loans during the period.
~~See Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding Classified and Special mention loans.~~
~~Table 9 — Classified and Special Mention Loans~~

(in thousands)

September 30, 2017

December 31, 2016

Loss

$
—

$
—

Doubtful

—

—

Substandard

21,928

21,412

Purchased Credit Impaired - Substandard

1,770

2,366

Total Classified Loans

23,698

23,778

Special Mention

26,630

30,702

Purchased Credit Impaired - Group 1

5,582

7,908

Total Special Mention Loans

32,212

38,610

Total Classified and Special Mention Loans

$
55,910

$
62,388

~~Nonperforming Loans~~
Nonperforming loans include loans on nonaccrual status and loans past due 90-days-or-more and still accruing. Impaired loans that are not placed on nonaccrual status are not included as nonperforming loans. The nonperforming loan category includes TDRs totaling approximately $7 million and $10 million at September 30, 2017 and December 31, 2016.  Generally, all nonperforming loans are considered impaired.
Nonperforming loans to total loans decreased to 0.41% at September 30, 2017 from 0.42% at December 31, 2016, as the total balance of nonperforming loans increased by $322,000, or 2%, while total loans increased $147 million, or 4% during the first nine months of 2017.
98
~~Table of Contents~~
~~Table 10 — Nonperforming Loans and Nonperforming Assets Summary~~

(dollars in thousands)

September 30, 2017

December 31, 2016


Loans on nonaccrual status*

$
15,475

$
15,892

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

906

167

Total nonperforming loans

16,381

16,059

Other real estate owned

167

1,391

Total nonperforming assets

$
16,548

$
17,450

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans

0.41
%

0.42
%

Nonperforming assets to total loans (including OREO)

0.42

0.46

Nonperforming assets to total assets

0.33

0.36

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans

0.40
%

0.42
%

Nonperforming assets to total loans (including OREO)

0.40

0.46

Nonperforming assets to total assets

0.32

0.36

*Loans on nonaccrual status include impaired loans. See Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding impaired loans.
**~~Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.~~
Approximately $11 million, or 66%, of the Bank’s total nonperforming loans at September 30, 2017, compared to $13 million, or 80%, as of December 31, 2016, were concentrated in the residential real estate and HELOC categories, with the underlying collateral predominantly located in the Bank’s primary market area of Kentucky.
Approximately $4 million, or 27%, of the Bank’s total nonperforming loans at September 30, 2017, compared to $3 million, or 17%, at December 31, 2016 were concentrated in the CRE and construction and land development portfolios. While CRE is the primary collateral for such loans, the Bank also obtains in many cases, at the time of origination, personal guarantees from the principal borrowers and/or secured liens on the guarantors’ primary residences.
99
~~Table of Contents~~
~~Table 11 — Nonperforming Loan Composition~~

September 30, 2017
December 31, 2016

Percent of

Percent of



Total

Total
(dollars in thousands)

Balance

Loan Class
Balance

Loan Class



Traditional Banking:

Residential real estate:



Owner occupied


$
9,528

1.02
%

$
10,955

1.10
%
Owner occupied - correspondent



—

—

—

—

Nonowner occupied



21

0.01

852

0.54

Commercial real estate



4,411

0.38

2,725

0.26

Construction & land development



68

0.05

77

0.06

Commercial & industrial



46

0.01

154

0.06

Lease financing receivables



—

—

—

—

Home equity



1,308

0.38



1,069

0.31

Consumer:



Credit cards

—

—

—

—

Overdrafts

—

—

—

—

Automobile loans

72

0.11

—

—

Other consumer

76

0.57

145

0.73

Total Traditional Banking

15,530

0.47

15,977

0.50

Warehouse lines of credit



—

—

—

—

Total Core Banking

15,530

0.40

15,977

0.42

Republic Processing Group:

Tax Refund Solutions:



Easy Advances



—

—

—

—

Commercial & industrial

—

—

—

—

Republic Credit Solutions



851

1.82

82

0.25

Total Republic Processing Group



851

1.81

82

0.21



Total nonperforming loans


$
16,381

0.41

$
16,059

0.42



~~100~~
~~Table of Contents~~
~~Table 12 — Stratification of Nonperforming Loans~~

Number of Nonperforming Loans and Recorded Investment








Balance








September 30, 2017

Balance

> $100 &

Balance

Total

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

Traditional Banking:

Residential real estate:

