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Table of Contents

1 min

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021March 31, 2022

or

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

Commission File Number: 0-24649

GraphicGraphic

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky

61-0862051

(State of 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)

Registrant’s telephone number, including area code: (502) 584-3600

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A Common

RBCAA

The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No

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

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

Large accelerated filer 

Accelerated filer 

Non-accelerated filer

Smaller reporting company 

Emerging growth company 

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

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

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of October 31, 2021,April 30, 2022 was 18,042,27417,834,212 and 2,165,064.2,164,903.

Table of Contents

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements.

4

Item 2.

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

7063

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

11498

Item 4.

Controls and Procedures.

11498

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings.

11498

Item 1A.

Risk Factors.

11599

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

11599

Item 6.

Exhibits.

116100

SIGNATURES

117101

2

Table of Contents

GLOSSARY OF TERMS

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

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

CECL

Current Expected Credit LossLosses

CMO

Collateralized Mortgage Obligation

Core Bank

The Traditional Banking, Warehouse Lending, and Mortgage Banking reportable segments of the Company

COVID-19COVID

Coronavirus Disease of 2019

CRE

Commercial Real Estate

Diluted EPS

Diluted earnings per Class A Common Share

EA

Easy Advance

Economic Aid Act

The Economic Aid to Hard HitHard-Hit Small Business, Not for ProfitsBusinesses, Nonprofits, and Venues Act

ESPP

Employee Stock Purchase Plan

EVP

Executive Vice President

FASB

Financial Accounting Standards Board

FDIC

Federal Deposit Insurance Corporation

FFTR

Federal Funds Target Rate

FHLB

Federal Home Loan Bank

FHLMC

Federal Home Loan Mortgage Corporation

FICO

Fair Isaac Corporation

FNMA

Federal National Mortgage Association

FOMC

Federal Open Market Committee

FRB

Federal Reserve Bank

FTE

Full Time Equivalent

FTP

Funds Transfer Pricing

GAAP

Generally Accepted Accounting Principles in the United States

Green Dot

Green Dot Corporation

HEAL

Home Equity Amortizing Loan

HELOC

Home Equity Line of Credit

HTM

Held to Maturity

IRS

Internal Revenue Service

ITM

Interactive Teller Machine

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

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

PPPLF

The FRB's Paycheck Protection Program Liquidity Facility

Prime

The Wall Street Journal Prime Interest Rate

Provision

Provision for Expected Credit Loss Expense

PSU

Performance Stock Unit

Purchase Agreement

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

QF

Qualitative Factor

R&D

Research and Development

RB&T / the Bank

Republic Bank & Trust Company

RBCT

Republic Bancorp Capital Trust

RCS

Republic Credit Solutions segment

Republic / the Company

Republic Bancorp, Inc.

RPG

Republic Processing Group

RPS

Republic Payment Solutions

RT

Refund Transfer

Sale Transaction

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

SBA

U.S. Small Business Administration

SEC

Securities and Exchange Commission

SSUAR

Securities Sold Under Agreements to Repurchase

SVP

Senior Vice President

TDR

Troubled Debt Restructuring

The Captive

Republic Insurance Services, Inc.

TPS

Trust Preferred Securities

TRS

Tax Refund Solutions segment

TRUP

TPSTrust Preferred Security Investment

Warehouse

Warehouse Lending segment

3

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)

    

September 30, 

    

December 31, 

    

March 31, 

    

December 31, 

2021

2020

2022

2021

ASSETS

Cash and cash equivalents

$

1,011,247

$

485,587

$

1,077,158

$

756,971

Available-for-sale debt securities, at fair value (amortized cost of $489,015 in 2021 and $512,518 in 2020, allowance for credit losses of $0 in 2021 and $0 in 2020)

 

495,880

 

523,863

Held-to-maturity debt securities (fair value of $45,590 in 2021 and $54,190 in 2020, allowance for credit losses of $54 in 2021 and $178 in 2020)

 

44,991

 

53,324

Available-for-sale debt securities, at fair value (amortized cost of $592,264 in 2022 and $492,626 in 2021, allowance for credit losses of $0 in 2022 and $0 in 2021)

 

573,539

 

495,126

Held-to-maturity debt securities (fair value of $39,087 in 2022 and $44,764 in 2021, allowance for credit losses of $40 in 2022 and $47 in 2021)

 

38,795

 

44,299

Equity securities with readily determinable fair value

2,578

3,083

2,502

2,620

Mortgage loans held for sale, at fair value

 

25,791

 

46,867

 

13,302

 

29,393

Consumer loans held for sale, at fair value

10,779

3,298

11,709

19,747

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

3,976

1,478

3,026

2,937

Loans for discontinued operations, at the lower of cost or fair value

24

23,765

Loans (loans carried at fair value of $254 in 2021 and $497 in 2020)

 

4,343,782

 

4,789,338

Loans (loans carried at fair value of $107 in 2022 and $170 in 2021)

 

4,390,243

 

4,496,562

Allowance for credit losses

 

(63,024)

 

(61,067)

 

(71,656)

 

(64,577)

Loans, net

 

4,280,758

 

4,728,271

 

4,318,587

 

4,431,985

Federal Home Loan Bank stock, at cost

 

10,311

 

17,397

 

10,311

 

10,311

Premises and equipment, net

 

37,499

 

39,512

 

34,358

 

36,073

Right-of-use assets

39,257

43,345

42,402

38,825

Goodwill

 

16,300

 

16,300

 

16,300

 

16,300

Other real estate owned

 

1,845

 

2,499

 

1,740

 

1,792

Bank owned life insurance

 

99,634

 

68,018

 

99,773

 

99,161

Other assets and accrued interest receivable

 

106,764

 

111,718

 

106,367

 

108,092

TOTAL ASSETS

$

6,187,634

$

6,168,325

$

6,349,869

$

6,093,632

LIABILITIES

Deposits:

Noninterest-bearing

$

2,053,485

$

1,871,539

$

2,226,714

$

1,990,781

Interest-bearing

 

2,861,399

 

2,842,765

 

2,860,392

 

2,849,637

Deposits of discontinued operations

33,063

18,877

Total deposits

 

4,947,947

 

4,733,181

 

5,087,106

 

4,840,418

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

 

260,583

 

211,026

 

287,818

 

290,967

Operating lease liabilities

40,151

44,340

43,204

39,672

Federal Home Loan Bank advances

 

25,000

 

235,000

 

20,000

 

25,000

Subordinated note

 

 

41,240

Other liabilities and accrued interest payable

 

75,296

 

80,215

 

71,412

 

63,343

Total liabilities

 

5,348,977

 

5,345,002

 

5,509,540

 

5,259,400

Commitments and contingent liabilities (Footnote 9)

 

 

 

 

STOCKHOLDERS’ EQUITY

Preferred stock, 0 par value

 

 

 

 

Class A Common Stock and Class B Common Stock, 0 par value

 

4,752

 

4,899

 

4,703

 

4,702

Additional paid in capital

 

140,842

 

143,637

 

140,795

 

139,956

Retained earnings

 

687,915

 

666,278

 

708,874

 

687,700

Accumulated other comprehensive income

 

5,148

 

8,509

Accumulated other comprehensive income (loss)

 

(14,043)

 

1,874

Total stockholders’ equity

 

838,657

 

823,323

 

840,329

 

834,232

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

6,187,634

$

6,168,325

$

6,349,869

$

6,093,632

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

    

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

2021

2020

2021

2020

2022

2021

INTEREST INCOME:

Loans, including fees

$

51,409

$

53,447

$

153,433

$

164,302

$

61,015

$

67,386

Taxable investment securities

 

1,845

 

2,266

 

5,655

 

7,761

 

2,059

 

1,952

Federal Home Loan Bank stock and other

 

446

 

192

 

1,178

 

2,379

 

481

 

219

Total interest income

 

53,700

 

55,905

 

160,266

 

174,442

 

63,555

 

69,557

INTEREST EXPENSE:

Deposits

 

1,148

 

2,876

 

4,037

 

12,298

 

879

 

1,565

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

 

71

 

92

 

350

 

1,701

 

28

 

9

Federal Reserve Payment Protection Plan Liquidity Facility

48

153

Federal Home Loan Bank advances

 

6

 

658

 

47

 

3,128

 

36

 

31

Subordinated note

 

166

 

182

 

507

 

829

 

 

172

Total interest expense

 

1,391

 

3,856

 

4,941

 

18,109

 

943

 

1,777

NET INTEREST INCOME

 

52,309

 

52,049

 

155,325

 

156,333

 

62,612

 

67,780

Provision for expected credit loss expense

 

3,553

 

5,842

 

4,381

 

15,555

Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities)

 

9,226

 

15,262

NET INTEREST INCOME AFTER PROVISION

 

48,756

 

46,207

 

150,944

 

140,778

 

53,386

 

52,518

NONINTEREST INCOME:

Service charges on deposit accounts

 

3,277

 

3,017

 

9,221

 

8,604

 

3,226

 

2,873

Net refund transfer fees

 

12,051

 

12,721

Mortgage banking income

 

5,280

 

10,775

 

16,655

 

23,968

 

2,657

 

7,193

Interchange fee income

 

3,200

 

2,874

 

9,539

 

8,093

 

3,070

 

3,027

Program fees

 

4,530

 

1,487

 

10,304

 

5,249

 

3,854

 

2,225

Increase in cash surrender value of bank owned life insurance

 

626

 

400

 

1,616

 

1,184

 

612

 

390

Net losses on other real estate owned

 

(52)

 

(14)

 

(107)

 

(10)

 

(53)

 

(11)

Contract termination fee

5,000

Other

 

1,134

 

861

 

2,769

 

2,673

 

584

 

619

Total noninterest income

 

17,995

 

19,400

 

49,997

 

49,761

 

31,001

 

29,037

NONINTEREST EXPENSE:

Salaries and employee benefits

 

25,948

 

25,207

 

79,470

 

75,405

 

29,312

 

29,337

Technology, equipment, and communication

 

7,226

 

7,402

 

21,479

 

20,966

 

7,214

 

7,043

Occupancy

 

3,195

 

3,367

 

10,004

 

9,885

 

3,440

 

3,559

Marketing and development

 

1,234

 

864

 

3,085

 

2,574

 

1,348

 

726

FDIC insurance expense

 

325

 

345

 

1,039

 

644

 

419

 

446

Bank franchise tax expense

 

329

 

972

 

1,106

 

2,665

Interchange related expense

 

1,275

 

1,056

 

3,707

 

3,305

 

1,117

 

1,144

Other real estate owned and other repossession expense

 

 

6

 

(32)

 

45

Legal and professional fees

581

1,240

2,182

3,337

1,365

1,214

Other

 

2,481

 

3,319

 

7,953

 

10,262

 

4,358

 

4,342

Total noninterest expense

 

42,594

 

43,778

 

129,993

 

129,088

 

48,573

 

47,811

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE

 

24,157

 

21,829

 

70,948

 

61,451

INCOME BEFORE INCOME TAX EXPENSE

 

35,814

 

33,744

INCOME TAX EXPENSE

 

5,745

 

4,554

 

15,708

 

12,107

 

7,888

 

7,691

INCOME FROM CONTINUING OPERATIONS

18,412

17,275

55,240

49,344

DISCONTINUED OPERATIONS:

Income from discontinued operations before income taxes

2,070

3,997

19,584

17,550

Income tax expense

473

883

4,840

4,004

Income from discontinued operations, net of tax

1,597

3,114

14,744

13,546

NET INCOME

$

20,009

$

20,389

$

69,984

$

62,890

$

27,926

$

26,053

BASIC EARNINGS PER SHARE:

Class A Common Stock - continuing operations

$

0.91

$

0.83

$

2.69

$

2.37

Class A Common Stock - discontinued operations

0.08

0.15

0.71

0.65

Class A Common Stock

$

0.99

$

0.98

$

3.40

$

3.02

$

1.40

$

1.26

Class B Common Stock - continuing operations

$

0.83

$

0.75

$

2.45

$

2.16

Class B Common Stock - discontinued operations

0.07

0.14

0.65

0.59

Class B Common Stock

$

0.90

$

0.89

$

3.10

$

2.75

1.27

1.14

DILUTED EARNINGS PER SHARE:

Class A Common Stock - continuing operations

$

0.91

$

0.83

$

2.68

$

2.37

Class A Common Stock - discontinued operations

0.08

0.15

0.71

0.65

Class A Common Stock

$

0.99

$

0.98

$

3.39

$

3.02

$

1.40

$

1.25

Class B Common Stock - continuing operations

$

0.83

$

0.75

$

2.44

$

2.15

Class B Common Stock - discontinued operations

0.07

0.14

0.65

0.59

Class B Common Stock

$

0.90

$

0.89

$

3.09

$

2.74

1.27

1.14

See accompanying footnotes to consolidated financial statements.

5

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three Months Ended

    

Nine Months Ended

Three Months Ended

    

September 30, 

September 30, 

March 31, 

2021

    

2020

    

2021

    

2020

2022

    

2021

Net income

$

20,009

$

20,389

$

69,984

$

62,890

$

27,926

$

26,053

OTHER COMPREHENSIVE INCOME (LOSS)

Change in fair value of derivatives used for cash flow hedges

 

 

(1)

 

 

(173)

Reclassification amount for net derivative losses realized in income

 

 

103

 

 

211

Unrealized gains and (losses) on AFS debt securities

 

(1,899)

 

(258)

 

(4,542)

 

8,618

Unrealized gain (loss) of AFS debt security for which a portion of OTTI has been recognized in earnings

 

13

 

61

 

62

 

(46)

Unrealized losses on AFS debt securities

 

(21,249)

 

(2,029)

Unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings

 

24

 

15

Total other comprehensive income (loss) before income tax

 

(1,886)

 

(95)

 

(4,480)

 

8,610

 

(21,225)

 

(2,014)

Tax effect

 

471

 

24

 

1,119

 

(2,153)

 

5,308

 

503

Total other comprehensive income (loss), net of tax

 

(1,415)

 

(71)

 

(3,361)

 

6,457

 

(15,917)

 

(1,511)

COMPREHENSIVE INCOME

$

18,594

$

20,318

$

66,623

$

69,347

$

12,009

$

24,542

See accompanying footnotes to consolidated financial statements.

6

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended September 30, 2021

Common Stock

Accumulated

    

Class A

    

Class B

    

    

    

Additional

    

    

    

Other

    

Total

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

(in thousands, except per share data)

Outstanding

Outstanding

Amount

Capital

Earnings

Income

Equity

Balance, July 1, 2021

 

18,421

2,166

$

4,841

$

142,884

$

690,802

$

6,563

$

845,090

Net income

 

 

 

 

 

20,009

 

 

20,009

Net change in accumulated other comprehensive income

 

 

 

 

 

 

(1,415)

 

(1,415)

Dividends declared on Common Stock:

Class A Shares ($0.308 per share)

 

 

 

 

 

(5,557)

 

 

(5,557)

Class B Shares ($0.280 per share)

 

 

 

 

 

(606)

 

 

(606)

Conversion of Class B to Class A Common Shares

1

 

(1)

 

 

 

 

 

Repurchase of Class A Common Stock

(387)

 

 

(90)

 

(2,855)

 

(16,733)

 

 

(19,678)

Net change in notes receivable on Class A Common Stock

 

 

 

 

100

 

 

 

100

Deferred compensation - Class A Common Stock:

 

Directors

 

 

 

121

 

 

 

121

Designated key employees

 

 

 

175

 

 

 

175

Employee stock purchase plan - Class A Common Stock

4

 

 

1

 

191

 

 

 

192

Stock-based awards - Class A Common Stock:

Performance stock units

 

 

 

 

32

 

 

 

32

Restricted stock

 

1

 

 

 

64

 

 

 

64

Stock options

 

 

 

 

130

 

 

 

130

Balance, September 30, 2021

18,040

2,165

$

4,752

$

140,842

$

687,915

$

5,148

$

838,657

Three Months Ended September 30, 2020

Common Stock

Accumulated

    

Class A

    

Class B

    

    

    

Additional

    

    

    

Other

    

Total

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

(in thousands, except per share data)

Outstanding

Outstanding

Amount

Capital

Earnings

Income

Equity

Balance, July 1, 2020

 

18,708

2,200

$

4,898

$

142,813

$

638,282

$

9,626

$

795,619

Net income

 

 

 

 

 

20,389

 

 

20,389

Net change in accumulated other comprehensive income

 

 

 

 

 

 

(71)

 

(71)

Dividends declared on Common Stock:

Class A Shares ($0.286 per share)

 

 

 

 

 

(5,375)

 

 

(5,375)

Class B Shares ($0.260 per share)

 

 

 

 

 

(572)

 

 

(572)

Stock options exercised, net of shares withheld

 

1

 

 

1

 

(6)

 

 

 

(5)

Net change in notes receivable on Class A Common Stock

 

 

 

 

(201)

 

 

 

(201)

Deferred compensation - Class A Common Stock:

 

Directors

 

 

 

72

 

 

 

72

Designated key employees

 

 

 

141

 

 

 

141

Employee stock purchase plan - Class A Common Stock

6

 

 

1

 

169

 

 

 

170

Stock-based awards - Class A Common Stock:

Performance stock units

 

 

 

 

 

 

 

Restricted stock

 

 

 

 

69

 

 

 

69

Stock options

 

 

 

 

126

 

 

 

126

Balance, September 30, 2020

 

18,715

 

2,200

$

4,900

$

143,183

$

652,724

$

9,555

$

810,362

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Table of Contents

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Common Stock

Accumulated

 

Common Stock

Accumulated

 

    

Class A

    

Class B

    

    

Additional

    

    

Other

    

Total

 

    

Class A

    

Class B

    

    

Additional

    

    

Other

    

Total

 

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

 

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

 

(in thousands, except per share data)

Outstanding

Outstanding

Amount

Capital

Earnings

Income

Equity

 

Outstanding

Outstanding

Amount

Capital

Earnings

Income (Loss)

Equity

 

Balance, January 1, 2021

 

18,697

2,199

$

4,899

$

143,637

$

666,278

$

8,509

$

823,323

Balance, January 1, 2022

 

17,816

2,165

$

4,702

$

139,956

$

687,700

$

1,874

$

834,232

Net income

 

 

 

 

 

69,984

 

 

69,984

 

 

 

 

 

27,926

 

 

27,926

Net change in accumulated other comprehensive income

 

 

 

 

 

 

(3,361)

 

(3,361)

Net change in AOCI

 

 

 

 

 

 

(15,917)

 

(15,917)

Dividends declared on Common Stock:

Class A Shares ($0.924 per share)

 

 

 

 

 

(16,980)

 

 

(16,980)

Class B Shares ($0.840 per share)

 

 

 

 

 

(1,830)

 

 

(1,830)

Class A Shares ($0.341 per share)

 

 

 

 

 

(6,081)

 

 

(6,081)

Class B Shares ($0.310 per share)

 

 

 

 

 

(671)

 

 

(671)

Stock options exercised, net of shares withheld

 

28

 

 

13

 

(155)

 

 

 

(142)

 

1

 

 

 

(48)

 

 

 

(48)

Conversion of Class B to Class A Common Shares

34

 

(34)

 

 

 

 

 

Repurchase of Class A Common Stock

(749)

 

 

(165)

 

(5,205)

 

(29,537)

 

 

(34,907)

Net change in notes receivable on Class A Common Stock

 

 

 

 

150

 

 

 

150

 

 

 

 

60

 

 

 

60

Deferred compensation - Class A Common Stock:

 

 

Directors

4

 

 

 

330

 

 

 

330

6

 

 

 

129

 

 

 

129

Designated key employees

 

 

 

478

 

 

 

478

 

 

 

179

 

 

 

179

Employee stock purchase plan - Class A Common Stock

11

 

 

3

 

507

 

 

 

510

4

 

 

1

 

162

 

 

 

163

Stock-based awards - Class A Common Stock:

Performance stock units

 

 

 

 

97

 

 

 

97

 

 

 

 

38

 

 

 

38

Restricted stock

 

15

 

 

2

 

583

 

 

 

585

 

7

 

 

 

163

 

 

 

163

Stock options

 

 

 

 

420

 

 

 

420

 

 

 

 

156

 

 

 

156

Balance, September 30, 2021

18,040

2,165

$

4,752

$

140,842

$

687,915

$

5,148

$

838,657

Balance, March 31, 2022

17,834

2,165

$

4,703

$

140,795

$

708,874

$

(14,043)

$

840,329

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Common Stock

Accumulated

 

Common Stock

Accumulated

 

    

Class A

    

Class B

    

    

Additional

    

    

Other

    

Total

 

    

Class A

    

Class B

    

    

Additional

    

    

Other

    

Total

 

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

 

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

 

(in thousands, except per share data)

Outstanding

Outstanding

Amount

Capital

Earnings

Income

Equity

 

Outstanding

Outstanding

Amount

Capital

Earnings

Income (Loss)

Equity

 

Balance, January 1, 2020

 

18,737

 

2,206

$

4,907

$

142,068

$

614,171

$

3,098

$

764,244

Balance, January 1, 2021

 

18,697

2,199

$

4,899

$

143,637

$

666,278

$

8,509

$

823,323

Adjustment for adoption of ASU 2016-13

(4,291)

(4,291)

Net income

 

 

 

 

 

62,890

 

 

62,890

 

 

 

 

 

26,053

 

 

26,053

Net change in accumulated other comprehensive income

 

 

 

 

 

 

6,457

 

6,457

Net change in AOCI

 

 

 

 

 

 

(1,511)

 

(1,511)

Dividends declared on Common Stock:

Class A Shares ($0.858 per share)

 

 

 

 

 

(16,080)

 

 

(16,080)

Class B Shares ($0.780 per share)

 

 

 

 

 

(1,716)

 

 

(1,716)

Class A Shares ($0.308 per share)

 

 

 

 

 

(5,743)

 

 

(5,743)

Class B Shares ($0.280 per share)

 

 

 

 

 

(616)

 

 

(616)

Stock options exercised, net of shares withheld

 

20

 

 

9

 

242

 

 

 

251

 

15

 

 

8

 

(92)

 

 

 

(84)

Conversion of Class B to Class A Common Shares

 

1

 

(1)

 

 

 

 

 

Repurchase of Class A Common Stock

 

6

 

(6)

 

 

 

 

 

 

(107)

 

 

(24)

 

(736)

 

(3,708)

 

 

(4,468)

Conversion of Class B to Class A Common Shares

 

(86)

 

 

(20)

 

(582)

 

(2,250)

 

 

(2,852)

Net change in notes receivable on Class A Common Stock

 

 

 

 

(87)

 

 

 

(87)

 

 

 

 

94

 

 

 

94

Deferred compensation - Class A Common Stock:

 

 

Directors

4

 

 

 

222

 

 

 

222

4

 

 

 

114

 

 

 

114

Designated key employees

 

 

 

418

 

 

 

418

 

 

 

136

 

 

 

136

Employee stock purchase plan - Class A Common Stock

15

 

 

3

 

458

 

 

 

461

4

 

 

1

 

154

 

 

 

155

Stock-based awards - Class A Common Stock:

Performance stock units

 

18

 

 

 

(200)

 

 

 

(200)

 

 

 

 

32

 

 

 

32

Restricted stock

 

1

 

 

1

 

316

 

 

 

317

 

14

 

 

 

110

 

 

 

110

Stock options

 

 

 

 

328

 

 

 

328

 

 

 

 

114

 

 

 

114

Balance, September 30, 2020

 

18,715

 

2,200

$

4,900

$

143,183

$

652,724

$

9,555

$

810,362

Balance, March 31, 2021

 

18,628

 

2,198

$

4,884

$

143,563

$

682,264

$

6,998

$

837,709

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Nine Months Ended

Three Months Ended

September 30, 

March 31, 

    

2021

    

2020

    

2022

    

2021

OPERATING ACTIVITIES:

Net income

$

69,984

$

62,890

$

27,926

$

26,053

Adjustments to reconcile net income to net cash provided by operating activities:

Net amortization on investment securities

 

805

 

1,154

Net amortization on investment securities and low-income housing investments

 

1,391

 

1,305

Net accretion on loans and amortization of core deposit intangible and operating lease components

 

(12,650)

 

(3,261)

 

(1,256)

 

(6,846)

Unrealized losses on equity securities with readily determinable fair value

505

118

118

262

Depreciation of premises and equipment

 

6,747

 

7,420

 

2,038

 

2,247

Amortization of mortgage servicing rights

 

2,617

 

2,701

 

668

 

997

Impairment of mortgage servicing rights

(500)

500

Provision for on-balance sheet exposures for continuing operations

 

4,381

 

15,555

Provision for on-balance sheet exposures for discontinued operations

7,850

15,239

Recovery of mortgage servicing rights

(400)

Provision for on-balance sheet exposures

 

9,226

 

15,262

Provision for off-balance sheet exposures

(52)

467

(12)

26

Net gain on sale of mortgage loans held for sale

 

(16,339)

 

(25,030)

 

(2,460)

 

(6,997)

Origination of mortgage loans held for sale

 

(525,246)

 

(547,556)

 

(100,661)

 

(213,587)

Proceeds from sale of mortgage loans held for sale

 

562,661

 

546,950

 

119,212

 

203,815

Net gain on sale of consumer loans held for sale

(7,889)

(3,751)

(3,117)

(1,304)

Origination of consumer loans held for sale

(561,062)

(391,688)