Owner occupied

95

$
4,464

18

$
3,484

1

$
1,580

114

$
9,528

Owner occupied - correspondent

—

—

—

—

—

—

—

—

Nonowner occupied

1

21

—

—

—

—

1

21

Commercial real estate

1

78

6

1,248

3

3,085

10

4,411

Construction & land development

1

68

—

—

—

—

1

68

Commercial & industrial

1

46

—

—

—

—

1

46

Lease financing receivables

—

—

—

—

—

—

—

—

Home equity

25

593

5

715

—

—

30

1,308

Consumer:

Credit cards

—

—

—

—

—

—

—

—

Overdrafts

—

—

—

—

—

—

—

—

Automobile loans

3

72

—

—

—

—

3

72

Other consumer

18

76

—

—

—

—

18

76

Total Traditional Banking

145

5,418

29

5,447

4

4,665

178

15,530

Warehouse lines of credit

—

—

—

—

—

—

—

—

Total Core Banking

145

5,418

29

5,447

4

4,665

178

15,530

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

—

—

Commercial & industrial

—

—

—

—

—

—

—

—

Republic Credit Solutions

8,508

851

—

—

—

—

8,508

851

Total Republic Processing Group

8,508

851

—

—

—

—

8,508

851

Total

8,653

$
6,269

29

$
5,447

4

$
4,665

8,686

$
16,381

~~101~~
~~Table of Contents~~

Number of Nonperforming Loans and Recorded Investment








Balance








December 31, 2016

Balance

> $100 &

Balance

Total

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

Traditional Banking:

Residential real estate:

Owner occupied

120

$
5,417

30

$
5,538

—

$
—

150

$
10,955

Owner occupied - correspondent

—

—

—

—

—

—

—

—

Nonowner occupied

5

77

—

—

1

775

6

852

Commercial real estate

2

106

5

1,190

1

1,429

8

2,725

Construction & land development

1

77

—

—

—

—

1

77

Commercial & industrial

—

—

1

154

—

—

1

154

Lease financing receivables

—

—

—

—

—

—

—

—

Home equity

25

589

3

480

—

—

28

1,069

Consumer:

Credit cards

—

—

—

—

—

—

—

—

Overdrafts

—

—

—

—

—

—

—

—

Automobile loans

—

—

—

—

—

—

—

—

Other consumer

39

145

—

—

—

—

39

145

Total Traditional Banking

192

6,411

39

7,362

2

2,204

233

15,977

Warehouse lines of credit

—

—

—

—

—

—

—

—

Total Core Banking

192

6,411

39

7,362

2

2,204

233

15,977

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

—

—

Commercial & industrial

—

—

—

—

—

—

—

—

Republic Credit Solutions

1,163

82

—

—

—

—

1,163

82

Total Republic Processing Group

1,163

82

—

—

—

—

1,163

82

Total

1,355

$
6,493

39

$
7,362

2

$
2,204

1,396

$
16,059

~~102~~
~~Table of Contents~~
As presented in Tables 13 and 14 below, approximately $7 million and $7 million in nonperforming loans at December 31, 2016 and 2015 were removed from the nonperforming loan classification during the first nine months of 2017 and 2016.
~~Based on the Bank’s review at September 30, 2017, management believes that its reserves are adequate to absorb probable losses on all nonperforming loans.~~
~~Table 13 — Rollforward of Nonperforming Loans~~


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Nonperforming loans at the beginning of the period

$
15,802

$
19,956

$
16,059

$
21,936

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

3,408

1,946

6,978

4,293

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

(3,050)

(3,446)

(6,660)

(7,153)

Changes in principal balance on loans in nonperforming status at both the beginning and at the end of  the period

221

(464)

4

(1,084)

Nonperforming loans at the end of the period

$
16,381

$
17,992

$
16,381

$
17,992

~~Table 14 — Detail of Loans at the Beginning of the Period Removed from Nonperforming Status during the Period~~


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Loans charged-off

$
(230)

$
(144)

$
(239)

$
(209)

Loans transferred to OREO

(84)

(2,041)

(556)

(2,786)

Loans refinanced at other institutions

(1,217)

(1,261)

(2,553)

(4,158)

Loans returned to accrual status

(1,519)

—

(3,312)

—

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

$
(3,050)

$
(3,446)

$
(6,660)

$
(7,153)

~~103~~
~~Table of Contents~~
~~Delinquent Loans~~
Delinquent loans to total loans increased to 0.30% at September 30, 2017, from 0.24% at December 31, 2016.  Core Bank delinquent loans to total Core Bank loans increased to 0.20% at September 30, 2017 compared 0.18% at December 31, 2016. With the exception of PCI loans and small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of September 30, 2017 and December 31, 2016 were on nonaccrual status.
~~Table 15 — Delinquent Loan Composition~~*

September 30, 2017
December 31, 2016

Percent of

Percent of

Total

Total
(dollars in thousands)

Balance

Loan Class
Balance

Loan Class

Traditional Banking:

Residential real estate:

Owner occupied


$
3,579

0.38
%

$
4,554

0.46
%
Owner occupied - correspondent



—

—



—

—

Nonowner occupied



658

0.34



46

0.03

Commercial real estate



2,087

0.18



425

0.04

Construction & land development



—

—



—

—

Commercial & industrial



37

0.01



342

0.13

Lease financing receivables

—

—

—

—

Home equity

837

0.24

970

0.28

Consumer:

Credit cards

96

0.48

18

0.13

Overdrafts

209

23.43

161

20.05

Automobile loans

73

0.11

—

—

Other consumer

180

1.36

305

1.54

Total Traditional Banking

7,756

0.23

6,821

0.21

Warehouse lines of credit

—

—

—

—

Total Core Banking

7,756

0.20

6,821

0.18

Republic Processing Group:



Tax Refund Solutions:



Easy Advances



—

—



—

—

Commercial & industrial



—

—



—

—

Republic Credit Solutions



4,270

9.11



2,137

6.63

Total Republic Processing Group



4,270

9.06



2,137

5.49





Total delinquent loans


$
12,026

0.30


$
8,958

0.24

*Represents total loans 30-days-or-more past due. Delinquent status may be determined by either the number of days past due or number of payments past due.
~~104~~
~~Table of Contents~~
As presented in Tables 16 and 17 below, approximately $5 million and $9 million in delinquent loans at December 31, 2016 and 2015 were removed from delinquent status through the first nine months of September 30, 2017 and 2016.
~~Table 16 — Rollforward of Delinquent Loans~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)
2017

2016

2017

2016

Delinquent loans at the beginning of the period
$
9,013

$
10,607

$
8,958

$
11,731

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

4,164

3,361

5,715

5,749

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

(3,297)

(5,440)

(4,709)

(9,302)

Change in principal balance of loans delinquent at both period ends*

2,146

186

2,062

536

Delinquent loans at the end of period
$
12,026

$
8,714

$
12,026

$
8,714

*Includes relatively-small consumer portfolios, e.g., credit cards and RCS portfolios.
~~Table 17 — Detail of Loans Removed from Delinquency Status during the Period that were in Delinquency Status at the Beginning of the Period~~


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016



Loans charged-off

$
(198)

$
(24)

$
(83)

$
(69)

Loans transferred to OREO

(84)

(1,360)

(526)

(2,605)

Loans refinanced at other institutions

(1,736)

(2,724)

(2,143)

(3,476)

Loans paid current

(1,279)

(1,332)

(1,957)

(3,152)

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

$
(3,297)

$
(5,440)

$
(4,709)

$
(9,302)

~~105~~
~~Table of Contents~~
~~Impaired Loans and Troubled Debt Restructurings~~
The Bank’s policy is to charge-off all or that portion of its recorded investment in a collateral-dependent impaired credit upon a determination that it is probable the full amount of contractual principal and interest will not be collected. Impaired loans totaled $48 million at September 30, 2017 compared to $53 million at December 31, 2016, representing a decrease of $5 million during the first nine months of 2017.
A TDR is the situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. The majority of the Bank’s TDRs involve a restructuring of loan terms such as a temporary reduction in the payment amount to require only interest and escrow (if required), reducing the loan’s interest rate and/or extending the maturity date of the debt. Nonaccrual loans modified as TDRs remain on nonaccrual status and continue to be reported as nonperforming loans. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. As of September 30, 2017, the Bank had $38 million in TDRs, of which $7 million were also on nonaccrual status. As of December 31, 2016, the Bank had $42 million in TDRs, of which $10 million were also on nonaccrual status.
~~Table 18 — Impaired Loan Composition~~

(in thousands)

September 30, 2017

December 31, 2016


Troubled debt restructurings

$
37,594

$
41,586

Impaired loans (which are not TDRs)

10,125

11,098

Total impaired loans

$
47,719

$
52,684

~~See Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding impaired loans and TDRs.~~
~~106~~
~~Table of Contents~~
~~Other Real Estate Owned~~
~~Table 19 — Stratification of Other Real Estate Owned~~

Number of OREO Properties and Carrying Value Range








Carrying








Carrying

Value

Carrying

Total
September 30, 2017

Value

> $100 &

Value

Carrying
(dollars in thousands)

No.