(245,214)

(117,274)

Proceeds from sale of consumer loans held for sale

558,972

395,791

256,280

107,683

Net gain realized on sale of other real estate owned

 

(51)

 

(43)

 

 

(41)

Writedowns of other real estate owned

 

158

 

53

 

52

 

53

Deferred compensation expense - Class A Common Stock

 

808

 

640

 

308

 

250

Stock-based awards and ESPP expense - Class A Common Stock

 

1,178

 

445

 

381

 

288

Net gain on sale of bank premises and equipment

 

(399)

 

(353)

Increase in cash surrender value of bank owned life insurance

 

(1,616)

 

(1,184)

 

(612)

 

(390)

Net change in other assets and liabilities:

Accrued interest receivable

 

3,573

 

810

 

451

 

1,745

Accrued interest payable

 

(162)

 

(2,074)

 

33

 

(65)

Other assets

 

(4,743)

 

(13,126)

 

795

 

(5,770)

Other liabilities

 

(1,381)

 

(623)

 

14,897

 

9,459

Net cash provided by operating activities

 

88,149

 

62,044

 

80,444

 

16,771

INVESTING ACTIVITIES:

Purchases of available-for-sale debt securities

 

(141,571)

 

(278,878)

 

(115,777)

 

(35,020)

Proceeds from calls, maturities and paydowns of available-for-sale debt securities

 

164,280

 

207,397

 

15,944

 

79,077

Proceeds from calls, maturities and paydowns of held-to-maturity debt securities

 

8,444

 

7,952

 

5,508

 

1,247

Net change in outstanding warehouse lines of credit

 

212,114

 

(311,217)

 

160,350

 

96,952

Net change in other loans from continuing operations

 

235,993

 

(282,185)

Net change in loans from discontinued operations

23,717

14,132

Net change in other loans

 

(54,869)

 

55,502

Proceeds from redemption of Federal Home Loan Bank stock

 

7,086

 

20,197

 

 

4,244

Purchase of Federal Home Loan Bank stock

(9,000)

Proceeds from sales of other real estate owned

 

611

 

156

 

 

536

Proceeds from sale of bank premises and equipment

637

894

Purchase of bank owned life insurance

(30,000)

Investments in low-income housing tax partnerships

(3,645)

(1,510)

Net purchases of premises and equipment

 

(4,972)

 

(2,711)

 

(323)

 

(1,059)

Net cash provided by (used in) investing activities

 

476,339

 

(633,263)

Net cash provided by investing activities

 

7,188

 

199,969

FINANCING ACTIVITIES:

Net change in deposits from continuing operations

 

200,580

 

1,153,770

Net change in deposits from discontinued operations

14,186

52,551

Net change in deposits

 

246,688

 

538,311

Net change in securities sold under agreements to repurchase and other short-term borrowings

 

49,557

 

(41,445)

 

(3,149)

 

(35,446)

Payments of Federal Home Loan Bank advances

 

(235,000)

 

(1,067,500)

 

(25,000)

 

(235,000)

Proceeds from Federal Home Loan Bank advances

 

25,000

 

450,000

 

20,000

 

25,000

Payoff of subordinated note, net of common security interest

(40,000)

Repurchase of Class A Common Stock

 

(34,907)

 

(2,852)

 

 

(4,468)

Net proceeds from Class A Common Stock purchased through employee stock purchase plan

435

461

139

132

Net proceeds from option exercises and equity awards vested - Class A Common Stock

 

(142)

 

251

 

(48)

 

(93)

Cash dividends paid

 

(18,537)

 

(17,292)

 

(6,075)

 

(5,906)

Net cash (used in) provided by financing activities

 

(38,828)

 

527,944

Net cash provided by financing activities

 

232,555

 

282,530

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

525,660

 

(43,275)

 

320,187

 

499,270

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

485,587

 

385,303

 

756,971

 

485,587

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

1,011,247

$

342,028

$

1,077,158

$

984,857

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:

Cash paid during the period for:

Interest

$

4,790

$

19,167

$

910

$

1,842

Income taxes

 

16,736

 

16,204

 

470

 

441

SUPPLEMENTAL NONCASH DISCLOSURES:

Mortgage servicing rights capitalized

$

3,889

$

3,987

$

974

$

1,213

Transfers from loans to real estate acquired in settlement of loans

64

2,109

64

Transfers from loans held for investment to held for sale

24

Unfunded commitments in low-income-housing investments

10,000

Right-of-use assets recorded

263

14,144

4,538

Allowance for credit losses recorded upon adoption of ASC 326

7,241

See accompanying footnotes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –SEPTEMBER 30,–MARCH 31, 2022 and 2021 and 2020 AND DECEMBER 31, 20202021 (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 5 reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly-owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives for which insurance may not be available or economically feasible.

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. 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, 2020.2021.

As of September 30, 2021,March 31, 2022, the Company was divided into 5 reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first 3 segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last 2 segments collectively constitute RPG operations.

See additional detail regarding the Bank’s agreement to sell TRS under Footnote 17 “Discontinued Operations” in this section of the filing.

The Company’s financial condition as of September 30, 2021 and results of operations for the three and nine months ended September 30, 2021 and 2020 were impacted by the COVID-19 pandemic and the public’s response to it.

For additional discussion regarding the COVID-19 pandemic and its impact to the Company, see the following Footnotes in this section of the filing:

Footnote 4 “Loans and Allowance for Credit Losses”
Footnote 9 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

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Core Bank

Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of September 30, 2021,March 31, 2022, Republic had 42 full-service banking centers with locations as follows:

Kentucky — 28

Metropolitan Louisville — 18

Central Kentucky — 7

Georgetown — 1

Lexington — 5

Shelbyville — 1

Northern Kentucky — 3

Covington — 1

Crestview Hills — 1

Florence — 1

Southern Indiana — 3

Floyds Knobs — 1

Jeffersonville — 1

New Albany — 1

Metropolitan Tampa, Florida — 7

Metropolitan Cincinnati, Ohio — 2

Metropolitan Nashville, Tennessee — 2

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

Traditional Banking results of operations are primarily dependent upon net interest income, which represents the difference between the interest income and fees on interest-earning assets and the interest expense on interest-bearing liabilities. Principal interest-earning Traditional Banking assets represent investment securities and commercial and consumer loans primarily secured by real estate and/or personal property. Interest-bearing liabilities primarily consist of interest-bearing deposit accounts, securities sold under agreements to repurchase, as well as short-term and long-term borrowing sources. FHLB advances have traditionally been a significant borrowing source for the Bank.

Other sources of Traditional Banking income include service charges on deposit accounts, debit and credit card interchange fee income, title insurance commissions, and increases in the cash surrender value of BOLI.

Traditional Banking operating expenses consist primarily of: salaries and employee benefits; technology, equipment, and communication; occupancy; interchange related expense; marketing and development; FDIC insurance expense, and various other general and administrative costs. Traditional Banking results of operations are significantly impacted by general economic and competitive conditions, particularly changes in market interest rates, government laws and policies, and actions of regulatory agencies.

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

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

Republic Processing Group

Tax Refund Solutions segment — On May 13, 2021,Through the TRS segment, the Bank entered intois 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”). 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.

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

The EA tax credit product is a loan that allows a taxpayer to borrow funds as an Asset Purchase Agreement (the “Purchase Agreement”)advance of a portion of their tax refund. The EA product had the following features during 2022 and 2021:

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

The Company reports fees paid for the EA product as interest income on loans. During 2021, EAs were repaid, on average, within 32 days after the taxpayer’s tax return was submitted to the applicable taxing authority. EAs do not have a contractual due date but the Company considered an EA delinquent in 2022 and 2021 if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. Provisions on EAs are estimated when advances are made. Unpaid EAs are charged-off by June 30th of each year, with EAs collected during the second half of each year recorded as recoveries of previously charged-off loans.

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 payment patterns. Because the substantial majority of the EA 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.

Cancelled TRS Sale Transaction - As previously disclosed, Green Dot Corporation (“paid RB&T a contract termination fee of $5.0 million during the first quarter of 2022 after RB&T provided Green Dot”) providingDot a notice of termination of the May 2021 Purchase Agreement for the purchase by Green Dot, upon the terms and subject to the conditions set forth therein,sale of substantially all of theRB&T’s TRS assets and operations of the Bank’s Tax Refund Solutions business (the “Sale Transaction”).

As a result of the Purchase Agreement and the proposed Sale Transaction, the results for the Company, RPG, and its TRS segment are presented within this filing to reflect continuing versus discontinued operations. RPG’s continuing operations include its RCS segment, its RPS division, and certain overhead costs previously allocatedGreen Dot. RB&T continues to TRS that will remain with RPG. Discontinued operations are those contracted to be sold. These discontinued operations have historically contained the majority of TRS’s revenue and expense. Interest income and expense for continuing and discontinued operations also include intercompany interest charged and earned based on the Company’s funds transfer pricing methodology.

On October 4, 2021,pursue other legal remedies against Green Dot announced that it had been unable to obtain the Federal Reserve’s approval of or non-objectionrelated to the Sale Transaction and that, as a result, Green Dot would not consummateTransaction. The Company recorded the Sale Transaction. On October 5, 2021,contract termination fee within noninterest income during the Bank filed a lawsuit against Green Dot in the Delaware Courtfirst quarter of Chancery, C.A. No. 2021-0854-SG, alleging breach of contract. In so doing, the Bank seeks, among other relief, specific performance to require that Green Dot proceed with the Sale Transaction as the parties had agreed to in the Purchase Agreement. Due to the inherent uncertainties of legal proceedings, at this time, the Company cannot predict the outcome of these proceedings and their impact on the Company’s financial condition and results of operations.

2022.

See additional detail regarding the Bank’s agreement to sell TRS under Footnote 17 “Discontinued Operations” in this section of the filing.

Republic Payment Solutions division — RPS is currently managed and operated within the TRS segment’s continuing operations.segment. The RPS division offers general-purpose reloadable prepaid cards as an issuing bank through third-party service providers. For the projected near-term, as the

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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’s continuing operations.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 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 2 line-of-credit products to generally subprime borrowers in multiple states. The first of these 2 products (the “LOC I”) has been originated by the Bank since 2014. The second (the “LOC II”) was introduced in January 2021.

oRCS’s LOC I representsrepresented the substantial majority of RCS activity.activity during 2021. Elastic Marketing, LLC and Elevate Decision Sciences, LLC are third-party service providers for the product and are both 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. Further, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of the product. 

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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.

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

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

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

RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through 2 different third-party service providers. In one program, the Bank retains 100% of the receivables originated. In the other program, the Bank retains 100% of the receivables originated in some instances, and in other instances, sells 100% of the

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

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

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Recently Adopted Accounting Standards

The following ASUs were adopted by the Company during the ninethree months ended September 30, 2021:March 31, 2022:

ASU. No.

    

Topic

    

Nature of Update

    

Date Adopted

    

Method of Adoption

    

Financial Statement Impact

2020-082020-06

Codification Improvements to Subtopic 310-20,
Receivables—Nonrefundable Fees
Debt—Debt with Conversion and Other CostsOptions (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

This ASU clarifiessimplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that an entity should re-evaluate whether a callable debt security is withinare required for equity contracts to qualify for the derivative scope of ASC paragraph 310-20-35-33exception, which will permit more equity contracts to qualify for each reporting period.it. The ASU also simplifies the diluted earnings per share calculation in certain areas.

January 1, 20212022

Prospectively

Immaterial

2020-102021-04

Codification ImprovementsEarnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options

This ASU affectsprovides guidance for a wide varietymodification or an exchange of Topics ina freestanding equity-classified written call option that is not within the Codification.

More
scope of another Topic. It specifically this ASU, among other things, contains amendments that improve the consistencyaddresses: (1) How an entity should treat a modification of the Codification by including all disclosure guidance interms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) How an entity should measure the appropriate Disclosure Section (Section 50). Manyeffect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) How an entity should recognize the amendments arose because the FASB providedeffect of a modification or an exchange of a freestanding equity-classified written call option to give certain information either on the face of the financial statementsthat remains equity classified after modification or in the notes to financial statements and that option only was included in the Other Presentation Matters Section (Section 45) of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). Those amendments are not expected to change current practice.exchange.

January 1, 2021

Prospectively

Immaterial

2021-01

Reference Rate Reform (Topic 848): Scope

This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

January 7, 2021

Prospectively

Immaterial

2021-06

Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946)

This ASU amends the SEC sections of the Codification related to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.

August 9, 20212022

Prospectively

Immaterial

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Accounting Standards Update

ThereThe following not-yet-effective ASUs were no not-yet-effective ASUsissued since the Company’s most recently filed Form 10-K and are considered relevant to the Company’s financial statements issued since the Company’s last filing on Form 10-Q.statements.

Date Adoption

Adoption

Expected

ASU. No.

Topic

Nature of Update

Required

Method

Financial Impact

2022-01

Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method

In 2017, the FASB issued a new hedging standard to better align the economic results of risk management activities with hedge accounting.

One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows.

Since issuing that standard, stakeholders have told the FASB that the ability to elect hedge accounting for a single layer is useful, but hedge accounting could better reflect risk management activities if expanded to allow multiple layers of a single closed portfolio to be hedged under the method.

This ASU expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method. To reflect that expansion, the last-of-layer method is renamed the portfolio-layer method.

January 1, 2023

Prospectively

Immaterial

2022-02

Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures

This ASU eliminates the TDR recognition and measurement guidance and, instead, requires the Company to evaluate (consistent with the accounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan. This ASU also enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

This ASU requires the Company to disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross writeoff information must be included in the vintage disclosures required for the Company in accordance with ASC 326-20-50-6, which requires that the Company disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. (see Note 4 in this section of the filing)

January 1, 2023

Prospectively

The Company is currently analyzing the impact of this ASU on its financial statements.

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2. INVESTMENT SECURITIES

Available-for-Sale Debt Securities

The following tables summarize the amortized cost, fair value, and ACLS of AFS debt securities and the corresponding amounts of related gross unrealized gains and losses recognized in AOCI:

    

    

Gross

    

Gross

    

Allowance

 

    

    

    

Gross

    

Gross

    

Allowance

 

    

Amortized

Unrealized

Unrealized

for

 

Fair

Amortized

Unrealized

Unrealized

for

 

Fair

September 30, 2021 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

March 31, 2022 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

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

$

234,980

$

747

$

(882)

$

0

$

234,845

$

326,030

$

72

$

(13,142)

$

0

$

312,960

Private label mortgage-backed security

 

1,468

 

1,312

 

 

0

 

2,780

 

1,265

 

1,337

 

 

0

 

2,602

Mortgage-backed securities - residential

 

204,869

 

5,059

 

(123)

 

0

 

209,805

 

223,924

 

566

 

(7,589)

 

0

 

216,901

Collateralized mortgage obligations

 

34,027

 

521

 

(29)

 

0

 

34,519

 

27,347

 

176

 

(224)

 

0

 

27,299

Corporate bonds

 

10,000

 

81

 

 

0

 

10,081

 

10,000

 

52

 

 

0

 

10,052

Trust preferred security

 

3,671

 

179

 

 

0

 

3,850

 

3,698

 

27

 

 

0

 

3,725

Total available-for-sale debt securities

$

489,015

$

7,899

$

(1,034)

$

0

$

495,880

$

592,264

$

2,230

$

(20,955)

$

0

$

573,539

    

    

Gross

    

Gross

    

Allowance

 

    

    

    

Gross

    

Gross

    

Allowance

 

    

Amortized

Unrealized

Unrealized

for

 

Fair

Amortized

Unrealized

Unrealized

for

 

Fair

December 31, 2020 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

December 31, 2021 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

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

$

245,204

$

1,730

$

(25)

$

0

$

246,909

$

239,880

$

473

$

(2,894)

$

0

$

237,459

Private label mortgage-backed security

 

1,707

 

1,250

 

 

0

 

2,957

 

1,418

 

1,313

 

 

0

 

2,731

Mortgage-backed securities - residential

 

203,786

 

7,419

 

(3)

 

0

 

211,202

 

207,697

 

3,525

 

(473)

 

0

 

210,749

Collateralized mortgage obligations

 

48,190

 

772

 

(10)

 

0

 

48,952

 

29,947

 

377

 

(30)

 

0

 

30,294

Corporate bonds

 

10,000

 

43

 

 

0

 

10,043

 

10,000

 

46

 

 

0

 

10,046

Trust preferred security

 

3,631

 

169

 

 

0

 

3,800

 

3,684

 

163

 

 

0

 

3,847

Total available-for-sale debt securities

$

512,518

$

11,383

$

(38)

$

0

$

523,863

$

492,626

$

5,897

$

(3,397)

$

0

$

495,126

Held-to-Maturity Debt Securities

The following tables summarize the amortized cost, fair value, and ACLS of HTM debt securities and the corresponding amounts of related gross unrecognized gains and losses:

    

    

    

Gross

    

Gross

    

    

    

Allowance

    

    

    

Gross

    

Gross

    

    

    

Allowance

Carrying

Unrecognized

Unrecognized

Fair

for

Amortized

Unrecognized

Unrecognized

Fair

for

September 30, 2021 (in thousands)

Value

Gains

Losses

Value

Credit Losses

March 31, 2022 (in thousands)

Cost

Gains

Losses

Value

Credit Losses

Mortgage-backed securities - residential

$

47

$

$

$

47

$

$

32

$

$

$

32

$

Collateralized mortgage obligations

 

9,777

 

150

 

 

9,927

 

 

8,591

 

116

 

 

8,707

 

Corporate bonds

 

34,976

 

390

 

 

35,366

 

(54)

 

29,967

 

140

 

(4)

 

30,103

 

(40)

Obligations of state and political subdivisions

245

5

250

245

245

Total held-to-maturity debt securities

$

45,045

$

545

$

$

45,590

$

(54)

$

38,835

$

256

$

(4)

$

39,087

$

(40)

    

    

    

Gross

    

Gross

    

    

    

Allowance

    

    

    

Gross

    

Gross

    

    

    

Allowance

Carrying

Unrecognized

Unrecognized

Fair

for

Amortized

Unrecognized

Unrecognized

Fair

for

December 31, 2020 (in thousands)

Value

Gains

Losses

Value

Credit Losses

December 31, 2021 (in thousands)

Cost

Gains

Losses

Value

Credit Losses

Mortgage-backed securities - residential

$

99

$

5

$

$

104

$

$

46

$

$

$

46

$

Collateralized mortgage obligations

 

13,061

 

176

 

 

13,237

 

 

9,080

 

158

 

 

9,238

 

Corporate bonds

 

39,986

 

499

 

 

40,485

 

(178)

 

34,975

 

263

 

(6)

 

35,232

 

(47)

Obligations of state and political subdivisions

356

8

364

245

3

248

Total held-to-maturity debt securities

$

53,502

$

688

$

$

54,190

$

(178)

$

44,346

$

424

$

(6)

$

44,764

$

(47)

Sales of Available-for-Sale Debt Securities

During the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, there were no material gains or losses on sales or calls of AFS debt securities.

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Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity as of September 30, 2021March 31, 2022 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

 

Available-for-Sale

Held-to-Maturity

 

Debt Securities

Debt Securities

 

Debt Securities

Debt Securities

 

    

Amortized

    

Fair

    

Carrying

    

Fair

 

    

Amortized

    

Fair

    

Amortized

    

Fair

 

September 30, 2021 (in thousands)

Cost

Value

Value

Value

 

March 31, 2022 (in thousands)

Cost

Value

Cost

Value

 

 

 

Due in one year or less

$

25,044

$

25,270

$

121

$

123

$

50,684

$

50,690

$

120

$

121

Due from one year to five years

 

179,937

 

179,803

 

35,100

 

35,493

 

275,346

 

263,031

 

30,092

 

30,227

Due from five years to ten years

 

40,000

 

39,853

 

 

 

10,000

 

9,238

 

 

Due beyond ten years

 

3,670

 

3,850

 

 

 

3,698

 

3,778

 

 

Private label mortgage-backed security

 

1,468

 

2,780

 

 

 

1,265

 

2,602

 

 

Mortgage-backed securities - residential

 

204,869

 

209,805

 

47

 

47

 

223,924

 

216,901

 

32

 

32

Collateralized mortgage obligations

 

34,027

 

34,519

 

9,777

 

9,927

 

27,347

 

27,299

 

8,591

 

8,707

Total debt securities

$

489,015

$

495,880

$

45,045

$

45,590

$

592,264

$

573,539

$

38,835

$

39,087

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 September 30, 2021March 31, 2022 and December 31, 2020,2021, aggregated by investment category and length of time in a continuous unrealized loss position:

Less than 12 months

12 months or more

Total

 

Less than 12 months

12 months or more

Total

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

September 30, 2021 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

March 31, 2022 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

Available-for-sale debt securities:

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

$

158,944

$

(882)

$

$

$

158,944

$

(882)

$

226,199

$

(9,197)

$

56,055

$

(3,945)

$

282,254

$

(13,142)

Mortgage-backed securities - residential

34,432

(123)

34,432

(123)

168,927

(7,589)

168,927

(7,589)

Collateralized mortgage obligations

5,164

(29)

5,164

(29)

10,878

(224)

10,878

(224)

Total available-for-sale debt securities

$

198,540

$

(1,034)

$

$

$

198,540

$

(1,034)

$

406,004

$

(17,010)

$

56,055

$

(3,945)

$

462,059

$

(20,955)

���

Less than 12 months

12 months or more

Total

 

Less than 12 months

12 months or more

Total

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

December 31, 2020 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

December 31, 2021 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

Available-for-sale debt securities:

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

$

59,971

$

(25)

$

$

$

59,971

$

(25)

$

177,138

$

(2,622)

$

9,728

$

(272)

$

186,866

$

(2,894)

Mortgage-backed securities - residential

1,068

(3)

1,068

(3)

84,937

(473)

84,937

(473)

Collateralized mortgage obligations

2,788

(10)

2,788

(10)

4,495

(30)

4,495

(30)

Total available-for-sale debt securities

$

63,827

$

(38)

$

$

$

63,827

$

(38)

$

266,570

$

(3,125)

$

9,728

$

(272)

$

276,298

$

(3,397)

As of September 30, 2021,March 31, 2022, the Bank’s security portfolio consisted of 170180 securities, 3069 of which were in an unrealized loss position.

As of December 31, 2020,2021, the Bank’s security portfolio consisted of 173 securities, 1929 of which were in an unrealized loss position.

As of September 30, 2021March 31, 2022 and December 31, 2020,2021, there were no holdings of debt securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Private Label Mortgage-Backed Securities and Collateralized Mortgage ObligationsSecurity

As of September 30, 2021, with the exception of the $2.8 millionThe Bank owns 1 private label mortgage-backed security all other mortgage-backed securitieswith a total carrying value of $2.6 million as of March 31, 2022. This security is mostly backed by “Alternative A” first-lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and CMOs held byas such, the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FHLMC and FNMA. As of September 30, 2021 and December 31, 2020, there were gross unrealized losses of $152,000 and $13,000 relateddetermined it to AFS mortgage-backed securities and CMOs. Because these unrealized losses are attributable to changesbe a Level 3 security in interest rates and illiquidity, and not credit quality, and becauseaccordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank doesutilized 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 havetraded 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 intent to sell these securities,absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal 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.

external support for this investment.

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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, 2022, with the exception of the $2.6 million private label mortgage-backed security, all other mortgage-backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FHLMC and FNMA. As of March 31, 2022 and December 31, 2021, there were gross unrealized losses of $7.8 million and $503,000 related to AFS mortgage-backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to have OTTI.

Trust Preferred Security

During 2015, the Parent Company purchased a $3 million floating rate TRUP at a price of 68% of par. The coupon on this security is based on the 3-month 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.

Private Label Mortgage-Backed Security

The Bank owns 1 private label mortgage-backed security with a total carrying value of $2.8 million as of September 30, 2021. 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.

Rollforward of the Allowance for Credit Losses on Debt Securities

The tablestable below presentpresents a rollforward for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 of the ACLS on AFS and HTM debt securities:

ACLS Rollforward

Three Months Ended September 30, 

2021

2020

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Available-for-Sale Securities:

Corporate Bonds

$

$

$

$

$

$

126

$

(74)

$

$

$

52

Held-to-Maturity Securities:

Corporate Bonds

56

(2)

54

147

148

295

Total

$

56

$

(2)

$

$

$

54

$

273

$

74

$

$

$

347

ACLS Rollforward

Three Months Ended March 31, 

2022

2021

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Available-for-Sale Securities:

Corporate Bonds

$

$

$

$

$

$

$

$

$

$

Held-to-Maturity Securities:

Corporate Bonds

47

(7)

40

178

(75)

103

Total

$

47

$

(7)

$

$

$

40

$

178

$

(75)

$

$

$

103

The Company decreased the ACLS on its HTM corporate bonds during the three months ended September 30, 2021March 31, 2022 based on improved PD and LGD estimates on these bonds. PD and LGD estimates for these bonds were elevated during 2020 due to pandemic-driven economic concerns.