< = $100

No.

< = $500

No.

> $500

No.

Value

Residential real estate

4

$
167

—

$
—

—

$
—

4

$
167

Total

4

$
167

—

$
—

—

$
—

4

$
167

Number of OREO Properties and Carrying Value Range








Carrying








Carrying

Value

Carrying

Total
December 31, 2016

Value

> $100 &

Value

Carrying
(dollars in thousands)

No.

< = $100

No.

< = $500

No.

> $500

No.

Value

Residential real estate

3

$
848

1

$
543

—

$
—

4

$
1,391

Total

3

$
848

1

$
543

—

$
—

4

$
1,391

~~Table 20 — Rollforward of Other Real Estate Owned Activity~~


Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

OREO at beginning of period

$
300

$
1,503

$
1,391

$
1,220

Transfer from loans to OREO

84

2,001

556

3,939

Proceeds from sale*

(248)

(933)

(2,202)

(2,916)

Net gain on sale

107

64

577

392

Writedowns

(76)

(200)

(155)

(200)

OREO at end of period

$
167

$
2,435

$
167

$
2,435

* Inclusive of non-cash proceeds where the Bank financed the sale of the property.
The fair value of OREO represents the estimated value that management expects to receive when the property is sold, net of related costs to sell. These estimates are based on the most recently available real estate appraisals, with certain adjustments made based on the type of property, age of appraisal, current status of the property and other relevant factors to estimate the current value of the property.
~~Bank Owned Life Insurance (“BOLI”)~~
BOLI offers tax advantaged noninterest income to help the Bank offset employee benefits expenses.  The Company carried $63 million and $62 million of BOLI on its consolidated balance sheet at September 30, 2017 and December 31, 2016.
~~107~~
~~Table of Contents~~
~~Deposits~~
~~Table 21 — Deposit Composition~~

(in thousands)

September 30, 2017

December 31, 2016

Core Bank:

Demand

$
940,081

$
872,709

Money market accounts

540,521

541,622

Brokered money market accounts

302,469

360,597

Savings

182,153

164,410

Individual retirement accounts*

46,967

42,642

Time deposits, $250 and over*

76,362

37,200

Other certificates of deposit*

177,606

140,894

Brokered certificates of deposit*

41,561

28,666

Total Core Bank interest-bearing deposits

2,307,720

2,188,740

Total Core Bank noninterest-bearing deposits

991,218

943,459

Total Core Bank deposits

3,298,938

3,132,199

Republic Processing Group ("RPG"):

Money market accounts

1,595

—

Total RPG interest-bearing deposits

1,595

—

Brokered prepaid card deposits

1,167

15

Other noninterest-bearing deposits

48,029

28,478

Total RPG noninterest-bearing deposits

49,196

28,493

Total RPG deposits

50,791

28,493

Total deposits

$
3,349,729

$
3,160,692

* Represents a time deposit.
~~Total Company deposits increased $189 million, or 6%, from December 31, 2016 to $3.3 billion at September 30, 2017.~~
Total Company interest-bearing deposits increased $121 million, or 6%, during the first nine months of 2017 largely driven by $58 million in interest-bearing deposits raised through the Company’s separately branded digital platform, MemoryBank.  In addition, the Company experienced an increase of $80 million, or 36%, in its non-brokered time deposits during the first nine months of 2017 as the Bank maintained a more attractive rate offering on its certificates of deposit in order to attract longer-term deposits.
Total Company noninterest bearing deposits increased $68 million, or 7%, during the first nine months of 2017. Noninterest-bearing deposits at RPG increased $21 million from December 31, 2016 to $51 million at September 30, 2017, while Core Banking noninterest-bearing deposits increased $47 million, or 5%.  The increase in the Core Bank’s noninterest-bearing deposits was largely driven by growth in the Bank’s free-business-checking products, which are the Bank’s primary product offering for small business accounts.
~~Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings~~
Securities Sold under Agreements to Repurchase (“SSUARs”) are collateralized by securities and are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements are under the Bank’s control.
~~SSUARs totaled $173 million at both December 31, 2016 and September 30, 2017.  The substantial majority of SSUARs are indexed to immediately repricing indices such as the FFTR.~~
~~108~~
~~Table of Contents~~
~~Federal Home Loan Bank Advances~~
FHLB advances decreased $45 million, or 6%, from December 31, 2016 to $758 million at September 30, 2017, with the Bank reducing its term advances by $110 million and increasing its overnight advances by $65 million during the first nine months of 2017. During the first nine months of 2017, the Bank obtained $65 million in additional fixed-rate term advances with a weighted average rate of 1.88% and a weighted average term of 2.6 years, while $175 million of fixed-rate term advances with a weighted average rate of 1.88% and a weighted average term of 1.7 years matured during the period. The Bank held $350 million in overnight advances at a rate of 1.17% as of September 30, 2017, compared to $285 million in overnight advances at a rate of 0.64% at December 31, 2016.
The Bank chose to increase its overnight advances and reduce its term advances in order to take advantage of the lower borrowing costs associated with overnight borrowings.  The Bank was able to implement this strategy due to its projected favorable risk position in the event of rising interest rates. ~~See the section titled “Asset/Liability Management and Market Risk” in this section of the filing for additional discussion regarding the Bank’s interest-rate sensitivity.~~
Overall use of FHLB advances during a given year is dependent upon many factors including asset growth, deposit growth, current earnings, and expectations of future interest rates, among others. If a meaningful amount of the Bank’s loan originations in the future have repricing terms longer than five years, management will likely elect to borrow additional funds to mitigate its risk of future increases in market interest rates.  Whether the Bank ultimately does so, and how much in advances it extends out, will be dependent upon circumstances at that time. If the Bank does obtain longer-term FHLB advances for interest rate risk mitigation, it will have a negative impact on then current earnings. The amount of the negative impact will be dependent upon the dollar amount, coupon and final maturity of the advances obtained.
~~Interest Rate Swaps~~
~~Interest Rate Swaps Used as Cash Flow Hedges~~
The Bank entered into two interest rate swap agreements during 2013 as part of its interest rate risk management strategy. The Bank designated the swaps as cash flow hedges intended to reduce the variability in cash flows attributable to either FHLB advances tied to the 3-month LIBOR or the overall changes in cash flows on certain money market deposit accounts tied to 1-month LIBOR.  The counterparty for both swaps met the Bank’s credit standards and the Bank believes that the credit risk inherent in the swap contracts is not significant.
~~Non-hedge Interest Rate Swaps~~
The Bank also 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.
~~See Footnote 12 “Interest Rate Swaps” of Part I Item 1 “Financial Statements” for additional discussion regarding the Bank’s interest rate swaps.~~
~~Liquidity~~
The Bank had a loan to deposit ratio (excluding brokered deposits) of 132% at September 30, 2017 and 138% at December 31, 2016. At September 30, 2017 and December 31, 2016, the Company had cash and cash equivalents on-hand of $330 million and $289 million. In addition, the Bank had available borrowing capacity of $337 million and $378 million from the FHLB at September 30, 2017 and December 31, 2016. In addition to its borrowing capacity with the FHLB, the Bank’s liquidity resources included unencumbered securities of $313 million and $291 million as of September 30, 2017 and December 31, 2016 and unsecured lines of credit totaling $125 million and $150 million available through various other financial institutions as of September 30, 2017 and December 31, 2016.
The Bank maintains sufficient liquidity to fund routine loan demand and routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets in the form of cash or unencumbered investment securities. Funding and cash flows can also be realized by the sale of securities available for sale, principal paydowns on loans and MBSs and proceeds realized from loans held for sale. The Bank’s liquidity is impacted by its ability to sell certain investment securities, which is limited due to the level of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings, and for other