ACLS Rollforward

Nine Months Ended September 30, 

2021

2020

Beginning

Charge-

Ending

Beginning

ASC 326

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Adoption

Provision

offs

Recoveries

Balance

Available-for-Sale Securities:

Corporate Bonds

$

$

$

$

$

$

$

$

52

$

$

$

52

Held-to-Maturity Securities:

Corporate Bonds

178

(124)

54

51

244

295

Total

$

178

$

(124)

$

$

$

54

$

$

51

$

296

$

$

$

347

The Company decreased the ACLS on its HTM corporate bonds during the nine months ended September 30, 2021 based on improved PD and LGD estimates on these bonds. PD and LGD estimates for these bonds were elevated during 2020 due to pandemic-driven economic concerns.

17

Table of Contents

There were 0 HTM debt securities on nonaccrual or past due over 89 days as of September 30, 2021March 31, 2022 and December 31, 2020.2021. All of the Company’s HTM corporate bonds were rated investment grade as of September 30, 2021March 31, 2022 and December 31, 2020.2021.

There were 0 HTM debt securities considered collateral dependent as of September 30, 2021March 31, 2022 and December 31, 2020.2021.

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 $1 million and $1 million as of September 30, 2021March 31, 2022 and December 31, 2020.2021. Accrued interest receivable on HTM debt securities totaled $88,000$81,000 and $110,000$89,000 as of September 30, 2021March 31, 2022 and December 31, 2020.2021.

17

Table of Contents

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, arewere as follows:

(in thousands)

    

September 30, 2021

    

December 31, 2020

 

    

March 31, 2022

    

December 31, 2021

 

Carrying amount

$

354,275

$

303,535

$

330,853

$

319,650

Fair value

 

354,341

 

303,611

 

330,853

 

319,808

18

Table of Contents

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

    

    

 

    

    

Gross

    

Gross

    

    

 

Amortized

Unrealized

Unrealized

Fair

 

Amortized

Unrealized

Unrealized

Fair

 

September 30, 2021 (in thousands)

Cost

Gains

Losses

Value

 

March 31, 2022 (in thousands)

Cost

Gains

Losses

Value

 

Freddie Mac preferred stock

$

$

102

$

$

102

$

$

164

$

$

164

Community Reinvestment Act mutual fund

 

2,500

 

 

(24)

 

2,476

 

2,500

 

 

(162)

 

2,338

Total equity securities with readily determinable fair values

$

2,500

$

102

$

(24)

$

2,578

$

2,500

$

164

$

(162)

$

2,502

    

    

Gross

    

Gross

    

    

 

    

    

Gross

    

Gross

    

    

 

Amortized

Unrealized

Unrealized

Fair

 

Amortized

Unrealized

Unrealized

Fair

 

December 31, 2020 (in thousands)

Cost

Gains

Losses

Value

 

December 31, 2021 (in thousands)

Cost

Gains

Losses

Value

 

Freddie Mac preferred stock

$

$

560

$

$

560

$

$

170

$

$

170

Community Reinvestment Act mutual fund

 

2,500

 

23

 

 

2,523

 

2,500

 

 

(50)

 

2,450

Total equity securities with readily determinable fair values

$

2,500

$

583

$

$

3,083

$

2,500

$

170

$

(50)

$

2,620

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 September 30, 2021

    

Three Months Ended September 30, 2020

    

(in thousands)

    

Realized

    

Unrealized

    

Total

    

Realized

    

Unrealized

    

Total

Freddie Mac preferred stock

$

$

(13)

$

(13)

$

$

50

$

50

Community Reinvestment Act mutual fund

 

 

(9)

 

(9)

 

 

4

 

4

Total equity securities with readily determinable fair value

$

$

(22)

$

(22)

$

$

54

$

54

Gains (Losses) Recognized on Equity Securities

Gains (Losses) Recognized on Equity Securities

Nine Months Ended September 30, 2021

    

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2022

    

Three Months Ended March 31, 2021

(in thousands)

Realized

Unrealized

Total

Realized

Unrealized

Total

Realized

Unrealized

Total

Realized

Unrealized

Total

Freddie Mac preferred stock

$

$

(458)

$

(458)

$

$

(178)

$

(178)

$

$

(6)

$

(6)

$

$

(222)

$

(222)

Community Reinvestment Act mutual fund

 

 

(47)

 

(47)

 

 

60

 

60

 

 

(112)

 

(112)

 

 

(40)

 

(40)

Total equity securities with readily determinable fair value

$

$

(505)

$

(505)

$

$

(118)

$

(118)

$

$

(118)

$

(118)

$

$

(262)

$

(262)

1918

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3. LOANS HELD FOR SALE

In the ordinary course of business, the Bank originates for sale mortgage loans and consumer loans. Mortgage loans originated for sale are primarily originated and sold into the secondary market through the Bank’s Mortgage Banking segment, while consumer loans originated for sale are originated and sold through the RCS segment.

Mortgage Loans Held for Sale, at Fair Value

See additional detail regarding mortgage loans originated for sale, at fair value under Footnote 11 “Mortgage Banking Activities” of this section of the filing.

Consumer Loans Held for Sale, at Fair Value

In December 2019, the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell 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

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

2021

    

2020

    

2021

    

2020

2022

    

2021

��

Balance, beginning of period

$

13,020

$

164

$

3,298

$

598

$

19,747

$

3,298

Origination of consumer loans held for sale

 

67,526

 

1,559

 

136,222

 

49,300

 

96,732

 

19,090

Proceeds from the sale of consumer loans held for sale

 

(71,427)

 

(1,321)

 

(132,330)

 

(50,872)

 

(106,648)

 

(18,930)

Net gain on sale of consumer loans held for sale

 

1,660

 

47

 

3,589

 

1,423

 

1,878

 

512

Balance, end of period

$

10,779

$

449

$

10,779

$

449

$

11,709

$

3,970

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

RCS originates for sale 90% to 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

 

Nine Months Ended

    

    

Three Months Ended

    

September 30, 

September 30, 

March 31, 

(in thousands)

2021

    

2020

    

2021

    

2020

2022

    

2021

Balance, beginning of period

$

11,412

$

12,801

$

1,478

$

11,646

$

2,937

$

1,478

Origination of consumer loans held for sale

 

189,492

 

107,518

 

424,840

 

342,388

 

148,482

 

98,184

Proceeds from the sale of consumer loans held for sale

 

(199,036)

 

(109,669)

 

(426,642)

 

(344,919)

 

(149,632)

 

(88,753)

Net gain on sale of consumer loans held for sale

 

2,108

 

793

 

4,300

 

2,328

 

1,239

 

792

Balance, end of period

$

3,976

$

11,443

$

3,976

$

11,443

$

3,026

$

11,701

2019

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4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:

(in thousands)

   

September 30, 2021

    

December 31, 2020

 

   

March 31, 2022

    

December 31, 2021

 

Traditional Banking:

Residential real estate:

Owner occupied

$

827,898

$

879,800

$

808,658

$

820,731

Nonowner occupied

 

294,818

 

264,780

 

314,933

 

306,323

Commercial real estate

 

1,393,241

 

1,349,085

 

1,556,575

 

1,456,009

Construction & land development

 

105,968

 

98,674

 

129,970

 

129,337

Commercial & industrial

 

333,795

 

325,596

 

342,175

 

340,363

Paycheck Protection Program

126,271

392,319

18,276

56,014

Lease financing receivables

 

9,427

 

10,130

 

10,396

 

8,637

Aircraft

130,398

101,375

151,284

142,894

Home equity

 

215,282

 

240,640

 

210,364

 

210,578

Consumer:

Credit cards

 

14,781

 

14,196

 

14,654

 

14,510

Overdrafts

 

753

 

587

 

716

 

683

Automobile loans

 

17,533

 

30,300

 

11,846

 

14,448

Other consumer

 

6,223

 

8,167

 

939

 

1,432

Total Traditional Banking

3,476,388

3,715,649

3,570,786

3,501,959

Warehouse lines of credit*

 

750,682

 

962,796

 

690,200

 

850,550

Total Core Banking

4,227,070

4,678,445

4,260,986

4,352,509

Republic Processing Group*:

 

 

Tax Refund Solutions:

Easy Advances

16,475

Other TRS loans

1

25,132

50,987

Republic Credit Solutions

116,711

 

110,893

87,650

 

93,066

Total Republic Processing Group

116,712

110,893

129,257

144,053

Total loans**

 

4,343,782

 

4,789,338

 

4,390,243

 

4,496,562

Allowance for credit losses

 

(63,024)

 

(61,067)

 

(71,656)

 

(64,577)

Total loans, net

$

4,280,758

$

4,728,271

$

4,318,587

$

4,431,985

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

**Total loans are presented inclusive of premiums, discounts, and net loan origination fees and costs. See table directly below for expanded detail.

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

(in thousands)

    

September 30, 2021

    

December 31, 2020

 

    

March 31, 2022

    

December 31, 2021

 

Contractually receivable

$

4,348,535

$

4,797,297

$

4,392,499

$

4,498,671

Unearned income

 

(598)

 

(708)

 

(529)

 

(542)

Unamortized premiums

 

121

 

216

 

121

 

116

Unaccreted discounts

 

(688)

 

(988)

 

(598)

 

(641)

PPP net unamortized deferred origination fees and costs

(3,986)

(8,564)

Other net unamortized deferred origination fees and costs

 

398

 

2,085

PPP net unamortized deferred origination (fees) and costs

(428)

(1,203)

Other net unamortized deferred origination (fees) and costs

 

(822)

 

161

Carrying value of loans

$

4,343,782

$

4,789,338

$

4,390,243

$

4,496,562

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Paycheck Protection Program

The CARES Act was enacted in March 2020 and provided for the SBA’s PPP, which allowed the Bank to lend to its qualifying small business clients to assist them in their efforts to meet their cash-flowcashflow needs during the COVID-19COVID pandemic. The Economic Aid Act was enacted in December 2020 and provided for a second round of PPP loans. PPP loans are fully backed by the SBA and may be entirely forgiven if the loan client uses loan funds for qualifying reasons. As of September 30, 2021,March 31, 2022, net PPP loans of $126$18 million remained on the Traditional Bank’s balance sheet, including $19$3 million in loan balances originated during 2020 $111and $15 million in loan balances originated during 2021 and $4 million of unaccreted. PPP fees reported as a credit offset to these originated balances. Unaccretedrecognized by the Company for the first quarters of 2022 and 2021 were $879,000 and $5.8 million. PPP fees will generally be recognized into income overby the estimated remaining life ofCompany for the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated.years ended December 31, 2021 and 2020 were $17.5 million and $8.6 million.

To provide liquidity to banks administering the SBA’s PPP, the FRB created the PPPLF, a lending facility secured by the PPP loans of the participating banks. As of September 30, 2021, the Bank had 0 outstanding borrowings from the FRB under the PPPLF.

2221

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 September 30, 2021March 31, 2022 remain unchanged from those defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021. Regarding origination year, loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a TDR. Loan extensions and renewals classified as TDRs generally receive no change in origination date upon extension or renewal.

Revolving Loans

Revolving Loans

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year

Amortized

Converted

Term Loans Amortized Cost Basis by Origination Year

Amortized

Converted

As of September 30, 2021

2021

2020

2019

2018

Prior

Cost Basis

to Term

Total

As of March 31, 2022

2022

2021

2020

2019

Prior

Cost Basis

to Term

Total

Residential real estate owner occupied:

Risk Rating

Pass or not rated

$

170,594

$

229,444

$

96,923

$

56,318

$

251,929

$

$

$

805,208

$

34,689

$

208,741

$

206,086

$

83,162

$

254,051

$

$

$

786,729

Special Mention

304

36

8,509

8,849

296

8,131

8,427

Substandard

557

685

1,006

11,593

13,841

1,125

1,034

11,343

13,502

Doubtful

Total

$

170,898

$

230,001

$

97,608

$

57,360

$

272,031

$

$

$

827,898

$

34,689

$

209,037

$

207,211

$

84,196

$

273,525

$

$

$

808,658

Residential real estate nonowner occupied:

Risk Rating

Pass or not rated

$

75,983

$

71,290

$

50,082

$

32,111

$

61,625

$

$

3,588

$

294,679

$

24,117

$

102,088

$

63,823

$

41,166

$

77,944

$

$

5,534

$

314,672

Special Mention

40

40

129

129

Substandard

99

99

41

91

132

Doubtful

Total

$

75,983

$

71,290

$

50,082

$

32,111

$

61,764

$

$

3,588

$

294,818

$

24,117

$

102,129

$

63,823

$

41,166

$

78,164

$

$

5,534

$

314,933

Commercial real estate:

Risk Rating

Pass or not rated

$

362,616

$

271,691

$

179,046

$

104,300

$

311,904

$

$

79,005

$

1,308,562

$

170,095

$

474,706

$

240,041

$

155,065

$

338,934

$

$

96,789

$

1,475,630

Special Mention

12,103

2,411

29,879

11,535

19,767

75,695

1,324

20,147

2,386

23,951

28,723

76,531

Substandard

2,576

266

3,941

2,201

8,984

4,414

4,414

Doubtful

Total

$

374,719

$

276,678

$

209,191

$

115,835

$

335,612

$

$

81,206

$

1,393,241

$

171,419

$

494,853

$

242,427

$

179,016

$

372,071

$

$

96,789

$

1,556,575

Construction and land development:

Risk Rating

Pass or not rated

$

59,659

$

37,136

$

4,384

$

1,527

$

593

$

$

$

103,299

$

22,171

$

82,541

$

15,265

$

794

$

6,333

$

$

$

127,104

Special Mention

310

2,359

2,669

533

2,333

2,866

Substandard

Doubtful

Total

$

59,659

$

37,446

$

6,743

$

1,527

$

593

$

$

$

105,968

$

22,171

$

83,074

$

15,265

$

3,127

$

6,333

$

$

$

129,970

���

Commercial and industrial:

Risk Rating

Pass or not rated

$

117,127

$

55,354

$

66,818

$

21,262

$

48,361

$

$

4,112

$

313,034

$

31,331

$

142,205

$

31,386

$

55,176

$

59,798

$

$

2,457

$

322,353

Special Mention

15,398

2,344

800

43

2,095

20,680

900

14,594

1,460

739

1,980

19,673

Substandard

48

33

81

149

149

Doubtful

Total

$

132,525

$

57,746

$

67,618

$

21,305

$

50,489

$

$

4,112

$

333,795

$

32,231

$

156,799

$

32,846

$

56,064

$

61,778

$

$

2,457

$

342,175

Paycheck Protection Program:

Risk Rating

Pass or not rated

$

107,498

$

18,773

$

$

$

$

$

$

126,271

$

$

15,132

$

3,144

$

$

$

$

$

18,276

Special Mention

Substandard

Doubtful

Total

$

107,498

$

18,773

$

$

$

$

$

$

126,271

$

$

15,132

$

3,144

$

$

$

$

$

18,276

Lease financing receivables:

Risk Rating

Pass or not rated

$

2,068

$

903

$

2,896

$

1,406

$

2,154

$

$

$

9,427

$

2,713

$

2,401

$

795

$

2,380

$

2,107

$

$

$

10,396

Special Mention

Substandard

Doubtful

Total

$

2,068

$

903

$

2,896

$

1,406

$

2,154

$

$

$

9,427

$

2,713

$

2,401

$

795

$

2,380

$

2,107

$

$

$

10,396

Aircraft:

Risk Rating

Pass or not rated

$

47,983

$

46,405

$

24,134

$

10,049

$

1,827

$

$

$

130,398

$

13,768

$

63,842

$

41,934

$

21,847

$

9,893

$

$

$

151,284

Special Mention

Substandard

Doubtful

Total

$

47,983

$

46,405

$

24,134

$

10,049

$

1,827

$

$

$

130,398

$

13,768

$

63,842

$

41,934

$

21,847

$

9,893

$

$

$

151,284

Home equity:

Risk Rating

Pass or not rated

$

$

$

$

$

$

213,297

$

$

213,297

$

$

$

$

$

$

208,428

$

$

208,428

Special Mention

125

125

336

336

Substandard

1,860

1,860

1,600

1,600

Doubtful

Total

$

$

$

$

$

$

215,282

$

$

215,282

$

$

$

$

$

$

210,364

$

$

210,364

2322

Table of Contents

Revolving Loans

Revolving Loans

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year (Continued)

Amortized

Converted

Term Loans Amortized Cost Basis by Origination Year (Continued)

Amortized

Converted

As of September 30, 2021

2021

2020

2019

2018

Prior

Cost Basis

to Term

Total

As of March 31, 2022

2022

2021

2020

2019

Prior

Cost Basis

to Term

Total

Consumer:

Risk Rating

Pass or not rated

$

844

$

725

$

10,451

$

5,156

$

6,864

$

14,880

$

$

38,920

$

341

$

817

$

454

$

4,059

$

7,565

$

14,746

$

$

27,982

Special Mention

Substandard

25

47

298

370

15

158

173

Doubtful

Total

$

844

$

725

$

10,476

$

5,203

$

7,162

$

14,880

$

$

39,290

$

341

$

817

$

454

$

4,074

$

7,723

$

14,746

$

$

28,155

Warehouse:

Risk Rating

Pass or not rated

$

$

$

$

$

$

750,682

$

$

750,682

$

$

$

$

$

$

690,200

$

$

690,200

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

750,682

$

$

750,682

$

$

$

$

$

$

690,200

$

$

690,200

TRS:

Risk Rating

Pass or not rated

$

$

$

$

$

$

1

$

$

1

$

$

25,000

$

$

$

$

16,607

$

$

41,607

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

1

$

$

1

$

$

25,000

$

$

$

$

16,607

$

$

41,607

RCS:

Risk Rating

Pass or not rated

$

23,112

$

9,275

$

2,387

$

985

$

3,943

$

76,004

$

$

115,706

$

1,768

$

3,971

$

2,492

$

1,323

$

25,777

$

51,964

$

$

87,295

Special Mention

Substandard

1,005

1,005

355

355

Doubtful

Total

$

23,112

$

9,275

$

2,387

$

985

$

3,943

$

77,009

$

$

116,711

$

1,768

$

3,971

$

2,492

$

1,323

$

25,777

$

52,319

$

$

87,650

Grand Total:

Risk Rating

Pass or not rated

$

967,484

$

740,996

$

437,121

$

233,114

$

689,200

$

1,054,864

$

86,705

$

4,209,484

$

300,993

$

1,121,444

$

605,420

$

364,972

$

782,402

$

981,945

$

104,780

$

4,261,956

Special Mention

27,805

5,065

33,038

11,614

30,411

125

108,058

2,224

35,570

3,846

27,023

38,963

336

107,962

Substandard

3,181

976

1,053

15,964

2,865

2,201

26,240

41

1,125

1,198

16,006

1,955

20,325

Doubtful

Grand Total

$

995,289

$

749,242

$

471,135

$

245,781

$

735,575

$

1,057,854

$

88,906

$

4,343,782

$

303,217

$

1,157,055

$

610,391

$

393,193

$

837,371

$

984,236

$

104,780

$

4,390,243

Revolving Loans

Revolving Loans

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year

Amortized

Converted

Term Loans Amortized Cost Basis by Origination Year

Amortized

Converted

As of December 31, 2020

2020

2019

2018

2017

Prior

Cost Basis

to Term

Total

As of December 31, 2021

2021

2020

2019

2018

Prior

Cost Basis

to Term

Total

Residential real estate owner occupied:

Risk Rating

Pass or not rated

$

268,313

$

132,018

$

82,754

$

67,430

$

301,366

$

$

$

851,881

$

218,981

$

213,010

$

89,186

$

50,301

$

226,852

$

$

$

798,330

Special Mention

364

42

1,610

8,730

10,746

301

33

8,209

8,543

Substandard

394

1,423

1,331

614

13,411

17,173

45

870

679

1,189

11,075

13,858

Doubtful

Total

$

268,707

$

133,805

$

84,127

$

69,654

$

323,507

$

$

$

879,800

$

219,327

$

213,880

$

89,865

$

51,523

$

246,136

$

$

$

820,731

Residential real estate nonowner occupied:

Risk Rating

Pass or not rated

$

73,291

$

63,102

$

43,610

$

45,759

$

38,316

$

$

621

$

264,699

$

107,041

$

65,947

$

44,376

$

29,292

$

55,872

$

$

3,568

$

306,096

Special Mention

132

132

Substandard

81

81

95

95

Doubtful

Total

$

73,291

$

63,102

$

43,610

$

45,759

$

38,397

$

$

621

$

264,780

$

107,041

$

65,947

$

44,376

$

29,292

$

56,099

$

$

3,568

$

306,323

Commercial real estate:

Risk Rating

Pass or not rated

$

315,550

$

258,251

$

166,542

$

171,207

$

315,336

$

$

55,949

$

1,282,835

$

487,669

$

260,182

$

156,748

$

94,212

$

286,223

$

$

82,158

$

1,367,192

Special Mention

3,397

30,969

236

11,355

9,659

55,616

20,059

2,399

29,639

11,207

18,778

82,082

Substandard

2,596

349

987

3,899

2,803

10,634

111

266

2,453

3,905

6,735

Doubtful

Total

$

321,543

$

289,569

$

166,778

$

183,549

$

328,894

$

$

58,752

$

1,349,085

$

507,728

$

262,692

$

186,653

$

107,872

$

308,906

$

$

82,158

$

1,456,009

Construction and land development:

Risk Rating

Pass or not rated

$

53,972

$

31,756

$

7,840

$

701

$

1,964

$

$

$

96,233

$

89,078

$

32,046

$

2,599

$

1,155

$

265

$

$

$

125,143

Special Mention

2,397

2,397

524

3,670

4,194

Substandard

44

44

Doubtful

���

Total

$

53,972

$

34,197

$

7,840

$

701

$

1,964

$

$

$

98,674

$

89,078

$

32,570

$

6,269

$

1,155

$

265

$

$

$

129,337

Commercial and industrial:

Risk Rating

Pass or not rated

$

105,985

$

84,575

$

33,391

$

32,303

$

46,697

$

$

1,040

$

303,991

$

150,820

$

44,481

$

59,186

$

18,110

$

44,972

$

$

2,541

$

320,110

Special Mention

18,195

800

2,215

21,210

15,365

1,921

785

34

1,956

20,061

Substandard

383

12

395

13

179

192

Doubtful

Total

$

124,563

$

85,387

$

33,391

$

32,303

$

48,912

$

$

1,040

$

325,596

$

166,185

$

46,415

$

60,150

$

18,144

$

46,928

$

$

2,541

$

340,363

2423

Table of Contents

Revolving Loans

Revolving Loans

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year (Continued)

Amortized

Converted

Term Loans Amortized Cost Basis by Origination Year (Continued)

Amortized

Converted

As of December 31, 2020

2020

2019

2018

2017

Prior

Cost Basis

to Term

Total

As of December 31, 2021

2021

2020

2019

2018

Prior

Cost Basis

to Term

Total

Paycheck Protection Program:

Risk Rating

Pass or not rated

$

392,319

$

$

$

$

$

$

$

392,319

$

40,607

$

15,407

$

$

$

$

$

$

56,014

Special Mention

Substandard

Doubtful

Total

$

392,319

$

$

$

$

$

$

$

392,319

$

40,607

$

15,407

$

$

$

$

$

$

56,014

Lease financing receivables:

Risk Rating

Pass or not rated

$

1,117

$

3,663

$

1,814

$

2,847

$

689

$

$

$

10,130

$

2,638

$

839

$

2,641

$

1,264

$

1,255

$

$

$

8,637

Special Mention

Substandard

Doubtful

Total

$

1,117

$

3,663

$

1,814

$

2,847

$

689

$

$

$

10,130

$

2,638

$

839

$

2,641

$

1,264

$

1,255

$

$

$

8,637

Aircraft:

Risk Rating

Pass or not rated

$

55,823

$

30,529

$

13,804

$

1,219

$

$

$

$

101,375

$

65,886

$

43,301

$

22,933

$

9,119

$

1,655

$

$

$

142,894

Special Mention

Substandard

Doubtful

Total

$

55,823

$

30,529

$

13,804

$

1,219

$

$

$

$

101,375

$

65,886

$

43,301

$

22,933

$

9,119

$

1,655

$

$

$

142,894

Home equity:

Risk Rating

Pass or not rated

$

$

$

$

$

$

237,633

$

$

237,633

$

$

$

$

$

$

208,429

$

$

208,429

Special Mention

127

127

279

279

Substandard

2,880

2,880

1,870

1,870

Doubtful

Total

$

$

$

$

$

$

240,640

$

$

240,640

$

$

$

$

$

$

210,578

$

$

210,578

Consumer:

Risk Rating

Pass or not rated

$

425

$

13,636

$

8,563

$

7,125

$

8,648

$

14,321

$

$

52,718

$

978

$

417

$

4,694

$

4,326

$

5,768

$

14,613

$

$

30,796

Special Mention

5

5

Substandard

32

49

229

212

5

527

22

61

194

277

Doubtful

Total

$

425

$

13,668

$

8,612

$

7,354

$

8,865

$

14,326

$

$

53,250

$

978

$

417

$

4,716

$

4,387

$

5,962

$

14,613

$

$

31,073

Warehouse:

Risk Rating

Pass or not rated

$

$

$

$

$

$

962,796

$

$

962,796

$

$

$

$

$

$

850,550

$

$

850,550

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

962,796

$

$

962,796

$

$

$

$

$

$

850,550

$

$

850,550

TRS:

Risk Rating

Pass or not rated

$

$

$

$

$

$

$

$

$

$

$

$

$

$

50,987

$

$

50,987

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

$

$

$

$

$

$

$

$

50,987

$

$

50,987

RCS:

Risk Rating

Pass or not rated

$

27,683

$

5,704

$

2,485

$

1,232

$

19,095

$

54,348

$

$

110,547

$

5,524

$

3,409

$

1,642

$

869

$

3,699

$

77,544

$

$

92,687

Special Mention

Substandard

346

346

379

379

Doubtful

Total

$

27,683

$

5,704

$

2,485

$

1,232

$

19,095

$

54,694

$

$

110,893

$

5,524

$

3,409

$

1,642

$

869

$

3,699

$

77,923

$

$

93,066

���

Grand Total:

Risk Rating

Pass or not rated

$

1,294,478

$

623,234

$

360,803

$

329,823

$

732,111

$

1,269,098

$

57,610

$

4,667,157

$

1,169,222

$

679,039

$

384,005

$

208,648

$

626,561

$

1,202,123

$

88,267

$

4,357,865

Special Mention

21,592

34,530

278

12,965

20,609

127

90,101

35,725

4,844

34,094

11,274

29,075

279

115,291

Substandard

3,373

1,860

1,380

1,830

17,603

3,231

2,803

32,080

45

994

1,146

3,703

15,269

2,249

23,406

Doubtful

Grand Total

$

1,319,443

$

659,624

$

362,461

$

344,618

$

770,323

$

1,272,456

$

60,413

$

4,789,338

$

1,204,992

$

684,877

$

419,245

$

223,625

$

670,905

$

1,204,651

$

88,267

$

4,496,562

2524

Table of Contents

Allowance for Credit Losses on Loans

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

ACLL Rollforward

Three Months Ended September 30, 

2021

2020

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Traditional Banking:

Residential real estate:

Owner occupied

$

8,977

$

(677)

$

$

329

$

8,629

$

9,303

$

330

$

(13)

$

21

$

9,641

Nonowner occupied

2,551

47

2,598

2,274

96

7

2,377

Commercial real estate

23,307

286

3

23,596

16,300

4,663

20,963

Construction & land development

3,299

376

3,675

4,940

(341)

4,599

Commercial & industrial

4,117

(139)

(35)

16

3,959

2,405

654

(255)

80

2,884

Paycheck Protection Program

Lease financing receivables

97

2

99

125

(8)

117

Aircraft

303

23

326

208

11

219

Home equity

4,305

(63)

5

4,247

5,124

(7)

(14)

21

5,124

Consumer:

Credit cards

949

22

(40)

20

951

928

36

(29)

7

942

Overdrafts

717

143

(195)

88

753

488

324

(157)

50

705

Automobile loans

273

(34)

(19)

6

226

473

(67)

406

Other consumer

467

(28)

(25)

14

428

609

92

(41)

20

680

Total Traditional Banking

49,362

(42)

(314)

481

49,487

43,177

5,783

(509)

206

48,657

Warehouse lines of credit

2,100

(223)

1,877

2,575

(3)

2,572

Total Core Banking

51,462

(265)

(314)

481

51,364

45,752

5,780

(509)

206

51,229

Republic Processing Group (includes discontinued operations):

Tax Refund Solutions:

Easy Advances (discontinued operations)

(2,242)

2,242

(4,294)

4,294

Other TRS loans (discontinued operations)

(19)

19

211

(48)

(22)

141

Republic Credit Solutions (continuing operations)

8,829

3,820

(1,064)

75

11,660

9,134

(12)

(684)

83

8,521

Total Republic Processing Group

8,829

1,559

(1,064)

2,336

11,660

9,345

(4,354)

(706)

4,377

8,662

Total

$

60,291

$

1,294

$

(1,378)

$

2,817

$

63,024

$

55,097

$

1,426

$

(1,215)

$

4,583

$

59,891

26

Table of Contents

ACLL Rollforward

ACLL Rollforward

Nine Months Ended September 30, 

Three Months Ended March 31, 

2021

2020

2022

2021

Beginning

Charge-

Ending

Beginning

ASC 326

Charge-

Ending

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Adoption

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Traditional Banking:

Residential real estate:

Owner occupied

$

9,715

$

(1,461)

$

$

375

$

8,629

$

4,729

$

4,199

$

648

$

(40)

$

105

$

9,641

$

8,647

$

(331)

$

$

42

$

8,358

$

9,715

$

(253)

$

$

27

$

9,489

Nonowner occupied

2,466

131

1

2,598

1,737

148

481

11

2,377

2,700

45

1

2,746

2,466

66

2,532

Commercial real estate

23,606

336

(428)

82

23,596

10,486

273

10,002

(270)

472

20,963

23,769

854

1

24,624

23,606

555

(428)

68

23,801

Construction & land development

3,274

401

3,675

2,152

1,447

1,000

4,599

4,128

(235)

3,893

3,274

319

3,593

Commercial & industrial

2,797

1,170

(35)

27

3,959

2,882

(1,318)

1,643

(447)

124

2,884

3,487

(84)

9

3,412

2,797

(86)

7

2,718

Paycheck Protection Program

Lease financing receivables

106

(7)

99

147

(30)

117

91

18

109

106

(2)

104

Aircraft

253

73

326

176

43

219

357

21

378

253

12

265

Home equity

4,990

(789)

46

4,247

2,721

1,652

657

(14)

108

5,124

4,111

(70)

3

4,044

4,990

(382)

7

4,615

Consumer:

Credit cards

929

108

(130)

44

951

1,020

33

74

(206)

21

942

934

32

(39)

17

944

929

44

(57)

14

930

Overdrafts

587

351

(444)

259

753

1,169

13

(660)

183

705

683

188

(214)

59

716

587

(73)

(138)

97

473

Automobile loans

399

(178)

(19)

24

226

612

(7)

(220)

(8)

29

406

186

(36)

1

151

399

(78)

13

334

Other consumer

577

(137)

(56)

44

428

374

307

(81)

(86)

166

680

314

(75)

(10)

12

241

577

(52)

(14)

22

533

Total Traditional Banking

49,699

(2)

(1,112)

902

49,487

28,205

6,734

14,230

(1,731)

1,219

48,657

49,407

327

(263)

145

49,616

49,699

70

(637)

255

49,387

Warehouse lines of credit

2,407

(530)

1,877

1,794

778

2,572

2,126

(401)

1,725

2,407

(242)

2,165

Total Core Banking

52,106

(532)

(1,112)

902

51,364

29,999

6,734

15,008

(1,731)

1,219

51,229

51,533

(74)

(263)

145

51,341

52,106

(172)

(637)

255

51,552

Republic Processing Group (includes discontinued operations):

Republic Processing Group:

Tax Refund Solutions:

Easy Advances (discontinued operations)

7,984

(10,256)

2,272

15,239

(19,575)

4,336

Other TRS loans (discontinued operations)

158

(134)

(51)

27

234

(94)

1

141

Republic Credit Solutions (continuing operations)

8,803

5,037

(2,427)

247

11,660

13,118

251

(5,401)

553

8,521

Easy Advances

8,315

8,315

16,019

16,019

Other TRS loans

96

(403)

362

55

158

(135)

(22)

9

10

Republic Credit Solutions

12,948

1,395

(2,673)

275

11,945

8,803

(375)

(766)

93

7,755

Total Republic Processing Group

8,961

12,887

(12,734)

2,546

11,660

13,352

15,490

(25,070)

4,890

8,662

13,044

9,307

(2,673)

637

20,315

8,961

15,509

(788)

102

23,784

Total

$

61,067

$

12,355

$

(13,846)

$

3,448

$

63,024

$

43,351

$

6,734

$

30,498

$

(26,801)

$

6,109

$

59,891

$

64,577

$

9,233

$

(2,936)

$

782

$

71,656

$

61,067

$

15,337

$

(1,425)

$

357

$

75,336

The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of September 30, 2021March 31, 2022 was primarily based on a static pool analysis of each of the Company’s loan pools using the Company’s loss experience from 2013 through 2020,2022, 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., TDRs.

For its CRE loan pool, the Company employed a one-year forecast of CRE vacancy rates through March 31, 2021 but discontinued use of this forecast during the second quarter of 2021 in favor of a one-year forecast of general CRE values. This change in forecast method had no material impact on the Company’s ACLL.

2725

Table of Contents

Nonperforming Loans and Nonperforming Assets

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

(dollars in thousands)

    

September 30, 2021

    

December 31, 2020

    

    

March 31, 2022

    

December 31, 2021

    

Loans on nonaccrual status*

$

20,252

$

23,548

$

16,935

$

20,504

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

 

691

 

47

 

31

 

48

Total nonperforming loans

 

20,943

 

23,595

 

16,966

 

20,552

Other real estate owned

 

1,845

 

2,499

 

1,740

 

1,792

Total nonperforming assets

$

22,788

$

26,094

$

18,706

$

22,344

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans

 

0.48

%  

 

0.49

%

 

0.39

%  

 

0.46

%

Nonperforming assets to total loans (including OREO)

 

0.52

 

0.54

 

0.43

 

0.50

Nonperforming assets to total assets

 

0.37

 

0.42

 

0.29

 

0.37

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans

 

0.48

%  

 

0.50

%

 

0.40

%  

 

0.47

%

Nonperforming assets to total loans (including OREO)

 

0.52

 

0.56

 

0.44

 

0.51

Nonperforming assets to total assets

 

0.39

 

0.45

 

0.33

 

0.40

*

Loans on nonaccrual status include collateral-dependent loans.

**

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

2826

Table of Contents

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

Past Due 90-Days-or-More

Nonaccrual

and Still Accruing Interest*

Nonaccrual

and Still Accruing Interest*

(in thousands)

    

September 30, 2021

    

December 31, 2020

  

September 30, 2021

    

December 31, 2020

    

March 31, 2022

    

December 31, 2021

  

March 31, 2022

    

December 31, 2021

Traditional Banking:

Residential real estate:

Owner occupied

$

11,708

$

14,328

$

$

$

11,728

$

12,039

$

$

Nonowner occupied

 

99

 

81

 

 

 

132

 

95

 

 

Commercial real estate

 

6,607

 

6,762

 

 

 

3,581

 

6,557

 

 

Construction & land development

 

 

 

 

 

 

 

 

Commercial & industrial

 

93

 

55

 

 

 

 

13

 

 

Paycheck Protection Program

Lease financing receivables

 

 

 

 

 

 

 

 

Aircraft

Home equity

 

1,657

 

2,141

 

 

 

1,431

 

1,700

 

 

Consumer:

Credit cards

 

 

 

 

5

 

 

 

 

Overdrafts

 

 

 

 

 

 

 

 

1

Automobile loans

 

84

 

170

 

 

 

60

 

97

 

 

Other consumer

 

4

 

11

 

 

 

3

 

3

 

 

Total Traditional Banking

20,252

23,548

5

16,935

20,504

1

Warehouse lines of credit

 

 

 

 

 

 

 

 

Total Core Banking

20,252

23,548

5

16,935

20,504

1

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

Other TRS loans

 

 

 

 

 

 

 

 

Republic Credit Solutions

691

42

31

47

Total Republic Processing Group

691

42

31

47

Total

$

20,252

$

23,548

$

691

$

47

$

16,935

$

20,504

$

31

$

48

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

Three Months Ended

Nine Months Ended

Three Months Ended

As of September 30, 2021

September 30, 2021

September 30, 2021

As of March 31, 2022

March 31, 2022

    

Nonaccrual

    

Nonaccrual

    

Total

Interest Income

    

Interest Income

    

Nonaccrual

    

Nonaccrual

    

Total

    

Interest Income

Loans with

Loans without

Nonaccrual

Recognized

Recognized

Loans with

Loans without

Nonaccrual

Recognized

(in thousands)

ACLL

ACLL

Loans

on Nonaccrual Loans*

on Nonaccrual Loans*

ACLL

ACLL

Loans

on Nonaccrual Loans*

Residential real estate:

Owner occupied

$

2,041

$

9,667

$

11,708

$

225

$

672

$

1,924

$

9,804

$

11,728

$

230

Nonowner occupied

 

33

66

99

2

5

 

30

102

132

1

Commercial real estate

 

4,153

2,454

6,607

16

125

 

3,581

3,581

630

Construction & land development

 

 

Commercial & industrial

 

45

48

93

2

 

Paycheck Protection Program

Lease financing receivables

 

 

Aircraft

Home equity

 

63

1,594

1,657

19

121

 

1,431

1,431

44

Consumer

14

74

88

4

8

30

33

63

46

Total

$

6,349

$

13,903

$

20,252

$

266

$

933

$

5,565

$

11,370

$

16,935

$

951

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

2927

Table of Contents

Three Months Ended

Nine Months Ended

Three Months Ended

As of December 31, 2020

September 30, 2020

September 30, 2020

As of December 31, 2021

March 31, 2021

    

Nonaccrual

    

Nonaccrual

    

Total

Interest Income

    

Interest Income

    

Nonaccrual

    

Nonaccrual

    

Total

    

Interest Income

Loans with

Loans without

Nonaccrual

Recognized

Recognized

Loans with

Loans without

Nonaccrual

Recognized

(in thousands)

ACLL

ACLL

Loans

on Nonaccrual Loans*

on Nonaccrual Loans*

ACLL

ACLL

Loans

on Nonaccrual Loans*

Residential real estate:

Owner occupied

$

1,995

$

12,333

$

14,328

$

252

$

649

$

1,944

$

10,095

$

12,039

$

191

Nonowner occupied

 

8

73

81

2

6

 

31

64

95

2

Commercial real estate

 

576

6,186

6,762

17

854

 

4,105

2,452

6,557

29

Construction & land development

 

7

7

 

Commercial & industrial

 

55

55

7

16

 

13

13

Paycheck Protection Program

Lease financing receivables

 

 

Aircraft

Home equity

 

91

2,050

2,141

29

81

 

1,700

1,700

17

Consumer

69

112

181

3

9

17

83

100

2

$

2,739

$

20,809

$

23,548

$

317

$

1,622

$

6,097

$

14,407

$

20,504

$

241

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

Nonaccrual loans and loans past due 90-days-or-more and still on accrual include both smaller balance, primarily retail, homogeneous loans. Nonaccrual loans are typically returned to accrual status when all the principal and interest amounts contractually due are brought current and held current for 6 consecutive months and future contractual payments are reasonably assured. TDRs on nonaccrual status are reviewed for return to accrual status on an individual basis, with additional consideration given to performance under the modified terms.

Delinquent Loans

The following tables present the aging of the recorded investment in loans by class of loans:

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

 

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

 

September 30, 2021

Days

Days

Days

Total

Total

 

March 31, 2022

March 31, 2022

Days

Days

Days

Total

Total

 

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Traditional Banking:

Residential real estate:

Owner occupied

$

896

$

315

$

917

$

2,128

$

825,770

$

827,898

$

1,043

$

1,211

$

374

$

2,628

$

806,030

$

808,658

Nonowner occupied

 

 

 

 

 

294,818

 

294,818

 

 

 

41

 

41

 

314,892

 

314,933

Commercial real estate

 

 

 

5,037

 

5,037

 

1,388,204

 

1,393,241

 

 

 

2,464

 

2,464

 

1,554,111

 

1,556,575

Construction & land development

 

 

 

 

 

105,968

 

105,968

 

 

 

 

 

129,970

 

129,970

Commercial & industrial

 

8

 

 

58

 

66

 

333,729

 

333,795

 

 

 

 

 

342,175

 

342,175

Paycheck Protection Program

126,271

126,271

18,276

18,276

Lease financing receivables

 

 

 

 

 

9,427

 

9,427

 

 

 

 

 

10,396

 

10,396

Aircraft

130,398

130,398

151,284

151,284

Home equity

 

50

 

 

209

 

259

 

215,023

 

215,282

 

313

 

 

242

 

555

 

209,809

 

210,364

Consumer:

Credit cards

 

36

 

9

 

 

45

 

14,736

 

14,781

 

32

 

7

 

 

39

 

14,615

 

14,654

Overdrafts

 

137

 

6

 

2

 

145

 

608

 

753

 

115

 

4

 

 

119

 

597

 

716

Automobile loans

 

 

 

11

 

11

 

17,522

 

17,533

 

9

 

 

8

 

17

 

11,829

 

11,846

Other consumer

 

1

 

 

 

1

 

6,222

 

6,223

 

 

 

 

 

939

 

939

Total Traditional Banking

1,128

330

6,234

7,692

3,468,696

3,476,388

1,512

1,222

3,129

5,863

3,564,923

3,570,786

Warehouse lines of credit

 

 

 

 

 

750,682

 

750,682

 

 

 

 

 

690,200

 

690,200

Total Core Banking

1,128

330

6,234

7,692

4,219,378

4,227,070

1,512

1,222

3,129

5,863

4,255,123

4,260,986

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

 

 

 

 

4,524

 

 

 

4,524

 

11,951

 

16,475

Other TRS loans

 

 

 

 

 

1

 

1

 

160

 

 

 

160

 

24,972

 

25,132

Republic Credit Solutions

6,828

 

2,182

 

691

 

9,701

 

107,010

 

116,711

4,551

 

1,086

 

31

 

5,668

 

81,982

 

87,650

Total Republic Processing Group

6,828

2,182

691

9,701

107,011

116,712

9,235

1,086

31

10,352

118,905

129,257

Total

$

7,956

$

2,512

$

6,925

$

17,393

$

4,326,389

$

4,343,782

$

10,747

$

2,308

$

3,160

$

16,215

$

4,374,028

$

4,390,243

Delinquency ratio***

 

0.18

%  

 

0.06

%  

 

0.16

%  

 

0.40

%  

 

0.24

%  

 

0.05

%  

 

0.07

%  

 

0.37

%  

*       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.

3028

Table of Contents

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

 

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

 

December 31, 2020

Days

Days

Days

Total

Total

 

December 31, 2021

December 31, 2021

Days

Days

Days

Total

Total

 

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Traditional Banking:

Residential real estate:

Owner occupied

$

1,038

$

668

$

1,554

$

3,260

$

876,540

$

879,800

$

606

$

383

$

610

$

1,599

$

819,132

$

820,731

Nonowner occupied

 

 

 

 

 

264,780

 

264,780

 

 

 

 

 

306,323

 

306,323

Commercial real estate

 

 

348

 

5,109

 

5,457

 

1,343,628

 

1,349,085

 

 

 

5,292

 

5,292

 

1,450,717

 

1,456,009

Construction & land development

 

 

 

 

 

98,674

 

98,674

 

 

 

 

 

129,337

 

129,337

Commercial & industrial

 

 

 

12

 

12

 

325,584

 

325,596

 

8

 

 

13

 

21

 

340,342

 

340,363

Paycheck Protection Program

392,319

392,319

56,014

56,014

Lease financing receivables

 

 

 

 

 

10,130

 

10,130

 

 

 

 

 

8,637

 

8,637

Aircraft

 

 

 

101,375

 

101,375

142,894

142,894

Home equity

 

93

 

14

 

595

 

702

 

239,938

 

240,640

 

38

 

35

 

241

 

314

 

210,264

 

210,578

Consumer:

Credit cards

 

33

 

35

 

5

 

73

 

14,123

 

14,196

 

19

 

11

 

 

30

 

14,480

 

14,510

Overdrafts

 

140

 

5

 

2

 

147

 

440

 

587

 

160

 

3

 

1

 

164

 

519

 

683

Automobile loans

 

42

 

 

14

 

56

 

30,244

 

30,300

 

 

 

9

 

9

 

14,439

 

14,448

Other consumer

 

6

 

 

 

6

 

8,161

 

8,167

 

1

 

 

 

1

 

1,431

 

1,432

Total Traditional Banking

1,352

1,070

7,291

9,713

3,705,936

3,715,649

832

432

6,166

7,430

3,494,529

3,501,959

Warehouse lines of credit

 

 

 

 

 

962,796

 

962,796

 

 

 

 

 

850,550

 

850,550

Total Core Banking

1,352

1,070

7,291

9,713

4,668,732

4,678,445

832

432

6,166

7,430

4,345,079

4,352,509

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

 

 

 

 

 

 

 

 

 

Other TRS loans

 

 

 

 

 

 

 

 

 

 

 

50,987

 

50,987

Republic Credit Solutions

6,572

 

3,620

 

42

 

10,234

 

100,659

 

110,893

5,010

 

978

 

47

 

6,035

 

87,031

 

93,066

Total Republic Processing Group

6,572

3,620

42

10,234

100,659

110,893

5,010

978

47

6,035

138,018

144,053

Total

$

7,924

$

4,690

$

7,333

$

19,947

$

4,769,391

$

4,789,338

$

5,842

$

1,410

$

6,213

$

13,465

$

4,483,097

$

4,496,562

Delinquency ratio***

 

0.17

%  

 

0.10

%  

 

0.15

%  

 

0.42

%  

 

0.13

%  

 

0.03

%  

 

0.14

%  

 

0.30

%  

*       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.

3129

Table of Contents

Collateral-Dependent Loans

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

September 30, 2021

December 31, 2020

March 31, 2022

December 31, 2021

Secured

    

Secured

Secured

    

Secured

Secured

    

Secured

Secured

    

Secured

by Real

by Personal

by Real

by Personal

by Real

by Personal

by Real

by Personal

(dollars in thousands)

Estate

Property

Estate

Property

(in thousands)

Estate

Property

Estate

Property

Traditional Banking:

Residential real estate:

Owner occupied

$

13,645

$

$

17,212

$

$

14,672

$

$

14,798

$

Nonowner occupied

 

99

 

 

81

 

 

132

 

 

95

 

Commercial real estate

 

8,985

 

 

10,205

 

 

4,414

 

 

6,736

 

Construction & land development

 

 

 

 

 

 

 

 

Commercial & industrial

 

 

47

 

 

12

 

 

150

 

 

192

Paycheck Protection Program

Lease financing receivables

 

 

 

 

 

 

 

 

Aircraft

 

 

 

 

Home equity

 

1,860

 

 

2,899

 

 

1,706

 

 

1,976

 

Consumer

 

369

 

237

 

85

 

274

Total Traditional Banking

$

24,589

$

416

$

30,397

$

249

$

20,924

$

235

$

23,605

$

466

Collateral-dependent loans are generally secured by real estate or personal property. If there is insufficient collateral value to secure the Company’s recorded investment in these loans, they are charged down to collateral value less estimated selling cost,costs, when selling costs are applicable. Selling costs range from 10%-13% to 13%, with those percentages based on annual studies performed by the Company.

3230

Table of Contents

Troubled Debt Restructurings

A TDR is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of their debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Bank’s internal underwriting policy.

The majority of the Bank’s commercial-related and construction TDRs involve a restructuring of financing terms, such as a reduction in the payment amount to require only interest and escrow (if required) and/or extending the maturity date of the debt. The substantial majority of the Bank’s residential real estate TDR concessions involve reducing the client’s loan payment through a rate reduction for a set period based on the borrower’s ability to service the modified loan payment. Retail loans may also be classified as TDRs due to legal modifications, such as bankruptcies.

Nonaccrual loans modified as TDRs typically remain on nonaccrual status and continue to be reported as nonperforming loans for a minimum of six consecutive months. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, $6 million and $7$6 million of TDRs were on nonaccrual status.

Detail of TDRs differentiated by loan type and accrual status follows:

    

Troubled Debt

    

Troubled Debt

    

Total

 

    

Troubled Debt

    

Troubled Debt

    

Total

 

Restructurings on

Restructurings on

Troubled Debt

 

Restructurings on

Restructurings on

Troubled Debt

 

Nonaccrual Status

Accrual Status

Restructurings

 

Nonaccrual Status

Accrual Status

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

September 30, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

March 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

64

$

3,736

94

$

8,293

158

$

12,029

63

$

3,516

84

$

7,576

147

$

11,092

Commercial real estate

2

2,580

2

1,262

4

 

3,842

1

2,464

2

1,209

3

 

3,673

Commercial & industrial

1

1

1

 

1

1

1

1

 

1

Consumer

1

12

2,306

567

2,307

579

1

11

2,318

410

2,319

421

Total troubled debt restructurings

67

$

6,328

2,403

$

10,123

2,470

$

16,451

65

$

5,991

2,405

$

9,196

2,470

$

15,187

    

Troubled Debt

    

Troubled Debt

    

Total

 

    

Troubled Debt

    

Troubled Debt

    

Total

 

Restructurings on

Restructurings on

Troubled Debt

 

Restructurings on

Restructurings on

Troubled Debt

 

Nonaccrual Status

Accrual Status

Restructurings

 

Nonaccrual Status

Accrual Status

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

December 31, 2020 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

December 31, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

61

$

4,189

123

$

11,041

184

$

15,230

63

$

3,179

89

$

7,856

152

$

11,035

Commercial real estate

2

 

2,509

5

 

2,395

7

 

4,904

2

2,575

2

1,239

4

 

3,814

Construction & land development

 

1

 

44

1

 

44

 

Commercial & industrial

 

1

 

1

1

 

1

2

45

1

1

3

 

46

Consumer

1

14

2,194

585

2,195

599

1

12

2,269

479

2,270

491

Total troubled debt restructurings

64

$

6,712

2,324

$

14,066

2,388

$

20,778

68

$

5,811

2,361

$

9,575

2,429

$

15,386

3331

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 as of September 30, 2021March 31, 2022 and December 31, 20202021 follows:

    

Troubled Debt

    

Troubled Debt

    

    

 

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

September 30, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

March 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Rate reduction

88

$

7,964

2

$

123

90

$

8,087

76

$

7,000

5

$

430

81

$

7,430

Principal deferral

7

 

605

1

 

160

8

 

765

7

 

721

 

7

 

721

Legal modification

51

 

2,758

9

 

419

60

 

3,177

54

 

2,822

5

 

119

59

 

2,941

Total residential TDRs

146

 

11,327

12

 

702

158

 

12,029

137

 

10,543

10

 

549

147

 

11,092

Commercial related and construction/land development loans:

Rate reduction

1

 

936

 

1

 

936

1

 

894

 

1

 

894

Principal deferral

3

 

444

1

 

2,463

4

 

2,907

2

 

316

1

 

2,464

3

 

2,780

Total commercial TDRs

4

 

1,380

1

 

2,463

5

 

3,843

3

 

1,210

1

 

2,464

4

 

3,674

Consumer loans:

Principal deferral

2,304

560

 

2,304

 

560

2,316

406

 

2,316

 

406

Legal modification

3

19

3

 

19

3

15

3

 

15

Total consumer TDRs

2,307

 

579

 

2,307

 

579

2,319

 

421

 

2,319

 

421

Total troubled debt restructurings

2,457

$

13,286

13

$

3,165

2,470

$

16,451

2,459

$

12,174

11

$

3,013

2,470

$

15,187

    

Troubled Debt

    

Troubled Debt

    

    

 

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

December 31, 2020 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

December 31, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

1

$

826

$

1

$

826

$

Rate reduction

101

 

9,526

6

 

370

107

 

9,896

82

$

7,461

4

$

303

86

 

7,764

Principal deferral

9

 

858

2

 

166

11

 

1,024

7

 

729

 

7

 

729

Legal modification

58

 

3,068

7

 

416

65

 

3,484

48

 

2,100

11

 

442

59

 

2,542

Total residential TDRs

169

 

14,278

15

 

952

184

 

15,230

137

 

10,290

15

 

745

152

 

11,035

Commercial related and construction/land development loans:

Interest only payments

1

 

488

 

1

 

488

 

 

 

Rate reduction

2

 

1,046

1

 

45

3

 

1,091

1

 

919

 

1

��

919

Principal deferral

4

 

906

1

 

2,464

5

 

3,370

5

 

477

1

 

2,464

6

 

2,941

Total commercial TDRs

7

 

2,440

2

 

2,509

9

 

4,949

6

 

1,396

1

 

2,464

7

 

3,860

Consumer loans:

Principal deferral

2,193

578

 

2,193

 

578

2,266

470

 

2,266

 

470

Legal modification

2

21

2

 

21

4

21

4

 

21

Total consumer TDRs

2,195

 

599

 

2,195

 

599

2,270

 

491

 

2,270

 

491

Total troubled debt restructurings

2,371

$

17,317

17

$

3,461

2,388

$

20,778

2,413

$

12,177

16

$

3,209

2,429

$

15,386

As of September 30, 2021March 31, 2022 and December 31, 2020, 81%2021, 80% and 83%79% of the Bank’s TDR balances were performing according to their modified terms. The Bank had provided $2 million and $1$2 million of specific ACLL allocations to clients whose loan terms have been modified in TDRs as of September 30, 2021March 31, 2022 and December 31, 2020.2021. The Bank had 0 commitments to lend any additional material amounts to its existing TDR relationships as of September 30, 2021March 31, 2022 or December 31, 2020.2021.

3432

Table of Contents

A summary of the categories of TDR loan modifications by respective performance as of September 30, 2021 and 2020 that were modified during the three months ended September 30, 2021 and 2020 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, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Legal modification

3

$

142

1

$

14

4

$

156

Total residential TDRs

3

142

1

14

4

156

Consumer loans:

Principal deferral

124

 

13

 

124

 

13

Total consumer TDRs

124

 

13

 

124

 

13

Total troubled debt restructurings

127

$

155

1

$

14

128

$

169

    

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, 2020 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Principal deferral

2

$

54

1

$

4

3

$

58

Legal modification

4

152

1

20

5

172

Total residential TDRs

6

 

206

2

 

24

8

 

230

  

Consumer loans:

Principal deferral

221

 

29

 

221

29

Legal modification

1

 

15

 

1

15

Total consumer TDRs

222

 

44

 

222

 

44

Total troubled debt restructurings

228

$

250

2

$

24

230

$

274

The tables above are inclusive of loans that were TDRs at the end of previous periods and were re-modified, e.g., a maturity date extension during the current period.

As of September 30, 2021 and 2020, 92% and 91% of the Bank’s TDR balances that occurred during the third quarters of 2021 and 2020 were performing according to their modified terms. The Bank provided approximately $6,000 and $29,000 in specific ACLL allocations to clients whose loan terms were modified in TDRs during the third quarters of 2021 and 2020.

There was 0 significant change between the pre and post modification loan balances for the three months ending September 30, 2021 and 2020.

35

Table of Contents

A summary of the categories of TDR loan modifications by respective performance as of September 30,March 31, 2022 and 2021 and 2020 that were modified during the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 follows:

    

Troubled Debt

    

Troubled Debt

    

    

 

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

September 30, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

March 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Principal deferral

$

1

$

160

1

$

160

Legal modification

6

378

5

288

11

666

6

$

772

$

6

$

772

Total residential TDRs

6

 

378

6

 

448

12

 

826

6

 

772

 

6

 

772

Consumer loans:

Principal deferral

556

 

72

 

556

 

72

Legal modification

1

 

3

 

1

 

3

258

 

42

 

258

 

42

Total consumer TDRs

557

 

75

 

557

 

75

258

 

42

 

258

 

42

Total troubled debt restructurings

563

$

453

6

$

448

569

$

901

264

$

814

$

264

$

814

    

Troubled Debt

    

Troubled Debt

    

    

 

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

September 30, 2020 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

March 31, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Rate reduction

2

$

54

1

$

4

3

$

58

Principal deferral

1

$

163

$

1

163

Legal modification

11

429

2

128

13

557

4

98

2

174

6

272

Total residential TDRs

13

 

483

3

 

132

16

 

615

5

 

261

2

 

174

7

 

435

Commercial related and construction/land development loans:

Principal deferral

1

 

21

 

1

21

Total commercial TDRs

1

 

21

 

1

 

21

Consumer loans:

Principal deferral

1,492

 

183

 

1,492

183

385

 

42

 

385

42

Legal modification

1

 

15

 

1

15

1

 

3

1

 

12

2

15

Total consumer TDRs

1,493

 

198

 

1,493

 

198

386

 

45

1

 

12

387

 

57

Total troubled debt restructurings

1,507

$

702

3

$

132

1,510

$

834

391

$

306

3

$

186

394

$

492

The tables above are inclusive of loans that were TDRs at the end of previous periods and were re-modified, e.g., a maturity date extension during the current period.

As of September 30,March 31, 2022 and 2021, 100% and 2020, 50% and 84%62% of the Bank’s TDR balances that occurred during the first nine monthsquarter of 20212022 and 20202021 were performing according to their modified terms. The Bank provided approximately $38,000$28,000 and $121,000$29,000 in specific ACLL allocations to clients whose loan terms were modified in TDRs during the first nine monthsquarters of 20212022 and 2020.2021.

There was 0 significant change between the pre and post modification loan balances for the ninethree months ending September 30, 2021March 31, 2022 and 2020.2021.

3633

Table of Contents

The following table presents loans by class modified as troubled debt restructurings within the previous 12 months of September 30,March 31, 2022 and 2021 and 2020 and for which there was a payment default during the three and/or nine months ended September 30, 2021March 31, 2022 and 2020.2021.

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2021

2020

2021

2020

    

    

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

 

2

$

179

3

$

163

6

$

468

5

$

269

Commercial real estate

 

 

2

 

2,964

1

 

116

2

 

2,964

Home equity

 

1

14

1

 

20

1

 

14

2

 

33

Total

 

3

$

193

6

$

3,147

8

$

598

9

$

3,266

COVID-19 Loan Accommodations

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

As of September 30, 2021, $3 million, or less than 1% of the Company’s Traditional Bank portfolio remained under a COVID-19 hardship accommodation.

Three Months Ended

March 31, 

2022

2021

    

     

Number of

    

Recorded

     

Number of

    

Recorded

    

(dollars in thousands)

 

Loans

Investment

 

Loans

Investment

Residential real estate:

Owner occupied

 

$

3

$

285

Home equity

 

 

1

 

20

Consumer

1

12

Total

 

$

5

$

317

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)

September 30, 2021

December 31, 2020

 

March 31, 2022

December 31, 2021

 

Residential real estate

 

$

 

$

496

Commercial real estate

1,845

2,003

$

1,740

$

1,792

Total other real estate owned

$

1,845

 

$

2,499

$

1,740

 

$

1,792

The following table presents the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to requirements of the applicable jurisdiction:

(in thousands)

    

September 30, 2021

    

December 31, 2020

 

    

March 31, 2022

    

December 31, 2021

 

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

 

$

475

 

$

981

 

$

809

 

$

508

3734

Table of Contents

Easy Advances

The Company’s TRS segment offered its EA product during the first two months of 20212022 and 2020.2021. During the first quarter of each year, the Company bases its estimated Provision for EAs on the current year’s EA delinquency information and the prior year’syears’ tax refund payment patterns subsequent to the first quarter. Each year, all unpaid EAs are charged off by June 30th, and each quarter thereafter, any credits to the Provision for EAs matches the recovery of previously charged-off accounts.

See additional detail regarding the Bank’s agreement to sell TRS under Footnote 17 “Discontinued Operations” in this section of the filing.

Information regarding EAs follows:

Three Months Ended

Nine Months Ended

Three Months Ended

    

September 30, 

September 30, 

    

March 31, 

(dollars in thousands)

    

2021

2020

2021

  

2020

    

2022

  

2021

Easy Advances originated

 

$

$

$

250,045

$

387,762

 

$

311,207

$

250,045

Net (credit) charge to the Provision for Easy Advances

 

(2,242)

(4,294)

7,984

15,239

Net charge to the Provision for Easy Advances

 

8,315

16,019

Provision to total Easy Advances originated

NA

NA

3.19

%  

3.93

%  

2.67

%  

6.41

%  

Easy Advances net charge-offs (recoveries)

 

$

(2,242)

$

(4,294)

$

7,984

$

15,239

 

$

$

Easy Advances net charge-offs to total Easy Advances originated

NA

NA

3.19

%  

3.93

%  

Easy Advances net charge-offs (recoveries) to total Easy Advances originated

%  

%  

5. DEPOSITS

The composition of the deposit portfolio follows:

(in thousands)

    

September 30, 2021

    

December 31, 2020

 

    

March 31, 2022

    

December 31, 2021

 

Core Bank:

Demand

$

1,342,395

$

1,217,263

$

1,415,655

$

1,381,522

Money market accounts

 

793,236

 

712,824

 

793,953

 

789,876

Savings

 

295,663

 

236,335

 

327,358

 

311,624

Individual retirement accounts (1)

 

46,196

 

47,889

 

42,149

 

43,724

Time deposits, $250 and over (1)

 

84,340

 

83,448

 

60,738

 

81,050

Other certificates of deposit (1)

 

163,345

 

199,214

 

139,735

 

154,174

Reciprocal money market and time deposits (1)

 

101,109

 

314,109

 

70,030

 

77,950

Brokered deposits (1)

 

30,001

 

25,010

 

 

Total Core Bank interest-bearing deposits

 

2,856,285

 

2,836,092

 

2,849,618

 

2,839,920

Total Core Bank noninterest-bearing deposits

1,691,413

1,503,662

1,630,926

1,579,173

Total Core Bank deposits

4,547,698

4,339,754

4,480,544

4,419,093

Republic Processing Group:

Money market accounts

5,114

6,673

10,774

9,717

Total RPG interest-bearing deposits

5,114

6,673

10,774

9,717

Brokered prepaid card deposits

323,250

257,856

412,746

320,907

Other noninterest-bearing deposits

38,822

110,021

183,042

90,701

Total RPG noninterest-bearing deposits

362,072

367,877

595,788

411,608

Total RPG deposits

367,186

374,550

606,562

421,325

Deposits of discontinued operations (2)

33,063

18,877

Total deposits

$

4,947,947

$

4,733,181

$

5,087,106

$

4,840,418

(1)Includes time deposit
(2)See additional detail regarding the Bank’s agreement to sell TRS under Footnote 17 “Discontinued Operations” in this section of the filing.

3835

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6. 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 2 percent more in securities than the associated repurchase agreements. All such securities are under the Bank’s control.

As of September 30, 2021March 31, 2022 and December 31, 2020,2021, all securities sold under agreements to repurchase had overnight maturities. Additional information regarding securities sold under agreements to repurchase follows:

(dollars in thousands)

    

September 30, 2021

  

  

December 31, 2020

    

    

March 31, 2022

  

  

December 31, 2021

    

Outstanding balance at end of period

$

260,583

$

211,026

$

287,818

$

290,967

Weighted average interest rate at end of period

 

0.04

%  

 

0.04

%  

 

0.04

%  

 

0.04

%  

Fair value of securities pledged:

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

$

114,308

$

60,059

$

274,541

$

108,813

Mortgage backed securities - residential

156,237

140,554

46,902

167,561

Collateralized mortgage obligations

23,457

29,656

33,441

Total securities pledged

$

294,002

$

230,269

$

321,443

$

309,815

 

Three Months Ended

Nine Months Ended

 

Three Months Ended

 

September 30, 

September 30, 

 

March 31, 

(dollars in thousands)

  

2021

    

2020

    

  

2021

  

  

2020

  

2022

  

  

2021

Average outstanding balance during the period

 

$

242,867

 

$

213,010

$

201,992

 

$

199,556

 

$

300,169

 

$

192,669

Average interest rate during the period

0.03

%  

0.04

%  

0.02

%  

0.11

%  

0.04

%  

0.02

%  

Maximum outstanding at any month end during the period

 

$

307,358

 

$

195,229

$

307,358

 

$

195,229

 

$

299,376

 

$

200,704

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

The Company records as operating lease liabilities the present value of its required minimum lease payments plus any amounts probable of being owed under a residual value guarantee. Offsetting these operating lease liabilities, the Company records right-of-use assets for the underlying leased property.

As of September 30, 2021,March 31, 2022, the Company was under 4544 separate and distinct operating lease contracts to lease the land and/or buildings for 3635 of its offices, with 1412 such operating leases contracted with a related party of the Company. As of September 30, 2021,March 31, 2022, payments on 2422 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.

The Company executed 0 new operatingrecorded a renewal to 1 of its related-party leases and the extension of 3 of its third party leases during 2021. The Company renewed a related-party lease on one of its Louisville, Kentucky banking centers during the fourthfirst quarter of 2020 that commenced in January 20212022 with a total right-of-use asset value of $392,000$4.5. During the second quarter of 2021, the Company extended one third-party lease for an additional five years, with the extended term beginning during the third quarter of 2021 and valued at approximately $263,000. During the fourth quarter of 2021, the Company recorded an amendment to one related-party lease to add leased space, with this amendment valued at approximately $819,000. million.

The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three and nine months ended September 30, 2021March 31, 2022 and 2020:2021:

 

Three Months Ended

Nine Months Ended

 

Three Months Ended

 

September 30, 

September 30, 

 

March 31, 

(in thousands)

    

2021

2020

        

2021

2020

    

2022

2021

Operating lease expense:

 

 

Related Party:

Variable lease expense

$

1,224

 

$

1,235

$

3,662

$

3,706

$

1,265

$

1,220

Fixed lease expense

 

34

23

102

69

 

35

34

Third Party:

Variable lease expense

197

180

590

541

197

197

Fixed lease expense

337

371

1,021

1,109

345

341

Short-term lease expense

3

7

Total operating lease expense

$

1,792

 

$

1,812

$

5,375

$

5,432

$

1,842

$

1,792

Other information concerning operating leases:

Cash paid for amounts included in the measurement of operating lease liabilities

$

1,793

$

1,817

$

5,390

$

5,448

$

1,705

$

1,798

Cash paid for variable rent payments not included in measurement of operating lease liabilities

151

Short-term lease payments not included in the measurement of lease liabilities

3

7

The following table presents the weighted average remaining term and weighted average discount rate for the Company’s non-short-term operating leases as of September 30, 2021March 31, 2022 and December 31, 2020:2021:

(dollars in thousands)

    

September 30, 2021

December 31, 2020

    

    

March 31, 2022

December 31, 2021

 

Weighted average remaining term in years

7.76

8.37

8.61

7.57

Weighted average discount rate

 

3.08

%

 

3.10

%

 

2.64

%

 

3.05

%

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The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of September 30, 2021:March 31, 2022:

Year (in thousands)

    

Related Party

    

Third Party

    

Total

 

Year (dollars in thousands)

    

Related Party

    

Third Party

    

Total

 

2021

 

$

1,160

 

$

636

 

$

1,796

2022

 

4,639

 

2,492

 

7,131

 

$

3,185

 

$

1,939

 

$

5,124

2023

 

4,639

 

2,049

 

6,688

 

4,274

 

2,323

 

6,597

2024

 

4,512

 

1,517

 

6,029

 

4,189

 

1,814

 

6,003

2025

 

4,344

 

979

 

5,323

 

4,053

 

1,279

 

5,332

2026

 

4,124

 

1,025

 

5,149

Thereafter

 

15,800

 

2,729

 

18,529

 

16,375

 

4,286

 

20,661

Total undiscounted cash flows

$

35,094

$

10,402

$

45,496

$

36,200

$

12,666

$

48,866

Discount applied to cash flows

(4,065)

(1,280)

(5,345)

(3,588)

(2,074)

(5,662)

Total discounted cash flows reported as operating lease liabilities

$

31,029

$

9,122

$

40,151

$

32,612

$

10,592

$

43,204

8. FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:

(in thousands)

    

September 30, 2021

    

December 31, 2020

 

    

March 31, 2022

    

December 31, 2021

 

Overnight advances

$

25,000

$

225,000

$

$

25,000

Fixed interest rate advances

 

 

10,000

 

20,000

 

Total FHLB advances

$

25,000

$

235,000

$

20,000

$

25,000

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. FHLB advances are collateralized by a blanket pledge of eligible real estate loans. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, Republic had available borrowing capacity of $898$888 million and $683$900 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million available through various other financial institutions as of September 30, 2021March 31, 2022 and December 31, 2020.2021.

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

    

    

Weighted

 

    

    

Weighted

 

Average

 

Average

 

Year (dollars in thousands)

Principal

Rate

 

Principal

Rate

 

2021 (Overnight)

 

$

25,000

 

0.14

%

2021 (Term)

 

2022

 

 

 

$

 

%

2023

 

 

 

2024

 

 

 

 

2025

 

 

 

 

Thereafter

 

 

2026

 

2027

 

20,000

 

1.89

Total

$

25,000

 

0.14

%

$

20,000

 

1.89

%

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Due to their nature, the Bank considers average balance information more meaningful than period-end balances for its overnight borrowings from the FHLB. Information regarding overnight FHLB advances follows:

Three Months Ended

Nine Months Ended

Three Months Ended

September 30, 

September 30, 

March 31, 

(dollars in thousands)

    

2021

    

2020

    

2021

    

2020

    

2022

    

2021

    

Average outstanding balance during the period

 

$

25,000

 

$

272

 

$

30,037

 

$

29,106

 

$

1,711

 

$

40,278

 

Average interest rate during the period

0.10

%

0.17

%

0.15

%

0.92

%

0.15

%

0.17

%

Maximum outstanding at any month end during the period

 

$

25,000

 

$

25,000

 

$

25,000

 

$

250,000

 

$

25,000

 

$

25,000

 

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

(in thousands)

    

September 30, 2021

    

December 31, 2020

 

    

March 31, 2022

    

December 31, 2021

 

First lien, single family residential real estate

$

1,034,959

$

1,048,236

$

1,019,268

$

1,041,461

Home equity lines of credit

 

191,443

 

208,944

 

186,222

 

186,396

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9. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

COVID-19COVID Pandemic

COVID-19COVID was declared a pandemic by the World Health Organization on March 11, 2020.  Since March 2020, to slow the spread of COVID-19, jurisdictions within and outside the U.S. have imposed economic and social restrictions on the population, in general, and non-essential businesses in particular.to slow the spread of COVID. These restrictions, in combination with the public’s response to them, have disrupted supply chains and effectively suspended or curtailed economic activity for many industries across the U.S., with industries in and the world. Industries within the Company’s market footprint impacted.have been impacted by these supply chain disruptions as well as the corresponding inflationary pressures driven by them in combination with on-going governmental stimulus programs.

While vaccines for the virus began rolling out during 2021, the future potential financial impact of the COVID-19COVID pandemic is still unknown at this time. This pandemic and the public’s response to it could cause the Company to experience a material adverse impact on its business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, MSRs, deferred tax assets, or counterparty risk derivatives.

Commitments to Extend Credit

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. These financial instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the 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, 2021

    

December 31, 2020

    

March 31, 2022

    

December 31, 2021

Unused warehouse lines of credit

$

658,318

$

456,004

$

713,800

$

565,950

Unused home equity lines of credit

 

350,198

 

353,322

 

357,242

 

348,681

Unused loan commitments - other

 

787,660

 

775,128

 

817,085

 

828,229

Standby letters of credit

 

14,130

 

10,949

 

11,310

 

11,305

FHLB letter of credit

 

643

 

643

 

643

 

643

Total commitments

$

1,810,949

$

1,596,046

$

1,900,080

$

1,754,808

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third-party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material.

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Table of Contents

The following tables present a rollforward of the ACLC for the three and nine months ended September 30, 2021March 31, 2022 and 2020:2021:

ACLC Rollforward

Three Months Ended

2021

2020

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

$

140

$

$

$

$

140

$

58

$

(6)

$

$

$

52

Unused home equity lines of credit

213

29

242

124

22

146

Unused loan commitments - other

581

(26)

555

454

271

725

Total

$

934

$

3

$

$

$

937

$

636

$

287

$

$

$

923

The Company increased its ACLC during the three months ended September 30, 2021 based on an increase in the expected usage for its home equity lines of credit.

ACLC Rollforward

ACLC Rollforward

Nine Months Ended

Three Months Ended March 31, 

2021

2020

2022

2021

Beginning

Charge-

Ending

Beginning

ASC 326

Charge-

Ending

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Adoption

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Loan Commitments

Unused warehouse lines of credit

$

79

$

61

$

$

$

140

$

$

55

$

(3)

$

$

$

52

$

154

$

(24)

$

$

$

130

$

79

$

37

$

$

$

116

Unused home equity lines of credit

173

69

242

89

57

146

247

9

256

173

21

194

Unused loan commitments - other

737

(182)

555

312

413

725

651

3

654

737

(32)

705

Total

$

989

$

(52)

$

$

$

937

$

$

456

$

467

$

$

$

923

$

1,052

$

(12)

$

$

$

1,040

$

989

$

26

$

$

$

1,015

The Company decreased its ACLC during the ninethree months ended September 30, 2021March 31, 2022 based on a decrease in the expected loss rate for its unused commitments.

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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 2 “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 as of September 30, 2021.March 31, 2022. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

Equity securities with readily determinable fair value: Quoted market prices in an active market are available for the Bank’s Community Reinvestment Act mutual fund investment and fall within Level 1 of the fair value hierarchy.

The fair value of the Company’s Freddie Mac preferred stock is determined by matrix pricing, as described above (Level 2 inputs).

Mortgage loans held for sale, at fair value: The fair value of mortgage loans held for sale is determined using quoted secondary market prices. Mortgage loans held for sale are classified as Level 2 in the fair value hierarchy.

Consumer loans held for sale, at fair value: In December 2019, the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell 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. Fair value for these loans is based on contractual sales terms, Level 3 inputs.

Consumer loans held for investment, at fair value: The Bank held an immaterial amount of consumer loans at fair value through a consumer loan program the Company is currently unwinding. The fair value of these loans was based on the discounted cash flows of the underlying loans, Level 3 inputs. Further disclosure of these loans is considered immaterial and thus omitted.

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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 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.

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).

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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 September 30, 2021March 31, 2022 is presented net of any applicable ACL.