~~109~~
~~Table of Contents~~
purposes, as required by law. At September 30, 2017 and December 31, 2016, these pledged investment securities had a fair value of $213 million and $232 million. Republic’s banking centers and its websites, www.republicbank.com and www.mymemorybank.com, provide access to retail deposit markets. These retail deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were canceled, or if the Bank could not obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.
At September 30, 2017, the Bank had approximately $576 million in deposits from 75 large non-sweep deposit relationships where the individual relationship individually exceeded $2 million. The 20 largest non-sweep deposit relationships represented approximately $355 million, or 11%, of the Company’s total deposit balances at September 30, 2017. These accounts do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances were moved from the Bank, the Bank would likely utilize overnight borrowing lines in the short-term to replace the balances. On a longer-term basis, the Bank would likely utilize brokered deposits to replace withdrawn balances. Based on past experience utilizing brokered deposits, the Bank believes it can quickly obtain brokered deposits if needed. The overall cost of gathering brokered deposits, however, could be substantially higher than the Traditional Bank deposits they replace, potentially decreasing the Bank’s earnings.
Due to the its historical success of growing loans and its overall use of non-core funding sources, the Bank has approached, and periodically has fallen short of, its minimum internal policy limits for liquidity management, as set forth by the Bank’s Board of Directors.  As of September 30, 2017, the Bank was in compliance with all Board-approved liquidity policies, however, the Bank will likely continue to maintain its liquidity levels near the Bank’s board approved minimums for the foreseeable future.  It is also likely the Bank will fall short of these minimums on occasion in the future as the Company manages its liquidity levels in order to maximize overall earnings.
~~Capital~~
Total stockholders’ equity increased from $604 million at December 31, 2016 to $633 million at September 30, 2017. The increase in stockholders’ equity was primarily attributable to net income earned during 2017 reduced by cash dividends declared.
~~See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” for additional detail regarding stock repurchases and stock buyback programs.~~
~~Common Stock~~ — The Class A Common Shares are entitled to cash dividends equal to 110% of the cash dividend paid per share on Class B Common Stock. Class A Common Shares have one vote per share and Class B Common shares have ten votes per share. Class B Common Shares may be converted, at the option of the holder, to Class A Common shares on a share for share basis. The Class A Common Shares are not convertible into any other class of Republic’s capital stock.
~~Dividend Restrictions~~ — The Parent Company’s principal source of funds for dividend payments are dividends received from RB&T. Banking regulations limit the amount of dividends that may be paid to the Parent Company by the Bank without prior approval of the respective states’ banking regulators. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. At September 30, 2017, RB&T could, without prior approval, declare dividends of approximately $74 million.
~~Regulatory Capital Requirements~~ — The Company and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking regulators.  Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Republic’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Parent Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off balance sheet items, as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk weightings and other factors.
Banking regulators have categorized the Bank as well-capitalized. For prompt corrective action, the regulations in accordance with Basel III define “well capitalized” as a 6.5% Common Equity Tier 1 Risk-Based Capital ratio, an 8.0% Tier 1 Risk-Based Capital ratio, a 10.0% Total Risk-Based Capital ratio and a 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, the Company and Bank must hold a capital conservation buffer composed of Common Equity Tier 1 Risk-Based Capital above their minimum risk-based
~~110~~
~~Table of Contents~~
capital requirements. The capital conservation buffer began phasing in during 2016 and continues to phase in through 2019 on the following schedule: a capital conservation buffer of 0.625% effective January 1, 2016; 1.25% effective January 1, 2017; 1.875% effective January 1, 2018; and a fully phased in capital conservation buffer of 2.5% on January 1, 2019.
Republic continues to exceed the regulatory requirements for Total Risk Based Capital, Common Equity Tier I Risk Based, Tier I Risk Based Capital and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer. Republic’s average stockholders’ equity to average assets ratio was 13.05% at September 30, 2017 compared to 13.32% at December 31, 2016. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.
In 2005, Republic Bancorp Capital Trust (“RBCT”), an unconsolidated trust subsidiary of Republic, was formed and issued $40 million in Trust Preferred Securities (“TPS”). The sole asset of RBCT represents the proceeds of the offering loaned to Republic in exchange for a subordinated note with similar terms to the TPS. The RBCT TPS are treated as part of Republic’s Tier I Capital.
The subordinated note and related interest expense are included in Republic’s consolidated financial statements. The subordinated note paid a fixed interest rate of 6.015% through September 30, 2015 and adjusted to 3-month LIBOR plus 1.42% on a quarterly basis thereafter. The subordinated note matures on December 31, 2035 and is redeemable at the Company’s option on a quarterly basis. The Company chose not to redeem the subordinated note on October 1, 2017, and is currently carrying the note at a cost of LIBOR plus 1.42%.
~~Table 22 — Capital Ratios~~