Fair Value Measurements at 

 

Fair Value Measurements at 

 

September 30, 2021 Using:

 

March 31, 2022 Using:

 

    

Quoted Prices in

    

Significant

    

    

 

    

Quoted Prices in

    

Significant

    

    

 

Active Markets

Other

Significant

 

Active Markets

Other

Significant

 

for Identical

Observable

Unobservable

Total

 

for Identical

Observable

Unobservable

Total

 

Assets

Inputs

Inputs

Fair

 

Assets

Inputs

Inputs

Fair

 

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

 

(Level 1)

(Level 2)

(Level 3)

Value

 

Financial assets:

Available-for-sale debt securities:

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

$

$

234,845

$

$

234,845

$

153,119

$

159,841

$

$

312,960

Private label mortgage-backed security

 

 

 

2,780

 

2,780

 

 

 

2,602

 

2,602

Mortgage-backed securities - residential

 

 

209,805

 

 

209,805

 

 

216,901

 

 

216,901

Collateralized mortgage obligations

 

 

34,519

 

 

34,519

 

 

27,299

 

 

27,299

Corporate bonds

10,081

10,081

10,052

10,052

Trust preferred security

 

 

 

3,850

 

3,850

 

 

 

3,725

 

3,725

Total available-for-sale debt securities

$

$

489,250

$

6,630

$

495,880

$

153,119

$

414,093

$

6,327

$

573,539

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

102

$

$

102

$

$

164

$

$

164

Community Reinvestment Act mutual fund

 

2,476

 

 

 

2,476

 

2,338

 

 

 

2,338

Total equity securities with readily determinable fair value

$

2,476

$

102

$

$

2,578

$

2,338

$

164

$

$

2,502

Mortgage loans held for sale

$

$

25,791

$

$

25,791

$

$

13,302

$

$

13,302

Consumer loans held for sale

10,779

10,779

11,709

11,709

Consumer loans held for investment

254

254

107

107

Rate lock loan commitments

 

 

1,943

 

 

1,943

 

 

442

 

 

442

Mandatory forward contracts

722

722

1,461

1,461

Interest rate swap agreements

6,707

6,707

2,537

2,537

Financial liabilities:

Interest rate swap agreements

$

$

6,707

$

$

6,707

$

$

2,537

$

$

2,537

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Table of Contents

Fair Value Measurements at

 

Fair Value Measurements at

 

December 31, 2020 Using:

 

December 31, 2021 Using:

 

    

Quoted Prices in

    

Significant

    

    

 

    

Quoted Prices in

    

Significant

    

    

 

Active Markets

Other

Significant

 

Active Markets

Other

Significant

 

for Identical

Observable

Unobservable

Total

 

for Identical

Observable

Unobservable

Total

 

Assets

Inputs

Inputs

Fair

 

Assets

Inputs

Inputs

Fair

 

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

 

(Level 1)

(Level 2)

(Level 3)

Value

 

Financial assets:

Available-for-sale debt securities:

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

$

$

246,909

$

$

246,909

$

70,112

$

167,347

$

$

237,459

Private label mortgage-backed security

 

 

 

2,957

 

2,957

 

 

 

2,731

 

2,731

Mortgage-backed securities - residential

 

 

211,202

 

 

211,202

 

 

210,749

 

 

210,749

Collateralized mortgage obligations

 

 

48,952

 

 

48,952

 

 

30,294

 

 

30,294

Corporate bonds

10,043

10,043

10,046

10,046

Trust preferred security

 

 

 

3,800

 

3,800

 

 

 

3,847

 

3,847

Total available-for-sale debt securities

$

$

517,106

$

6,757

$

523,863

$

70,112

$

418,436

$

6,578

$

495,126

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

560

$

$

560

$

$

170

$

$

170

Community Reinvestment Act mutual fund

 

2,523

 

 

 

2,523

 

2,450

 

 

 

2,450

Total equity securities with readily determinable fair value

$

2,523

$

560

$

$

3,083

$

2,450

$

170

$

$

2,620

Mortgage loans held for sale

$

$

46,867

$

$

46,867

$

$

29,393

$

$

29,393

Consumer loans held for sale

3,298

3,298

19,747

19,747

Consumer loans held for investment

497

497

170

170

Rate lock loan commitments

 

 

4,540

 

 

4,540

 

 

1,404

 

 

1,404

Mandatory forward contracts

66

66

Interest rate swap agreements

 

 

12,545

 

 

12,545

 

 

5,786

 

 

5,786

Financial liabilities:

Mandatory forward contracts

$

$

976

$

$

976

Interest rate swap agreements

12,545

 

12,545

5,786

 

5,786

All transfers between levels are generally recognized at the end of each quarter. There were 0 transfers into or out of Level 1, 2, or 3 assets during the three and nine months ended September 30, 2021March 31, 2022 and 2020.2021.

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

  

Nine Months Ended

  

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

2021

2020

2021

2020

2022

2021

    

Balance, beginning of period

$

2,824

$

3,023

$

2,957

$

3,495

$

2,731

$

2,957

Total gains or losses included in earnings:

Net change in unrealized gain

 

13

 

60

 

62

 

(46)

 

24

 

15

Principal paydowns

 

(57)

 

(79)

 

(239)

 

(445)

 

(153)

 

(109)

Balance, end of period

$

2,780

$

3,004

$

2,780

$

3,004

$

2,602

$

2,863

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.

4845

Table of Contents

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

    

Fair

    

Valuation

    

    

    

 

    

Fair

    

Valuation

    

    

    

 

September 30, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

March 31, 2022 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage-backed security

$

2,780

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 18.0%

$

2,602

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 5.7%

 

(2) Probability of default

 

1.8% - 9.3%

 

(2) Probability of default

 

1.8% - 9.3%

 

(3) Loss severity

 

50% - 75%

 

(3) Loss severity

 

50% - 75%

    

Fair

    

Valuation

    

    

    

 

    

Fair

    

Valuation

    

    

    

 

December 31, 2020 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

December 31, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage-backed security

$

2,957

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 18.0%

$

2,731

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 5.7%

 

(2) Probability of default

 

1.8% - 9.0%

 

(2) Probability of default

 

1.8% - 9.3%

 

(3) Loss severity

 

50% - 75%

 

(3) Loss severity

 

50% - 75%

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

    

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

2021

2020

2021

2020

2022

2021

Balance, beginning of period

$

3,700

$

3,500

$

3,800

$

4,000

$

3,847

$

3,800

Total gains or losses included in earnings:

Discount accretion

14

21

40

43

14

13

Net change in unrealized gain

 

136

 

279

 

10

 

(243)

 

(136)

 

(163)

Balance, end of period

$

3,850

$

3,800

$

3,850

$

3,800

$

3,725

$

3,650

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

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MortgageCollateral-Dependent 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. NaN of these loans were past due 90-days-or-more or on nonaccrual as of September 30, 2021 and December 31, 2020.

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

(in thousands)

    

September 30, 2021

    

December 31, 2020

 

Aggregate fair value

$

25,791

$

46,867

Contractual balance

 

25,232

 

44,781

Unrealized gain

 

559

 

2,086

The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2021 and 2020 for mortgage loans held for sale are presented in the following table:

    

Three Months Ended

Nine Months Ended

    

September 30, 

September 30, 

(in thousands)

2021

    

2020

    

2021

    

2020

Interest income

$

253

$

300

$

802

$

932

Change in fair value

 

(373)

 

126

 

(1,527)

 

1,382

Total included in earnings

$

(120)

$

426

$

(725)

$

2,314

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. NaN of these loans were past due 90-days-or-more or on nonaccrual as of September 30, 2021 and December 31, 2020.

The significant unobservable inputs in the fair value measurement of the Bank’s short-term installment loans are the net contractual premiums and level of loans sold at a discount price. Significant fluctuations in any of those inputs in isolation would result in a significantly lower/higher fair value measurement.

The following table presents quantitative information about recurring Level 3 fair value measurement inputs for installmentthe amortized cost basis of collateral-dependent loans by class of loans:

    

Fair

    

Valuation

    

    

    

March 31, 2022

December 31, 2021

September 30, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$

10,779

 

Contract Terms

 

(1) Net Premium

 

1.4%

Secured

    

Secured

Secured

    

Secured

 

(2) Discounted Sales

 

5.00%

by Real

by Personal

by Real

by Personal

(in thousands)

Estate

Property

Estate

Property

Traditional Banking:

Residential real estate:

Owner occupied

$

14,672

$

$

14,798

$

Nonowner occupied

 

132

 

 

95

 

Commercial real estate

 

4,414

 

 

6,736

 

Construction & land development

 

 

 

 

Commercial & industrial

 

 

150

 

 

192

Paycheck Protection Program

Lease financing receivables

 

 

 

 

Aircraft

 

 

Home equity

 

1,706

 

 

1,976

 

Consumer

 

85

 

274

Total Traditional Banking

$

20,924

$

235

$

23,605

$

466

    

Fair

    

Valuation

    

    

    

December 31, 2020 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$

3,298

 

Contract Terms

 

(1) Net Premium

 

1.4%

 

(2) Discounted Sales

 

5.00%

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.

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Table of Contents

Troubled Debt Restructurings

A TDR is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of their debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Bank’s internal underwriting policy.

The aggregate fair value, contractual balance,majority of the Bank’s commercial-related and unrealized gainconstruction 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 consumerthe borrower’s ability to service the modified loan payment. Retail loans heldmay 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 sale, at fair value,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. As of March 31, 2022 and December 31, 2021, $6 million and $6 million of TDRs were ason nonaccrual status.

Detail of TDRs differentiated by loan type and accrual status follows:

(in thousands)

    

September 30, 2021

    

December 31, 2020

Aggregate fair value

$

10,779

$

3,298

Contractual balance

 

10,703

 

3,284

Unrealized gain

 

76

 

14

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

Nine Months Ended

    

Troubled Debt

    

Troubled Debt

    

Total

 

September 30, 

September 30, 

Restructurings on

Restructurings on

Troubled Debt

 

(in thousands)

2021

    

2020

    

2021

    

2020

Nonaccrual Status

Accrual Status

Restructurings

 

Interest income

$

2,102

$

42

$

4,070

$

1,563

Change in fair value

 

(16)

 

2

 

62

 

(2)

Total included in earnings

$

2,086

$

44

$

4,132

$

1,561

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

March 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

63

$

3,516

84

$

7,576

147

$

11,092

Commercial real estate

1

2,464

2

1,209

3

 

3,673

Commercial & industrial

1

1

1

 

1

Consumer

1

11

2,318

410

2,319

421

Total troubled debt restructurings

65

$

5,991

2,405

$

9,196

2,470

$

15,187

    

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, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

63

$

3,179

89

$

7,856

152

$

11,035

Commercial real estate

2

2,575

2

1,239

4

 

3,814

Construction & land development

 

Commercial & industrial

2

45

1

1

3

 

46

Consumer

1

12

2,269

479

2,270

491

Total troubled debt restructurings

68

$

5,811

2,361

$

9,575

2,429

$

15,386

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Table of Contents

Assets measured at fair value onThe Bank considers a non-recurring basis are summarized below: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 as of March 31, 2022 and December 31, 2021 follows:

Fair Value Measurements at

September 30, 2021 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

$

$

$

1,733

$

1,733

Commercial real estate

 

 

 

3,568

 

3,568

Commercial & industrial

60

60

Home equity

 

 

 

314

 

314

Total collateral-dependent loans*

$

$

$

5,675

$

5,675

Other real estate owned:

Commercial real estate

$

$

$

1,845

$

1,845

Total other real estate owned

$

$

$

1,845

$

1,845

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

March 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Rate reduction

76

$

7,000

5

$

430

81

$

7,430

Principal deferral

7

 

721

 

7

 

721

Legal modification

54

 

2,822

5

 

119

59

 

2,941

Total residential TDRs

137

 

10,543

10

 

549

147

 

11,092

  

Commercial related and construction/land development loans:

Rate reduction

1

 

894

 

1

 

894

Principal deferral

2

 

316

1

 

2,464

3

 

2,780

Total commercial TDRs

3

 

1,210

1

 

2,464

4

 

3,674

Consumer loans:

Principal deferral

2,316

406

 

2,316

 

406

Legal modification

3

15

3

 

15

Total consumer TDRs

2,319

 

421

 

2,319

 

421

Total troubled debt restructurings

2,459

$

12,174

11

$

3,013

2,470

$

15,187

Fair Value Measurements at

December 31, 2020 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

$

$

$

3,860

$

3,860

Commercial real estate

 

 

 

4,107

 

4,107

Home equity

 

 

 

395

 

395

Total collateral-dependent loans*

$

$

$

8,362

$

8,362

Other real estate owned:

Residential real estate

$

$

$

2,003

$

2,003

Total other real estate owned

$

$

$

2,003

$

2,003

Mortgage servicing rights

$

$

3,233

$

$

3,233

*

    

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, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

$

Rate reduction

82

$

7,461

4

$

303

86

 

7,764

Principal deferral

7

 

729

 

7

 

729

Legal modification

48

 

2,100

11

 

442

59

 

2,542

Total residential TDRs

137

 

10,290

15

 

745

152

 

11,035

  

Commercial related and construction/land development loans:

Interest only payments

 

 

 

Rate reduction

1

 

919

 

1

��

919

Principal deferral

5

 

477

1

 

2,464

6

 

2,941

Total commercial TDRs

6

 

1,396

1

 

2,464

7

 

3,860

Consumer loans:

Principal deferral

2,266

470

 

2,266

 

470

Legal modification

4

21

4

 

21

Total consumer TDRs

2,270

 

491

 

2,270

 

491

Total troubled debt restructurings

2,413

$

12,177

16

$

3,209

2,429

$

15,386

As of March 31, 2022 and December 31, 2021, 80% and 79% of the Bank’s TDR balances were performing according to their modified terms. The Bank had provided $2 million and $2 million of specific ACLL allocations to clients whose loan terms have been modified in TDRs as of March 31, 2022 and December 31, 2021. The Bank had 0 commitments to lend any additional material amounts to its existing TDR relationships as of March 31, 2022 or December 31, 2021.

The difference between the carrying value and the fair value of collateral-dependent loans measured at fair value is reconciled in a subsequent table of this Footnote.

5232

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:A summary of the categories of TDR loan modifications by respective performance as of March 31, 2022 and 2021 that were modified during the three months ended March 31, 2022 and 2021 follows:

    

    

    

    

    

    

    

Range

    

Troubled Debt

    

Troubled Debt

    

    

 

Fair

Valuation

Unobservable

(Weighted

Restructurings

Restructurings

Total

 

September 30, 2021 (dollars in thousands)

Value

Technique

Inputs

Average)

Performing to

Not Performing to

Troubled Debt

 

Collateral-dependent loans - residential real estate owner occupied

$

1,733

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

0% - 51% (10%)

Modified Terms

Modified Terms

Restructurings

 

Collateral-dependent loans - commercial real estate

$

3,568

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

15% - 31% (26%)

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

Collateral-dependent loans - commercial & industrial

$

60

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

1% (1%)

March 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Collateral-dependent loans - home equity

$

314

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

6%-10% (6%)

Residential real estate loans (including home equity loans):

Legal modification

6

$

772

$

6

$

772

Total residential TDRs

6

 

772

 

6

 

772

Consumer loans:

Legal modification

258

 

42

 

258

 

42

Total consumer TDRs

258

 

42

 

258

 

42

Other real estate owned - commercial real estate

$

1,845

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

32% (32%)

Total troubled debt restructurings

264

$

814

$

264

$

814

    

    

    

    

    

    

    

Range

Fair

Valuation

Unobservable

(Weighted

December 31, 2020 (dollars in thousands)

Value

Technique

Inputs

Average)

Collateral-dependent loans - residential real estate owner occupied

$

3,860

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

0% - 51% (8%)

Collateral-dependent loans - commercial real estate

$

4,107

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

7% - 31% (26%)

Collateral-dependent loans - home equity

$

395

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

2%-6% (5%)

Other real estate owned - commercial real estate

$

2,003

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

26% (26%)

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

March 31, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Principal deferral

1

$

163

$

1

163

Legal modification

4

98

2

174

6

272

Total residential TDRs

5

 

261

2

 

174

7

 

435

Consumer loans:

Principal deferral

385

 

42

 

385

42

Legal modification

1

 

3

1

 

12

2

15

Total consumer TDRs

386

 

45

1

 

12

387

 

57

Total troubled debt restructurings

391

$

306

3

$

186

394

$

492

The tables above are inclusive of loans that were TDRs at the end of previous periods and were re-modified, e.g., a maturity date extension during the current period.

As of March 31, 2022 and 2021, 100% and 62% of the Bank’s TDR balances that occurred during the first quarter of 2022 and 2021 were performing according to their modified terms. The Bank provided approximately $28,000 and $29,000 in specific ACLL allocations to clients whose loan terms were modified in TDRs during the first quarters of 2022 and 2021.

There was 0 significant change between the pre and post modification loan balances for the three months ending March 31, 2022 and 2021.

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The following table presents loans by class modified as troubled debt restructurings within the previous 12 months of March 31, 2022 and 2021 and for which there was a payment default during the three months ended March 31, 2022 and 2021.

Three Months Ended

March 31, 

2022

2021

    

     

Number of

    

Recorded

     

Number of

    

Recorded

    

(dollars in thousands)

 

Loans

Investment

 

Loans

Investment

Residential real estate:

Owner occupied

 

$

3

$

285

Home equity

 

 

1

 

20

Consumer

1

12

Total

 

$

5

$

317

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, 2022

December 31, 2021

 

Commercial real estate

$

1,740

$

1,792

Total other real estate owned

$

1,740

 

$

1,792

The following table presents the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to requirements of the applicable jurisdiction:

(in thousands)

    

March 31, 2022

    

December 31, 2021

 

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

 

$

809

 

$

508

5334

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Easy Advances

The Company’s TRS segment offered its EA product during the first two months of 2022 and 2021. During the first quarter of each year, the Company bases its estimated Provision for EAs on the current year’s EA delinquency information and prior years’ tax refund payment patterns subsequent to the first quarter. Each year, all unpaid EAs are charged off by June 30th, and each quarter thereafter, any credits to the Provision for EAs matches the recovery of previously charged-off accounts.

Information regarding EAs follows:

Three Months Ended

    

March 31, 

(dollars in thousands)

    

2022

  

2021

Easy Advances originated

 

$

311,207

$

250,045

Net charge to the Provision for Easy Advances

 

8,315

16,019

Provision to total Easy Advances originated

2.67

%  

6.41

%  

Easy Advances net charge-offs (recoveries)

 

$

$

Easy Advances net charge-offs (recoveries) to total Easy Advances originated

%  

%  

5.DEPOSITS

The composition of the deposit portfolio follows:

(in thousands)

    

March 31, 2022

    

December 31, 2021

 

Core Bank:

Demand

$

1,415,655

$

1,381,522

Money market accounts

 

793,953

 

789,876

Savings

 

327,358

 

311,624

Individual retirement accounts (1)

 

42,149

 

43,724

Time deposits, $250 and over (1)

 

60,738

 

81,050

Other certificates of deposit (1)

 

139,735

 

154,174

Reciprocal money market and time deposits (1)

 

70,030

 

77,950

Brokered deposits (1)

 

 

Total Core Bank interest-bearing deposits

 

2,849,618

 

2,839,920

Total Core Bank noninterest-bearing deposits

1,630,926

1,579,173

Total Core Bank deposits

4,480,544

4,419,093

Republic Processing Group:

Money market accounts

10,774

9,717

Total RPG interest-bearing deposits

10,774

9,717

Brokered prepaid card deposits

412,746

320,907

Other noninterest-bearing deposits

183,042

90,701

Total RPG noninterest-bearing deposits

595,788

411,608

Total RPG deposits

606,562

421,325

Total deposits

$

5,087,106

$

4,840,418

(1)Includes time deposit.

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6. 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 2 percent more in securities than the associated repurchase agreements. All such securities are under the Bank’s control.

As of March 31, 2022 and December 31, 2021, 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, 2022

  

  

December 31, 2021

    

Outstanding balance at end of period

$

287,818

$

290,967

Weighted average interest rate at end of period

 

0.04

%  

 

0.04

%  

Fair value of securities pledged:

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

$

274,541

$

108,813

Mortgage backed securities - residential

46,902

167,561

Collateralized mortgage obligations

33,441

Total securities pledged

$

321,443

$

309,815

 

Three Months Ended

 

March 31, 

(dollars in thousands)

  

  

2022

  

  

2021

Average outstanding balance during the period

 

$

300,169

 

$

192,669

Average interest rate during the period

0.04

%  

0.02

%  

Maximum outstanding at any month end during the period

 

$

299,376

 

$

200,704

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Table of Contents

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

The Company records as operating lease liabilities the present value of its required minimum lease payments plus any amounts probable of being owed under a residual value guarantee. Offsetting these operating lease liabilities, the Company records right-of-use assets for the underlying leased property.

As of March 31, 2022, the Company was under 44 separate and distinct operating lease contracts to lease the land and/or buildings for 35 of its offices, with 12 such operating leases contracted with a related party of the Company. As of March 31, 2022, payments on 22 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.

The Company recorded a renewal to 1 of its related-party leases and the extension of 3 of its third party leases during the first quarter of 2022 with a total right-of-use asset value of $4.5 million.

The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three months ended March 31, 2022 and 2021:

 

Three Months Ended

 

March 31, 

(in thousands)

    

2022

2021

Operating lease expense:

 

Related Party:

Variable lease expense

$

1,265

$

1,220

Fixed lease expense

 

35

34

Third Party:

Variable lease expense

197

197

Fixed lease expense

345

341

Short-term lease expense

Total operating lease expense

$

1,842

$

1,792

Other information concerning operating leases:

Cash paid for amounts included in the measurement of operating lease liabilities

$

1,705

$

1,798

Cash paid for variable rent payments not included in measurement of operating lease liabilities

151

Short-term lease payments not included in the measurement of lease liabilities

The following table presents the weighted average remaining term and weighted average discount rate for the Company’s non-short-term operating leases as of March 31, 2022 and December 31, 2021:

    

March 31, 2022

December 31, 2021

 

Weighted average remaining term in years

8.61

7.57

Weighted average discount rate

 

2.64

%

 

3.05

%

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Table of Contents

The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of March 31, 2022:

Year (dollars in thousands)

    

Related Party

    

Third Party

    

Total

 

2022

 

$

3,185

 

$

1,939

 

$

5,124

2023

 

4,274

 

2,323

 

6,597

2024

 

4,189

 

1,814

 

6,003

2025

 

4,053

 

1,279

 

5,332

2026

 

4,124

 

1,025

 

5,149

Thereafter

 

16,375

 

4,286

 

20,661

Total undiscounted cash flows

$

36,200

$

12,666

$

48,866

Discount applied to cash flows

(3,588)

(2,074)

(5,662)

Total discounted cash flows reported as operating lease liabilities

$

32,612

$

10,592

$

43,204

8.FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:

(in thousands)

    

March 31, 2022

    

December 31, 2021

 

Overnight advances

$

$

25,000

Fixed interest rate advances

 

20,000

 

Total FHLB advances

$

20,000

$

25,000

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. FHLB advances are collateralized by a blanket pledge of eligible real estate loans. As of March 31, 2022 and December 31, 2021, Republic had available borrowing capacity of $888 million and $900 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million available through various other financial institutions as of March 31, 2022 and December 31, 2021.

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

 

2022

 

$

 

%

2023

 

2024

 

 

2025

 

 

2026

 

2027

 

20,000

 

1.89

Total

$

20,000

 

1.89

%

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Table of Contents

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)

    

2022

    

2021

    

Average outstanding balance during the period

 

$

1,711

 

$

40,278

 

Average interest rate during the period

0.15

%

0.17

%

Maximum outstanding at any month end during the period

 

$

25,000

 

$

25,000

 

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

(in thousands)

    

March 31, 2022

    

December 31, 2021

 

First lien, single family residential real estate

$

1,019,268

$

1,041,461

Home equity lines of credit

 

186,222

 

186,396

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9.OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

COVID Pandemic

COVID was declared a pandemic by the World Health Organization on March 11, 2020.  Since March 2020, jurisdictions within and outside the U.S. have imposed economic and social restrictions on the population, in general, and non-essential businesses to slow the spread of COVID. These restrictions, in combination with the public’s response to them, have disrupted supply chains and effectively suspended or curtailed economic activity for many industries across the U.S. and the world. Industries within the Company’s market footprint have been impacted by these supply chain disruptions as well as the corresponding inflationary pressures driven by them in combination with on-going governmental stimulus programs.

While vaccines for the virus began rolling out during 2021, the future potential financial impact of the COVID pandemic is still unknown at this time. This pandemic and the public’s response to it could cause the Company to experience a material adverse impact on its business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, MSRs, deferred tax assets, or counterparty risk derivatives.

Commitments to Extend Credit

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. These financial instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the 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, 2022

    

December 31, 2021

Unused warehouse lines of credit

$

713,800

$

565,950

Unused home equity lines of credit

 

357,242

 

348,681

Unused loan commitments - other

 

817,085

 

828,229

Standby letters of credit

 

11,310

 

11,305

FHLB letter of credit

 

643

 

643

Total commitments

$

1,900,080

$

1,754,808

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third-party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material.

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Table of Contents

The following tables present a rollforward of the ACLC for the three months ended March 31, 2022 and 2021:

ACLC Rollforward

Three Months Ended March 31, 

2022

2021

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

$

154

$

(24)

$

$

$

130

$

79

$

37

$

$

$

116

Unused home equity lines of credit

247

9

256

173

21

194

Unused loan commitments - other

651

3

654

737

(32)

705

Total

$

1,052

$

(12)

$

$

$

1,040

$

989

$

26

$

$

$

1,015

The Company decreased its ACLC during the three months ended March 31, 2022 based on a decrease in the expected loss rate for its unused commitments.

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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 2 “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 as of March 31, 2022. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

Equity securities with readily determinable fair value: Quoted market prices in an active market are available for the Bank’s Community Reinvestment Act mutual fund investment and fall within Level 1 of the fair value hierarchy.

The fair value of the Company’s Freddie Mac preferred stock is determined by matrix pricing, as described above (Level 2 inputs).

Mortgage loans held for sale, at fair value: The fair value of mortgage loans held for sale is determined using quoted secondary market prices. Mortgage loans held for sale are classified as Level 2 in the fair value hierarchy.

Consumer loans held for sale, at fair value: In December 2019, the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell 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. Fair value for these loans is based on contractual sales terms, Level 3 inputs.

Consumer loans held for investment, at fair value: The Bank held an immaterial amount of consumer loans at fair value through a consumer loan program the Company is currently unwinding. The fair value of these loans was based on the discounted cash flows of the underlying loans, Level 3 inputs. Further disclosure of these loans is considered immaterial and thus omitted.

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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 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.

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. Information as of March 31, 2022 is presented net of any applicable ACL.

Fair Value Measurements at 

 

March 31, 2022 Using:

 

    

Quoted Prices in

    

Significant

    

    

    

    

 

Active Markets

Other

Significant

 

for Identical

Observable

Unobservable

Total

 

Assets

Inputs

Inputs

Fair

 

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

 

Financial assets:

Available-for-sale debt securities:

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

$

153,119

$

159,841

$

$

312,960

Private label mortgage-backed security

 

 

 

2,602

 

2,602

Mortgage-backed securities - residential

 

 

216,901

 

 

216,901

Collateralized mortgage obligations

 

 

27,299

 

 

27,299

Corporate bonds

10,052

10,052

Trust preferred security

 

 

 

3,725

 

3,725

Total available-for-sale debt securities

$

153,119

$

414,093

$

6,327

$

573,539

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

164

$

$

164

Community Reinvestment Act mutual fund

 

2,338

 

 

 

2,338

Total equity securities with readily determinable fair value

$

2,338

$

164

$

$

2,502

Mortgage loans held for sale

$

$

13,302

$

$

13,302

Consumer loans held for sale

11,709

11,709

Consumer loans held for investment

107

107

Rate lock loan commitments

 

 

442

 

 

442

Mandatory forward contracts

1,461

1,461

Interest rate swap agreements

2,537

2,537

Financial liabilities:

Interest rate swap agreements

$

$

2,537

$

$

2,537

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Table of Contents

Fair Value Measurements at

 

December 31, 2021 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

$

70,112

$

167,347

$

$

237,459

Private label mortgage-backed security

 

 

 

2,731

 

2,731

Mortgage-backed securities - residential

 

 

210,749

 

 

210,749

Collateralized mortgage obligations

 

 

30,294

 

 

30,294

Corporate bonds

10,046

10,046

Trust preferred security

 

 

 

3,847

 

3,847

Total available-for-sale debt securities

$

70,112

$

418,436

$

6,578

$

495,126

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

170

$

$

170

Community Reinvestment Act mutual fund

 

2,450

 

 

 

2,450

Total equity securities with readily determinable fair value

$

2,450

$

170

$

$

2,620

Mortgage loans held for sale

$

$

29,393

$

$

29,393

Consumer loans held for sale

19,747

19,747

Consumer loans held for investment

170

170

Rate lock loan commitments

 

 

1,404

 

 

1,404

Mandatory forward contracts

66

66

Interest rate swap agreements

 

 

5,786

 

 

5,786

Financial liabilities:

Interest rate swap agreements

5,786

 

5,786

All transfers between levels are generally recognized at the end of each quarter. There were 0 transfers into or out of Level 1, 2, or 3 assets during the three months ended March 31, 2022 and 2021.

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)

2022

2021

    

Balance, beginning of period

$

2,731

$

2,957

Total gains or losses included in earnings:

Net change in unrealized gain

 

24

 

15

Principal paydowns

 

(153)

 

(109)

Balance, end of period

$

2,602

$

2,863

The fair value of the Bank’s single private label mortgage-backed security is supported by analysis prepared by an independent third party. The third party’s approach to determining fair value involved several steps: 1) detailed collateral analysis of the underlying mortgages, including consideration of geographic location, original loan-to-value and the weighted average FICO score of the borrowers; 2) collateral performance projections for each pool of mortgages underlying the security (probability of default, severity of default, and prepayment probabilities) and 3) discounted cash flow modeling.

The significant unobservable inputs in the fair value measurement of the Bank’s single private label mortgage-backed security are prepayment rates, probability of default and loss severity in the event of default. Significant fluctuations in any of those inputs in isolation would result in a significantly different fair value measurement.

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Table of Contents

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, 2022 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage-backed security

$

2,602

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 5.7%

 

(2) Probability of default

 

1.8% - 9.3%

 

(3) Loss severity

 

50% - 75%

    

Fair

    

Valuation

    

    

    

 

December 31, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage-backed security

$

2,731

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 5.7%

 

(2) Probability of default

 

1.8% - 9.3%

 

(3) Loss severity

 

50% - 75%

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)

2022

2021

Balance, beginning of period

$

3,847

$

3,800

Total gains or losses included in earnings:

Discount accretion

14

13

Net change in unrealized gain

 

(136)

 

(163)

Balance, end of period

$

3,725

$

3,650

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

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Collateral-Dependent Loans

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

March 31, 2022

December 31, 2021

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

$

14,672

$

$

14,798

$

Nonowner occupied

 

132

 

 

95

 

Commercial real estate

 

4,414

 

 

6,736

 

Construction & land development

 

 

 

 

Commercial & industrial

 

 

150

 

 

192

Paycheck Protection Program

Lease financing receivables

 

 

 

 

Aircraft

 

 

Home equity

 

1,706

 

 

1,976

 

Consumer

 

85

 

274

Total Traditional Banking

$

20,924

$

235

$

23,605

$

466

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.

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Table of Contents

Troubled Debt Restructurings

A TDR is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of their debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Bank’s internal underwriting policy.

The majority of the Bank’s commercial-related and construction TDRs involve a restructuring of financing terms, such as a reduction in the payment amount to require only interest and escrow (if required) and/or extending the maturity date of the debt. The substantial majority of the Bank’s residential real estate TDR concessions involve reducing the client’s loan payment through a rate reduction for a set period based on the borrower’s ability to service the modified loan payment. Retail loans may also be classified as TDRs due to legal modifications, such as bankruptcies.

Nonaccrual loans modified as TDRs typically remain on nonaccrual status and continue to be reported as nonperforming loans for a minimum of six consecutive months. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. As of March 31, 2022 and December 31, 2021, $6 million and $6 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

 

March 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

63

$

3,516

84

$

7,576

147

$

11,092

Commercial real estate

1

2,464

2

1,209

3

 

3,673

Commercial & industrial

1

1

1

 

1

Consumer

1

11

2,318

410

2,319

421

Total troubled debt restructurings

65

$

5,991

2,405

$

9,196

2,470

$

15,187

    

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, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate

63

$

3,179

89

$

7,856

152

$

11,035

Commercial real estate

2

2,575

2

1,239

4

 

3,814

Construction & land development

 

Commercial & industrial

2

45

1

1

3

 

46

Consumer

1

12

2,269

479

2,270

491

Total troubled debt restructurings

68

$

5,811

2,361

$

9,575

2,429

$

15,386

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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 as of March 31, 2022 and December 31, 2021 follows:

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

March 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Rate reduction

76

$

7,000

5

$

430

81

$

7,430

Principal deferral

7

 

721

 

7

 

721

Legal modification

54

 

2,822

5

 

119

59

 

2,941

Total residential TDRs

137

 

10,543

10

 

549

147

 

11,092

  

Commercial related and construction/land development loans:

Rate reduction

1

 

894

 

1

 

894

Principal deferral

2

 

316

1

 

2,464

3

 

2,780

Total commercial TDRs

3

 

1,210

1

 

2,464

4

 

3,674

Consumer loans:

Principal deferral

2,316

406

 

2,316

 

406

Legal modification

3

15

3

 

15

Total consumer TDRs

2,319

 

421

 

2,319

 

421

Total troubled debt restructurings

2,459

$

12,174

11

$

3,013

2,470

$

15,187

    

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, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Interest only payments

$

Rate reduction

82

$

7,461

4

$

303

86

 

7,764

Principal deferral

7

 

729

 

7

 

729

Legal modification

48

 

2,100

11

 

442

59

 

2,542

Total residential TDRs

137

 

10,290

15

 

745

152

 

11,035

  

Commercial related and construction/land development loans:

Interest only payments

 

 

 

Rate reduction

1

 

919

 

1

��

919

Principal deferral

5

 

477

1

 

2,464

6

 

2,941

Total commercial TDRs

6

 

1,396

1

 

2,464

7

 

3,860

Consumer loans:

Principal deferral

2,266

470

 

2,266

 

470

Legal modification

4

21

4

 

21

Total consumer TDRs

2,270

 

491

 

2,270

 

491

Total troubled debt restructurings

2,413

$

12,177

16

$

3,209

2,429

$

15,386

As of March 31, 2022 and December 31, 2021, 80% and 79% of the Bank’s TDR balances were performing according to their modified terms. The Bank had provided $2 million and $2 million of specific ACLL allocations to clients whose loan terms have been modified in TDRs as of March 31, 2022 and December 31, 2021. The Bank had 0 commitments to lend any additional material amounts to its existing TDR relationships as of March 31, 2022 or December 31, 2021.

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Table of Contents

A summary of the categories of TDR loan modifications by respective performance as of March 31, 2022 and 2021 that were modified during the three months ended March 31, 2022 and 2021 follows:

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

March 31, 2022 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Legal modification

6

$

772

$

6

$

772

Total residential TDRs

6

 

772

 

6

 

772

  

Consumer loans:

Legal modification

258

 

42

 

258

 

42

Total consumer TDRs

258

 

42

 

258

 

42

Total troubled debt restructurings

264

$

814

$

264

$

814

    

Troubled Debt

    

Troubled Debt

    

    

 

Restructurings

Restructurings

Total

 

Performing to

Not Performing to

Troubled Debt

 

Modified Terms

Modified Terms

Restructurings

 

    

Number of

    

Recorded

    

Number of

    

Recorded

    

Number of

    

Recorded

 

March 31, 2021 (dollars in thousands)

Loans

Investment

Loans

Investment

Loans

Investment

Residential real estate loans (including home equity loans):

Principal deferral

1

$

163

$

1

163

Legal modification

4

98

2

174

6

272

Total residential TDRs

5

 

261

2

 

174

7

 

435

Consumer loans:

Principal deferral

385

 

42

 

385

42

Legal modification

1

 

3

1

 

12

2

15

Total consumer TDRs

386

 

45

1

 

12

387

 

57

Total troubled debt restructurings

391

$

306

3

$

186

394

$

492

The tables above are inclusive of loans that were TDRs at the end of previous periods and were re-modified, e.g., a maturity date extension during the current period.

As of March 31, 2022 and 2021, 100% and 62% of the Bank’s TDR balances that occurred during the first quarter of 2022 and 2021 were performing according to their modified terms. The Bank provided approximately $28,000 and $29,000 in specific ACLL allocations to clients whose loan terms were modified in TDRs during the first quarters of 2022 and 2021.

There was 0 significant change between the pre and post modification loan balances for the three months ending March 31, 2022 and 2021.

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Table of Contents

The following table presents loans by class modified as troubled debt restructurings within the previous 12 months of March 31, 2022 and 2021 and for which there was a payment default during the three months ended March 31, 2022 and 2021.

Three Months Ended

March 31, 

2022

2021

    

     

Number of

    

Recorded

     

Number of

    

Recorded

    

(dollars in thousands)

 

Loans

Investment

 

Loans

Investment

Residential real estate:

Owner occupied

 

$

3

$

285

Home equity

 

 

1

 

20

Consumer

1

12

Total

 

$

5

$

317

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, 2022

December 31, 2021

 

Commercial real estate

$

1,740

$

1,792

Total other real estate owned

$

1,740

 

$

1,792

The following table presents the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to requirements of the applicable jurisdiction:

(in thousands)

    

March 31, 2022

    

December 31, 2021

 

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

 

$

809

 

$

508

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Table of Contents

Easy Advances

The Company’s TRS segment offered its EA product during the first two months of 2022 and 2021. During the first quarter of each year, the Company bases its estimated Provision for EAs on the current year’s EA delinquency information and prior years’ tax refund payment patterns subsequent to the first quarter. Each year, all unpaid EAs are charged off by June 30th, and each quarter thereafter, any credits to the Provision for EAs matches the recovery of previously charged-off accounts.

Information regarding EAs follows:

Three Months Ended

    

March 31, 

(dollars in thousands)

    

2022

  

2021

Easy Advances originated

 

$

311,207

$

250,045

Net charge to the Provision for Easy Advances

 

8,315

16,019

Provision to total Easy Advances originated

2.67

%  

6.41

%  

Easy Advances net charge-offs (recoveries)

 

$

$

Easy Advances net charge-offs (recoveries) to total Easy Advances originated

%  

%  

5.DEPOSITS

The composition of the deposit portfolio follows:

(in thousands)

    

March 31, 2022

    

December 31, 2021

 

Core Bank:

Demand

$

1,415,655

$

1,381,522

Money market accounts

 

793,953

 

789,876

Savings

 

327,358

 

311,624

Individual retirement accounts (1)

 

42,149

 

43,724

Time deposits, $250 and over (1)

 

60,738

 

81,050

Other certificates of deposit (1)

 

139,735

 

154,174

Reciprocal money market and time deposits (1)

 

70,030

 

77,950

Brokered deposits (1)

 

 

Total Core Bank interest-bearing deposits

 

2,849,618

 

2,839,920

Total Core Bank noninterest-bearing deposits

1,630,926

1,579,173

Total Core Bank deposits

4,480,544

4,419,093

Republic Processing Group:

Money market accounts

10,774

9,717

Total RPG interest-bearing deposits

10,774

9,717

Brokered prepaid card deposits

412,746

320,907

Other noninterest-bearing deposits

183,042

90,701

Total RPG noninterest-bearing deposits

595,788

411,608

Total RPG deposits

606,562

421,325

Total deposits

$

5,087,106

$

4,840,418

(1)Includes time deposit.

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Table of Contents

6. 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 2 percent more in securities than the associated repurchase agreements. All such securities are under the Bank’s control.

As of March 31, 2022 and December 31, 2021, 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, 2022

  

  

December 31, 2021

    

Outstanding balance at end of period

$

287,818

$

290,967

Weighted average interest rate at end of period

 

0.04

%  

 

0.04

%  

Fair value of securities pledged:

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

$

274,541

$

108,813

Mortgage backed securities - residential

46,902

167,561

Collateralized mortgage obligations

33,441

Total securities pledged

$

321,443

$

309,815

 

Three Months Ended

 

March 31, 

(dollars in thousands)

  

  

2022

  

  

2021

Average outstanding balance during the period

 

$

300,169

 

$

192,669

Average interest rate during the period

0.04

%  

0.02

%  

Maximum outstanding at any month end during the period

 

$

299,376

 

$

200,704

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Table of Contents

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

The Company records as operating lease liabilities the present value of its required minimum lease payments plus any amounts probable of being owed under a residual value guarantee. Offsetting these operating lease liabilities, the Company records right-of-use assets for the underlying leased property.

As of March 31, 2022, the Company was under 44 separate and distinct operating lease contracts to lease the land and/or buildings for 35 of its offices, with 12 such operating leases contracted with a related party of the Company. As of March 31, 2022, payments on 22 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.

The Company recorded a renewal to 1 of its related-party leases and the extension of 3 of its third party leases during the first quarter of 2022 with a total right-of-use asset value of $4.5 million.

The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three months ended March 31, 2022 and 2021:

 

Three Months Ended

 

March 31, 

(in thousands)

    

2022

2021

Operating lease expense:

 

Related Party:

Variable lease expense

$

1,265

$

1,220

Fixed lease expense

 

35

34

Third Party:

Variable lease expense

197

197

Fixed lease expense

345

341

Short-term lease expense

Total operating lease expense

$

1,842

$

1,792

Other information concerning operating leases:

Cash paid for amounts included in the measurement of operating lease liabilities

$

1,705

$

1,798

Cash paid for variable rent payments not included in measurement of operating lease liabilities

151

Short-term lease payments not included in the measurement of lease liabilities

The following table presents the weighted average remaining term and weighted average discount rate for the Company’s non-short-term operating leases as of March 31, 2022 and December 31, 2021:

    

March 31, 2022

December 31, 2021

 

Weighted average remaining term in years

8.61

7.57

Weighted average discount rate

 

2.64

%

 

3.05

%

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Table of Contents

The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of March 31, 2022:

Year (dollars in thousands)

    

Related Party

    

Third Party

    

Total

 

2022

 

$

3,185

 

$

1,939

 

$

5,124

2023

 

4,274

 

2,323

 

6,597

2024

 

4,189

 

1,814

 

6,003

2025

 

4,053

 

1,279

 

5,332

2026

 

4,124

 

1,025

 

5,149

Thereafter

 

16,375

 

4,286

 

20,661

Total undiscounted cash flows

$

36,200

$

12,666

$

48,866

Discount applied to cash flows

(3,588)

(2,074)

(5,662)

Total discounted cash flows reported as operating lease liabilities

$

32,612

$

10,592

$

43,204

8.FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:

(in thousands)

    

March 31, 2022

    

December 31, 2021

 

Overnight advances

$

$

25,000

Fixed interest rate advances

 

20,000

 

Total FHLB advances

$

20,000

$

25,000

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. FHLB advances are collateralized by a blanket pledge of eligible real estate loans. As of March 31, 2022 and December 31, 2021, Republic had available borrowing capacity of $888 million and $900 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million available through various other financial institutions as of March 31, 2022 and December 31, 2021.

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

 

2022

 

$

 

%

2023

 

2024

 

 

2025

 

 

2026

 

2027

 

20,000

 

1.89

Total

$

20,000

 

1.89

%

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Table of Contents

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)

    

2022

    

2021

    

Average outstanding balance during the period

 

$

1,711

 

$

40,278

 

Average interest rate during the period

0.15

%

0.17

%

Maximum outstanding at any month end during the period

 

$

25,000

 

$

25,000

 

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

(in thousands)

    

March 31, 2022

    

December 31, 2021

 

First lien, single family residential real estate

$

1,019,268

$

1,041,461

Home equity lines of credit

 

186,222

 

186,396

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Table of Contents

9.OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

COVID Pandemic

COVID was declared a pandemic by the World Health Organization on March 11, 2020.  Since March 2020, jurisdictions within and outside the U.S. have imposed economic and social restrictions on the population, in general, and non-essential businesses to slow the spread of COVID. These restrictions, in combination with the public’s response to them, have disrupted supply chains and effectively suspended or curtailed economic activity for many industries across the U.S. and the world. Industries within the Company’s market footprint have been impacted by these supply chain disruptions as well as the corresponding inflationary pressures driven by them in combination with on-going governmental stimulus programs.

While vaccines for the virus began rolling out during 2021, the future potential financial impact of the COVID pandemic is still unknown at this time. This pandemic and the public’s response to it could cause the Company to experience a material adverse impact on its business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, MSRs, deferred tax assets, or counterparty risk derivatives.

Commitments to Extend Credit

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. These financial instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the 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, 2022

    

December 31, 2021

Unused warehouse lines of credit

$

713,800

$

565,950

Unused home equity lines of credit

 

357,242

 

348,681

Unused loan commitments - other

 

817,085

 

828,229

Standby letters of credit

 

11,310

 

11,305

FHLB letter of credit

 

643

 

643

Total commitments

$

1,900,080

$

1,754,808

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third-party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material.

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Table of Contents

The following tables present a rollforward of the ACLC for the three months ended March 31, 2022 and 2021:

ACLC Rollforward

Three Months Ended March 31, 

2022

2021

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

$

154

$

(24)

$

$

$

130

$

79

$

37

$

$

$

116

Unused home equity lines of credit

247

9

256

173

21

194

Unused loan commitments - other

651

3

654

737

(32)

705

Total

$

1,052

$

(12)

$

$

$

1,040

$

989

$

26

$

$

$

1,015

The Company decreased its ACLC during the three months ended March 31, 2022 based on a decrease in the expected loss rate for its unused commitments.

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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 2 “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 as of March 31, 2022. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

Equity securities with readily determinable fair value: Quoted market prices in an active market are available for the Bank’s Community Reinvestment Act mutual fund investment and fall within Level 1 of the fair value hierarchy.

The fair value of the Company’s Freddie Mac preferred stock is determined by matrix pricing, as described above (Level 2 inputs).

Mortgage loans held for sale, at fair value: The fair value of mortgage loans held for sale is determined using quoted secondary market prices. Mortgage loans held for sale are classified as Level 2 in the fair value hierarchy.

Consumer loans held for sale, at fair value: In December 2019, the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell 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. Fair value for these loans is based on contractual sales terms, Level 3 inputs.

Consumer loans held for investment, at fair value: The Bank held an immaterial amount of consumer loans at fair value through a consumer loan program the Company is currently unwinding. The fair value of these loans was based on the discounted cash flows of the underlying loans, Level 3 inputs. Further disclosure of these loans is considered immaterial and thus omitted.

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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 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.

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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, 2022 is presented net of any applicable ACL.

Fair Value Measurements at 

 

March 31, 2022 Using:

 

    

Quoted Prices in

    

Significant

    

    

    

    

 

Active Markets

Other

Significant

 

for Identical

Observable

Unobservable

Total

 

Assets

Inputs

Inputs

Fair

 

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

 

Financial assets:

Available-for-sale debt securities:

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

$

153,119

$

159,841

$

$

312,960

Private label mortgage-backed security

 

 

 

2,602

 

2,602

Mortgage-backed securities - residential

 

 

216,901

 

 

216,901

Collateralized mortgage obligations

 

 

27,299

 

 

27,299

Corporate bonds

10,052

10,052

Trust preferred security

 

 

 

3,725

 

3,725

Total available-for-sale debt securities

$

153,119

$

414,093

$

6,327

$

573,539

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

164

$

$

164

Community Reinvestment Act mutual fund

 

2,338

 

 

 

2,338

Total equity securities with readily determinable fair value

$

2,338

$

164

$

$

2,502

Mortgage loans held for sale

$

$

13,302

$

$

13,302

Consumer loans held for sale

11,709

11,709

Consumer loans held for investment

107

107

Rate lock loan commitments

 

 

442

 

 

442

Mandatory forward contracts

1,461

1,461

Interest rate swap agreements

2,537

2,537

Financial liabilities:

Interest rate swap agreements

$

$

2,537

$

$

2,537

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Table of Contents

Fair Value Measurements at

 

December 31, 2021 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

$

70,112

$

167,347

$

$

237,459

Private label mortgage-backed security

 

 

 

2,731

 

2,731

Mortgage-backed securities - residential

 

 

210,749

 

 

210,749

Collateralized mortgage obligations

 

 

30,294

 

 

30,294

Corporate bonds

10,046

10,046

Trust preferred security

 

 

 

3,847

 

3,847

Total available-for-sale debt securities

$

70,112

$

418,436

$

6,578

$

495,126

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

170

$

$

170

Community Reinvestment Act mutual fund

 

2,450

 

 

 

2,450

Total equity securities with readily determinable fair value

$

2,450

$

170

$

$

2,620

Mortgage loans held for sale

$

$

29,393

$

$

29,393

Consumer loans held for sale

19,747

19,747

Consumer loans held for investment

170

170

Rate lock loan commitments

 

 

1,404

 

 

1,404

Mandatory forward contracts

66

66

Interest rate swap agreements

 

 

5,786

 

 

5,786

Financial liabilities:

Interest rate swap agreements

5,786

 

5,786

All transfers between levels are generally recognized at the end of each quarter. There were 0 transfers into or out of Level 1, 2, or 3 assets during the three months ended March 31, 2022 and 2021.

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)

2022

2021

    

Balance, beginning of period

$

2,731

$

2,957

Total gains or losses included in earnings:

Net change in unrealized gain

 

24

 

15

Principal paydowns

 

(153)

 

(109)

Balance, end of period

$

2,602

$

2,863

The fair value of the Bank’s single private label mortgage-backed security is supported by analysis prepared by an independent third party. The third party’s approach to determining fair value involved several steps: 1) detailed collateral analysis of the underlying mortgages, including consideration of geographic location, original loan-to-value and the weighted average FICO score of the borrowers; 2) collateral performance projections for each pool of mortgages underlying the security (probability of default, severity of default, and prepayment probabilities) and 3) discounted cash flow modeling.

The significant unobservable inputs in the fair value measurement of the Bank’s single private label mortgage-backed security are prepayment rates, probability of default and loss severity in the event of default. Significant fluctuations in any of those inputs in isolation would result in a significantly different fair value measurement.

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Table of Contents

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, 2022 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage-backed security

$

2,602

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 5.7%

 

(2) Probability of default

 

1.8% - 9.3%

 

(3) Loss severity

 

50% - 75%

    

Fair

    

Valuation

    

    

    

 

December 31, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage-backed security

$

2,731

 

Discounted cash flow

 

(1) Constant prepayment rate

 

4.5% - 5.7%

 

(2) Probability of default

 

1.8% - 9.3%

 

(3) Loss severity

 

50% - 75%

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)

2022

2021

Balance, beginning of period

$

3,847

$

3,800

Total gains or losses included in earnings:

Discount accretion

14

13

Net change in unrealized gain

 

(136)

 

(163)

Balance, end of period

$

3,725

$

3,650

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

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Table of Contents

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. NaN of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2022 and December 31, 2021.

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

(in thousands)

    

March 31, 2022

    

December 31, 2021

 

Aggregate fair value

$

13,302

$

29,393

Contractual balance

 

13,283

 

28,668

Unrealized gain

 

19

 

725

The total amount of gains and losses from changes in fair value included in earnings for the three and three months ended March 31, 2022 and 2021 for mortgage loans held for sale are presented in the following table:

Three Months Ended

    

March 31, 

(in thousands)

    

2022

    

2021

Interest income

$

204

$

409

Change in fair value

 

(706)

 

(1,011)

Total included in earnings

$

(502)

$

(602)

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. NaN of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2022 and December 31, 2021.