As of September 30, 2017

As of December 31, 2016

Actual

Actual

(dollars in thousands)

Amount

Ratio

Amount

Ratio

Total capital to risk-weighted assets

Republic Bancorp, Inc.

$
691,566

16.15
%
$
655,908

16.37
%

Republic Bank & Trust Company

588,618

13.77

553,905

13.86

Common equity tier 1 capital to risk-weighted assets

Republic Bancorp, Inc.

$
612,104

14.30
%
$
584,530

14.59
%

Republic Bank & Trust Company

548,427

12.83

520,985

13.03

Tier 1 (core) capital to risk-weighted assets

Republic Bancorp, Inc.

$
651,375

15.21
%
$
622,988

15.55
%

Republic Bank & Trust Company

548,427

12.83

520,985

13.03

Tier 1 leverage capital to average assets

Republic Bancorp, Inc.

$
651,375

13.53
%
$
622,988

13.54
%

Republic Bank & Trust Company

548,427

11.41

520,985

11.34

~~111~~
~~Table of Contents~~
~~Asset/Liability Management and Market Risk~~
Asset/liability management is designed to ensure safety and soundness, maintain liquidity, meet regulatory capital standards and achieve acceptable net interest income based on the Bank’s risk tolerance. Interest rate risk is the exposure to adverse changes in net interest income as a result of market fluctuations in interest rates. The Bank, on an ongoing basis, monitors interest rate and liquidity risk in order to implement appropriate funding and balance sheet strategies.  Management considers interest rate risk to be a significant risk to the Bank’s overall earnings and balance sheet.
The interest sensitivity profile of the Bank at any point in time will be impacted by a number of factors. These factors include the mix of interest sensitive assets and liabilities, as well as their relative pricing schedules. It is also influenced by changes in market interest rates, deposit and loan balances and other factors.
The Bank utilizes earnings simulation models as tools to measure interest rate sensitivity, including both a static and dynamic earnings simulation model. A static simulation model is based on current exposures and assumes a constant balance sheet. In contrast, a dynamic simulation model relies on detailed assumptions regarding changes in existing business lines, new business, and changes in management and customer behavior. While the Bank runs the static simulation model as one measure of interest rate risk, historically, the Bank has utilized a dynamic earnings simulation model as its primary interest rate risk tool to measure the potential changes in market interest rates and their subsequent effects on net interest income for a one year time period. This dynamic model projects a “Base” case net interest income over the next 12 months and the effect to net interest income of instantaneous movements in interest rates between various basis point increments equally across all points on the yield curve. Many assumptions based on growth expectations and on the historical behavior of the Bank’s deposit and loan rates and their related balances in relation to changes in interest rates are incorporated into this dynamic model. These assumptions are inherently uncertain and, as a result, the dynamic model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to the actual timing, magnitude and frequency of interest rate changes, the actual timing and magnitude of changes in loan and deposit balances, as well as the actual changes in market conditions and the application and timing of various management strategies as compared to those projected in the various simulated models. Additionally, actual results could differ materially from the model if interest rates do not move equally across all points on the yield curve.
As of September 30, 2017, a dynamic simulation model was run for interest rate changes from “Down 100” basis points to “Up 400” basis points. From December 2016 to June 2017, the Federal Open Market Committee raised the FFTR three times, with further guidance suggesting that increases to the FFTR were more likely than not for the remainder of 2017 and in 2018.
The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning October 1, 2017 and ending September 30, 2018 based on instantaneous movements in interest rates from Down 100 to Up 400 basis points equally across all points on the yield curve. The Bank’s dynamic earnings simulation model excludes all loan fees.
~~Table 23 — Bank Interest Rate Sensitivity as of September 30, 2017~~

Change in Rates

-100

+100

+200

+300

+400

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

% Change from base net interest income

(0.40)
%

4.80
%

6.60
%

8.00
%

8.30
%
Board policy limit on % change from base

(4.00)

(4.00)

(8.00)

(12.00)

(16.00)

As reflected in the table above, based on its dynamic simulation model, the Bank was in compliance with its Board-approved policies concerning sensitivity to interest rate risk as of September 30, 2017.
~~112~~
~~Table of Contents~~
~~Item 3.Quantitative and Qualitative Disclosures about Market Risk.~~
~~Information required by this item is included under~~ ~~Part I, Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”~~
~~Item 4.Controls and Procedures.~~
As of the end of the period covered by this report, an evaluation was carried out by Republic Bancorp, Inc.’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
~~PART II — OTHER INFORMATION~~
~~Item 1.Legal Proceedings.~~
In the ordinary course of operations, Republic and the Bank are defendants in various legal proceedings. There is no proceeding pending or threatened litigation, to the knowledge of management, in which an adverse decision could result in a material adverse change in the business or consolidated financial position of Republic or the Bank.
~~Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.~~
~~Details of Republic’s Class A Common Stock purchases during the third quarter of 2017 are included in the following table:~~

Total Number of

Maximum Number

Shares Purchased

of Shares that May

as Part of Publicly

Yet Be Purchased

Total Number of

Average Price

Announced Plans

Under the Plan

Period

Shares Purchased

Paid Per Share

or Programs

or Programs


July 1 - July 31

—

$
—

—

August 1 - August 31

—

—

—

September 1 - September 30

385

34.79

385

Total

385

$
34.79

385

235,976

The Company repurchased 385 shares during the third quarter of 2017. There were no shares exchanged for stock option exercises during the third quarter of 2017. During 2011, the Company’s Board of Directors amended its existing share repurchase program by approving the repurchase of 300,000 additional shares from time to time, as market conditions are deemed attractive to the Company. The repurchase program will remain effective until the total number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of September 30, 2017, the Company had 235,976 shares that could be repurchased under its current share repurchase programs.
During the third quarter of 2017, there were 10 shares of Class A Common Stock issued upon conversion of shares of Class B Common Stock by stockholders of Republic in accordance with the share-for-share conversion provision option of the Class B Common Stock. The exemption from registration of newly issued Class A Common Stock relies upon Section (3)(a)(9) of the Securities Act of 1933.
~~There were no equity securities of the registrant sold without registration during the quarter covered by this report.~~
~~113~~
~~Table of Contents~~
~~Item 6.Exhibits.~~
~~The following exhibits are filed or furnished as a part of this report:~~
~~Exhibit Number~~
~~Description of Exhibit~~
~~10.1~~
~~First Amendment dated September 20, 2017 to lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC dated March 15, 2017, relating to 200 South Seventh Street, Louisville, KY~~
~~31.1~~
~~Certification of Principal Executive Officer pursuant to the Sarbanes-Oxley Act of 2002~~
~~31.2~~
~~Certification of Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002~~
32*
~~Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~101~~
Interactive data files: (i) Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016, (iii) Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2017, (iv) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 20162023 and (v) Notes to Consolidated Financial Statements

104

Cover Page Interactive Data File formatted in iXBRL and contained in Exhibit 101.
*
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

94
Table of Contents
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~114~~
~~Table of Contents~~

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

~~REPUBLIC BANCORP, INC.~~
~~(Registrant)~~
~~Principal Executive Officer:~~
~~November 9, 2017~~
~~By: /s/ Steven E. Trager~~
~~Steven E. Trager~~
~~Chairman~~

REPUBLIC BANCORP, INC.

(Registrant)

Principal Executive Officer:

Date: May 9, 2024
/s/ Steven E. Trager

By: Steven E. Trager

Executive Chair and Chief Executive Officer

Principal Financial Officer:

Date: May 9, 2024

/s/ Kevin Sipes

By: Kevin Sipes

Executive Vice President, Chief Financial

Officer and Chief Accounting Officer
~~Principal Financial Officer:~~
~~November 9, 2017~~
~~By: /s/ Kevin Sipes~~
~~Kevin Sipes~~
~~Executive Vice President, Chief Financial~~
~~Officer and Chief Accounting Officer~~

95
~~115~~


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 ☐◻


☒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.	6858

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	~~113~~ 92

Item 4.	Controls and Procedures.	~~113~~ 92

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	~~113~~ 92

Item 2.1A.	Risk Factors.	92

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	~~113~~ 93

Item 6.5.	~~Exhibits.~~Other Information.	~~114~~
		93

Item 6.	~~SIGNATURES~~Exhibits.	94

	SIGNATURES	95


	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 and Warehouse Lending 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
HEAL		Home Equity Amortizing Loan
HELOC		Home Equity Line of Credit
HTM		Held to Maturity
IRS		Internal Revenue Service
ITM		Interactive Teller Machine
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
SBA		U.S. Small Business Administration
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
TRUP		Trust Preferred Security Investment
Warehouse		Warehouse Lending segment

(in thousands)

March 31, 2024

December 31, 2023

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