The significant unobservable inputs in the fair value measurement of the Bank’s short-term installment loans are the net contractual premiums and level of loans sold at a discount price. Significant fluctuations in any of those inputs in isolation would result in a significantly lower/higher fair value measurement.

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

    

Fair

    

Valuation

    

    

    

March 31, 2022 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$

11,709

 

Contract Terms

 

(1) Net Premium

 

1.4%

 

(2) Discounted Sales

 

5.00%

    

Fair

    

Valuation

    

    

    

December 31, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$

19,747

 

Contract Terms

 

(1) Net Premium

 

1.4%

 

(2) Discounted Sales

 

5.00%

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Table of Contents

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, 2022

    

December 31, 2021

Aggregate fair value

$

11,709

$

19,747

Contractual balance

 

11,632

 

19,633

Unrealized gain

 

77

 

114

The total amount of net gains from changes in fair value included in earnings for consumer loans held for sale, at fair value, are presented in the following table:

Three Months Ended

March 31, 

(in thousands)

    

2022

    

2021

Interest income

$

2,890

$

571

Change in fair value

 

(37)

 

16

Total included in earnings

$

2,853

$

587

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Table of Contents

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

Fair Value Measurements at

March 31, 2022 Using:

    

Quoted Prices in

    

Significant

    

    

    

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Total

Assets

Inputs

Inputs

Fair

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

Collateral-dependent loans:

Residential real estate:

Owner occupied

$

$

$

1,558

$

1,558

Commercial real estate

 

 

 

2,814

 

2,814

Home equity

 

 

 

290

 

290

Total collateral-dependent loans*

$

$

$

4,662

$

4,662

Other real estate owned:

Commercial real estate

$

$

$

1,740

$

1,740

Total other real estate owned

$

$

$

1,740

$

1,740

Fair Value Measurements at

December 31, 2021 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

$

$

$

1,626

$

1,626

Commercial real estate

 

 

 

2,841

 

2,841

Home equity

 

 

 

378

 

378

Total collateral-dependent loans*

$

$

$

4,845

$

4,845

Other real estate owned:

Residential real estate

$

$

$

1,792

$

1,792

Total other real estate owned

$

$

$

1,792

$

1,792

*

The difference between the carrying value and the fair value of collateral-dependent loans measured at fair value is reconciled in a subsequent table of this Footnote.

49

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

March 31, 2022 (dollars in thousands)

Value

Technique

Inputs

Average)

Collateral-dependent loans - residential real estate owner occupied

$

1,558

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

0% - 44% (9%)

Collateral-dependent loans - commercial real estate

$

2,814

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

12% - 13% (12%)

Collateral-dependent loans - home equity

$

290

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

2% (2%)

Other real estate owned - commercial real estate

$

1,740

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

33% (33%)

    

    

    

    

    

    

    

Range

Fair

Valuation

Unobservable

(Weighted

December 31, 2021 (dollars in thousands)

Value

Technique

Inputs

Average)

Collateral-dependent loans - residential real estate owner occupied

$

1,626

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

0% - 51% (10%)

Collateral-dependent loans - commercial real estate

$

2,841

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

12% - 13% (12%)

Collateral-dependent loans - home equity

$

378

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

2%-4% (3%)

Other real estate owned - commercial real estate

$

1,792

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

33% (33%)

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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:

(in thousands)

    

September 30, 2021

    

December 31, 2020

    

March 31, 2022

    

December 31, 2021

    

Carrying amount of loans measured at fair value

$

5,122

$

7,110

$

4,762

$

4,928

Estimated selling costs considered in carrying amount

 

911

 

1,252

 

822

 

842

Valuation allowance

(358)

(922)

(925)

Total fair value

$

5,675

$

8,362

$

4,662

$

4,845

    

Three Months Ended

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

2021

    

2020

    

2021

    

2020

    

2022

    

2021

Provision on collateral-dependent

$

345

$

430

$

393

$

(71)

Provision on collateral-dependent loans

$

(4)

$

Other Real Estate Owned

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

    

    

(in thousands)

September 30, 2021

    

December 31, 2020

    

March 31, 2022

    

December 31, 2021

    

Other real estate owned carried at fair value

$

1,845

$

2,003

$

1,740

$

1,792

Other real estate owned carried at cost

 

 

496

 

 

Total carrying value of other real estate owned

$

1,845

$

2,499

$

1,740

$

1,792

    

Three Months Ended

Nine Months Ended

    

Three Months Ended

    

September 30, 

September 30, 

March 31, 

(in thousands)

2021

    

2020

    

2021

    

2020

    

2022

    

2021

Other real estate owned write-downs during the period

$

53

$

53

$

158

$

53

$

52

$

53

5451

Table of Contents

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

Fair Value Measurements at

 

Fair Value Measurements at

 

September 30, 2021:

 

March 31, 2022:

 

    

    

    

    

    

Total

 

    

    

    

    

    

Total

 

Carrying

Fair

 

Carrying

Fair

 

(in thousands)

Value

Level 1

Level 2

Level 3

Value

 

Value

Level 1

Level 2

Level 3

Value

 

Assets:

Cash and cash equivalents

$

1,011,247

$

1,011,247

$

$

$

1,011,247

$

1,077,158

$

1,077,158

$

$

$

1,077,158

Available-for-sale debt securities

 

495,880

 

 

489,250

 

6,630

 

495,880

 

573,539

 

153,119

 

414,093

 

6,327

 

573,539

Held-to-maturity debt securities

 

44,991

 

 

45,590

 

 

45,590

 

38,795

 

 

39,087

 

 

39,087

Equity securities with readily determinable fair values

2,578

2,476

102

2,578

2,502

2,338

164

2,502

Mortgage loans held for sale, at fair value

 

25,791

 

 

25,791

 

 

25,791

 

13,302

 

 

13,302

 

 

13,302

Consumer loans held for sale, at fair value

10,779

10,779

10,779

11,709

11,709

11,709

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

3,976

3,976

3,976

3,026

3,026

3,026

Loans for discontinued operations, at the lower of cost or fair value

24

24

24

Loans, net

 

4,280,758

 

 

 

4,276,437

 

4,276,437

 

4,318,587

 

 

 

4,272,818

 

4,272,818

Federal Home Loan Bank stock

 

10,311

 

 

 

 

NA

 

10,311

 

 

 

 

NA

Accrued interest receivable

 

9,352

 

 

9,352

 

 

9,352

 

9,426

 

 

9,426

 

 

9,426

Mortgage servicing rights

8,867

10,906

10,906

9,502

15,296

15,296

Rate lock loan commitments

1,943

1,943

1,943

442

442

442

Mandatory forward contracts

722

722

722

1,461

1,461

1,461

Interest rate swap agreements

6,707

6,707

6,707

2,537

2,537

2,537

Liabilities:

Noninterest-bearing deposits

$

2,053,485

 

$

2,053,485

 

$

2,053,485

$

2,226,714

$

$

2,226,714

$

$

2,226,714

Transaction deposits

 

2,536,782

 

 

2,536,782

 

 

2,536,782

 

2,600,920

 

 

2,600,920

 

 

2,600,920

Time deposits

 

324,617

 

 

328,162

 

 

328,162

 

259,472

 

 

257,598

 

 

257,598

Deposits of discontinued operations

33,063

33,063

33,063

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

 

260,583

 

 

260,583

 

 

260,583

 

287,818

 

 

287,818

 

 

287,818

Federal Home Loan Bank advances

 

25,000

 

 

25,000

 

 

25,000

 

20,000

 

 

21,860

 

 

21,860

Accrued interest payable

 

180

 

 

180

 

 

180

 

192

 

 

192

 

 

192

Interest rate swap agreements

6,707

6,707

6,707

2,537

2,537

2,537

5552

Table of Contents

Fair Value Measurements at

 

Fair Value Measurements at

 

December 31, 2020:

 

December 31, 2021:

 

    

    

    

    

    

    

Total

 

    

    

    

    

    

    

Total

 

Carrying

Fair

 

Carrying

Fair

 

(in thousands)

Value

Level 1

Level 2

Level 3

Value

 

Value

Level 1

Level 2

Level 3

Value

 

Assets:

Cash and cash equivalents

$

485,587

$

485,587

$

$

$

485,587

$

756,971

$

756,971

$

$

$

756,971

Available-for-sale debt securities

 

523,863

 

 

517,106

 

6,757

 

523,863

 

495,126

 

70,112

 

418,436

 

6,578

 

495,126

Held-to-maturity debt securities

 

53,324

 

 

54,190

 

 

54,190

 

44,299

 

 

44,764

 

 

44,764

Equity securities with readily determinable fair values

3,083

2,523

560

3,083

2,620

2,450

170

2,620

Mortgage loans held for sale, at fair value

 

46,867

 

 

46,867

 

 

46,867

 

29,393

 

 

29,393

 

 

29,393

Consumer loans held for sale, at fair value

3,298

3,298

3,298

19,747

19,747

19,747

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

1,478

1,478

1,478

2,937

2,937

2,937

Loans for discontinued operations, at the lower of cost or fair value

23,765

23,765

23,765

Loans, net

 

4,728,271

 

 

 

4,726,066

 

4,726,066

 

4,431,985

 

 

 

4,445,244

 

4,445,244

Federal Home Loan Bank stock

 

17,397

 

 

 

 

NA

 

10,311

 

 

 

 

NA

Accrued interest receivable

 

12,925

 

 

12,925

 

 

12,925

 

9,877

 

 

9,877

 

 

9,877

Mortgage servicing rights

7,095

8,318

8,318

9,196

11,540

11,540

Rate lock loan commitments

4,540

4,540

4,540

1,404

1,404

1,404

Mandatory forward contracts

66

66

66

Interest rate swap agreements

12,545

12,545

12,545

5,786

5,786

5,786

Liabilities:

Noninterest-bearing deposits

$

1,871,539

 

$

1,871,539

 

$

1,871,539

$

1,990,781

$

$

1,990,781

$

$

1,990,781

Transaction deposits

 

2,444,361

 

 

2,444,361

 

 

2,444,361

 

2,553,423

 

 

2,553,423

 

 

2,553,423

Time deposits

 

398,404

 

 

404,773

 

 

404,773

 

296,214

 

 

298,236

 

 

298,236

Deposits of discontinued operations

18,877

18,877

18,877

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

 

211,026

 

 

211,026

 

 

211,026

 

290,967

 

 

290,967

 

 

290,967

Federal Home Loan Bank advances

 

235,000

 

 

235,009

 

 

235,009

 

25,000

 

 

25,000

 

 

25,000

Subordinated note

 

41,240

 

 

31,071

 

 

31,071

Accrued interest payable

 

342

 

 

342

 

 

342

 

159

 

 

159

 

 

159

Mandatory forward contracts

976

976

976

Interest rate swap agreements

12,545

12,545

12,545

5,786

5,786

5,786

5653

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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

Nine Months Ended

    

    

Three Months Ended

    

September 30, 

September 30, 

March 31, 

(in thousands)

2021

    

2020

    

2021

    

2020

2022

    

2021

Balance, beginning of period

$

32,401

$

40,028

$

46,867

$

19,224

$

29,393

$

46,867

Origination of mortgage loans held for sale

 

170,482

 

203,615

 

525,246

 

547,556

 

100,661

 

213,587

Proceeds from the sale of mortgage loans held for sale

 

(182,422)

 

(210,309)

 

(562,661)

 

(546,950)

 

(119,212)

 

(203,815)

Net gain on sale of mortgage loans held for sale

 

5,330

 

11,526

 

16,339

 

25,030

 

2,460

 

6,997

Balance, end of period

$

25,791

$

44,860

$

25,791

$

44,860

$

13,302

$

63,636

The following table presents the components of Mortgage Banking income:

    

Three Months Ended

    

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

2021

    

2020

2021

    

2020

2022

    

2021

Net gain realized on sale of mortgage loans held for sale

$

5,008

$

9,151

$

18,764

$

18,279

$

2,733

$

8,045

Net change in fair value recognized on loans held for sale

 

(373)

 

126

 

(1,527)

 

1,382

 

(706)

 

(1,011)

Net change in fair value recognized on rate lock loan commitments

 

(258)

 

2,194

 

(2,596)

 

5,841

 

(962)

 

(2,637)

Net change in fair value recognized on forward contracts

 

953

 

55

 

1,698

 

(472)

 

1,395

 

2,600

Net gain recognized

 

5,330

 

11,526

 

16,339

 

25,030

 

2,460

 

6,997

Loan servicing income

 

832

 

757

 

2,433

 

2,139

 

865

 

793

Amortization of mortgage servicing rights

 

(882)

 

(1,108)

 

(2,617)

 

(2,701)

 

(668)

 

(997)

Change in mortgage servicing rights valuation allowance

 

 

(400)

 

500

 

(500)

 

 

400

Net servicing income recognized

 

(50)

 

(751)

 

316

 

(1,062)

 

197

 

196

Total Mortgage Banking income

$

5,280

$

10,775

$

16,655

$

23,968

$

2,657

$

7,193

Activity for capitalized mortgage servicing rights was as follows:

    

Three Months Ended

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

2021

    

2020

    

2021

    

2020

    

2022

    

2021

Balance, beginning of period

$

8,335

$

6,711

$

7,095

$

5,888

$

9,196

$

7,095

Additions

 

1,414

 

1,471

 

3,889

 

3,987

 

974

 

1,213

Amortized to expense

 

(882)

 

(1,108)

 

(2,617)

 

(2,701)

 

(668)

 

(997)

Change in valuation allowance

 

 

(400)

 

500

 

(500)

 

 

400

Balance, end of period

$

8,867

$

6,674

$

8,867

$

6,674

$

9,502

$

7,711

Activity in the valuation allowance for capitalized mortgage servicing rights follows:

    

Three Months Ended

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

2021

    

2020

    

2021

    

2020

    

2022

    

2021

Beginning valuation allowance

$

0

$

100

$

500

$

0

$

0

$

500

Charge during the period

 

0

 

400

 

(500)

 

500

 

0

 

(400)

Ending valuation allowance

$

0

$

500

$

0

$

500

$

0

$

100

5754

Table of Contents

Other information relating to mortgage servicing rights follows:

(in thousands)

    

September 30, 2021

  

  

December 31, 2020

 

(dollars in thousands)

    

March 31, 2022

  

  

December 31, 2021

 

Fair value of mortgage servicing rights portfolio

$

10,906

$

8,318

$

15,296

$

11,540

Monthly weighted average prepayment rate of unpaid principal balance*

 

205

%

 

308

%

 

140

%

 

208

%

Discount rate

10

%

10

%

10.17

%

10.15

%

Weighted average foreclosure rate

0.24

%

0.44

%

0.14

%

0.19

%

Weighted average life in years

 

5.88

 

4.85

 

7.34

 

5.93

*

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 lock loan 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:

September 30, 2021

    

December 31, 2020

March 31, 2022

    

December 31, 2021

Notional

Notional

Notional

Notional

(in thousands)

Amount

    

Fair Value

Amount

    

Fair Value

Amount

    

Fair Value

Amount

    

Fair Value

Included in Mortgage loans held for sale:

Mortgage loans held for sale, at fair value

$

25,232

$

25,791

$

44,781

$

46,867

$

13,283

$

13,302

$

28,668

$

29,393

Included in other assets:

Rate lock loan commitments

$

94,210

$

1,943

$

105,395

$

4,540

$

46,981

$

442

$

56,736

$

1,404

Mandatory forward contracts

105,659

722

45,608

1,461

70,812

66

Included in other liabilities:

Mandatory forward contracts

$

$

$

136,236

$

976

5855

Table of Contents

12. INTEREST RATE SWAPS

Interest Rate Swaps Used as Cash Flow Hedges

The Bank entered into 2 interest rate swap agreements (“swaps”) during 2013 as part of its interest rate risk management strategy. The Bank designated these 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 the 1-month LIBOR. Both swaps matured in December 2020.

The following table reflects the total interest expense recorded on these swap transactions in the consolidated statements of income:

    

Three Months Ended

Nine Months Ended

    

September 30, 

September 30, 

(in thousands)

2021

    

2020

    

2021

    

2020

Interest rate swap on money market deposits

$

$

52

$

$

107

Interest rate swap on FHLB advance

 

 

51

 

 

104

Total interest (benefit) expense on swap transactions

$

$

103

$

$

211

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:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(in thousands)

    

2021

    

2020

    

2021

    

2020

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

 

$

 

$

(1)

 

$

 

$

(173)

Gains (losses) reclassified from OCI on derivative (effective portion)

 

(103)

 

 

(211)

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

0

 

0

 

0

 

0

Non-hedge Interest Rate Swaps

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

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the 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:

    

September 30, 2021

December 31, 2020

 

    

March 31, 2022

December 31, 2021

 

Notional

Notional

 

Notional

Notional

 

(in thousands)

    

Bank Position

Amount

    

Fair Value

    

Amount

    

Fair Value

 

    

Bank Position

Amount

    

Fair Value

    

Amount

    

Fair Value

 

Interest rate swaps with Bank clients - Assets

 

Pay variable/receive fixed

 

$

109,456

 

$

6,707

 

$

138,277

 

$

12,545

 

Pay variable/receive fixed

 

$

51,584

 

$

1,883

 

$

107,502

 

$

5,786

Interest rate swaps with Bank clients - Liabilities

 

Pay variable/receive fixed

 

15,953

 

(103)

 

 

Pay variable/receive fixed

 

71,222

 

(2,537)

 

16,423

(298)

Interest rate swaps with Bank clients - Total

 

Pay variable/receive fixed

 

$

125,409

 

$

6,604

 

$

138,277

 

$

12,545

 

Pay variable/receive fixed

 

$

122,806

 

$

(654)

 

$

123,925

 

$

5,488

Offsetting interest rate swaps with institutional swap dealer

Pay fixed/receive variable

125,409

(6,604)

138,277

(12,545)

Pay fixed/receive variable

122,806

654

123,925

(5,488)

Total

 

$

250,818

$

 

$

276,554

$

 

$

245,612

$

 

$

247,850

$

59

Table of Contents

The Bank is required to pledge securities as collateral when the Bank is in a net loss position for all swaps with dealer counterparties when such net loss positions exceed $250,000. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $7.8 million$873,000 and $13.3$6.8 million as of September 30, 2021March 31, 2022 and December 31, 2020.2021.

56

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

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands, except per share data)

2021

    

2020

    

2021

    

2020

    

    

    

2022

    

2021

    

Income from continuing operations

$

18,412

$

17,275

$

55,240

$

49,344

Income (loss) from discontinued operations

1,597

3,114

14,744

13,546

Net income available to common shareholders

20,009

20,389

69,984

62,890

Net income

$

27,926

$

26,053

Dividends declared on Common Stock:

Class A Shares

(5,557)

(5,375)

(16,980)

(16,080)

(6,081)

(5,743)

Class B Shares

(606)

(572)

(1,830)

(1,716)

(671)

(616)

Undistributed net income for basic earnings per share

13,846

14,442

51,174

45,094

21,174

19,694

Weighted average potential dividends on Class A shares upon exercise of dilutive options

(17)

(7)

(40)

(24)

(27)

(20)

Undistributed net income for diluted earnings per share

$

13,829

$

14,435

$

51,134

$

45,070

$

21,147

$

19,674

Weighted average shares outstanding:

Class A Shares

 

18,342

 

18,826

 

18,625

 

18,830

 

17,980

 

18,798

Class B Shares

2,166

2,200

2,182

2,201

2,165

2,199

Effect of dilutive securities on Class A Shares outstanding

 

83

 

20

 

72

 

37

 

80

 

65

Weighted average shares outstanding including dilutive securities

 

20,591

 

21,046

 

20,879

 

21,068

 

20,225

 

21,062

Basic earnings per share:

Class A Common Stock:

Per share dividends distributed

$

0.31

$

0.29

$

0.92

$

0.86

$

0.34

$

0.31

Undistributed earnings per share* from continuing operations

0.60

0.54

1.77

1.51

Total basic earnings per share from continuing operations

0.91

0.83

2.69

2.37

Total basic earnings per share from discontinued operations

0.08

0.15

0.71

0.65

Undistributed earnings per share*

1.06

0.95

Total basic earnings per share - Class A Common Stock

$

0.99

$

0.98

$

3.40

$

3.02

$

1.40

$

1.26

Class B Common Stock:

Per share dividends distributed

$

0.28

$

0.26

$

0.84

$

0.78

$

0.31

$

0.28

Undistributed earnings per share*

0.55

0.49

1.61

1.38

0.96

0.86

Total basic earnings per share from continuing operations

0.83

0.75

2.45

2.16

Total basic earnings per share from discontinued operations

0.07

0.14

0.65

0.59

Total basic earnings per share - Class B Common Stock

$

0.90

$

0.89

$

3.10

$

2.75

$

1.27

$

1.14

Diluted earnings per share:

Class A Common Stock:

Per share dividends distributed

$

0.31

$

0.29

$

0.92

$

0.86

$

0.34

$

0.31

Undistributed earnings per share*

0.60

0.54

1.76

1.51

1.06

0.94

Total diluted earnings per share from continuing operations

0.91

0.83

2.68

2.37

Total diluted earnings per share from discontinued operations

0.08

0.15

0.71

0.65

Total diluted earnings per share - Class A Common Stock

$

0.99

$

0.98

$

3.39

$

3.02

$

1.40

$

1.25

Class B Common Stock:

Per share dividends distributed

$

0.28

$

0.26

$

0.84

$

0.78

$

0.31

$

0.28

Undistributed earnings per share*

0.55

0.49

1.60

1.37

0.96

0.86

Total diluted earnings per share from continuing operations

0.83

0.75

2.44

2.15

Total diluted earnings per share from discontinued operations

0.07

0.14

0.65

0.59

Total diluted earnings per share - Class B Common Stock

$

0.90

$

0.89

$

3.09

$

2.74

$

1.27

$

1.14

*

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.

60

Table of Contents

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

    

Three Months Ended

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

    

2021

    

2020

    

2021

    

2020

    

    

2022

    

2021

Antidilutive stock options

 

141,000

 

431,000

 

144,000

244,000

 

 

186,000

154,000

Average antidilutive stock options

 

141,000

 

367,000

 

144,000

193,000

 

 

175,000

154,000

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14. OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:

    

Three Months Ended

    

Nine Months Ended

    

September 30, 

September 30, 

(in thousands)

2021

    

2020

    

2021

    

2020

Available-for-Sale Debt Securities:

Unrealized gains and (losses) on AFS debt securities

$

(1,899)

$

(258)

$

(4,542)

$

8,618

Unrealized gain (loss) of AFS debt security for which a portion of OTTI has been recognized in earnings

 

13

 

61

 

62

 

(46)

Net unrealized (losses) gains

 

(1,886)

 

(197)

 

(4,480)

 

8,572

Tax effect

 

471

 

49

 

1,119

 

(2,144)

Net of tax

 

(1,415)

 

(148)

 

(3,361)

 

6,428

Cash Flow Hedges:

Change in fair value of derivatives used for cash flow hedges

 

 

(1)

 

 

(173)

Reclassification amount for net derivative losses realized in income

 

 

103

 

 

211

Net gains (losses)

 

 

102

 

 

38

Tax effect

 

 

(25)

 

 

(9)

Net of tax

 

 

77

 

 

29

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

$

(1,415)

$

(71)

$

(3,361)

$

6,457

The table below presents the significant amounts reclassified out of each component of AOCI:

Amounts Reclassified from AOCI

Affected Line Items

Three Months Ended

Nine Months Ended

    

Three Months Ended

in the Consolidated

September 30, 

September 30, 

March 31, 

(in thousands)

  

Statements of Income

  

2021

    

2020

  

2021

    

2020

    

2022

    

2021

Cash Flow Hedges:

Interest rate swap on money market deposits

 

Interest expense on deposits

$

$

(52)

$

$

(107)

Interest rate swap on FHLB advance

 

Interest expense on FHLB advances

 

 

(51)

 

 

(104)

Total derivative losses on cash flow hedges

 

Total interest expense

 

 

(103)

 

 

(211)

Available-for-Sale Debt Securities:

Unrealized losses on AFS debt securities

$

(21,249)

$

(2,029)

Unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings

 

24

 

15

Net losses

 

(21,225)

 

(2,014)

Tax effect

 

Income tax expense

 

 

26

 

 

53

 

5,308

 

503

Net of tax

 

Net income

$

$

(77)

$

$

(158)

$

(15,917)

$

(1,511)

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

    

    

2021

    

 

    

    

2022

    

 

(in thousands)

December 31, 2020

Change

September 30, 2021

 

December 31, 2021

Change

March 31, 2022

 

Unrealized gain (loss) on AFS debt securities

$

7,571

$

(3,407)

$

4,164

$

890

$

(15,935)

$

(15,045)

Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings

 

938

 

46

 

984

 

984

 

18

 

1,002

Total unrealized gain (loss)

$

8,509

$

(3,361)

$

5,148

$

1,874

$

(15,917)

$

(14,043)

    

    

2020

    

 

    

    

2021

    

 

(in thousands)

December 31, 2019

Change

September 30, 2020

 

December 31, 2020

Change

March 31, 2021

 

Unrealized gain on AFS debt securities

$

2,211

$

6,464

$

8,675

$

7,571

$

(1,522)

$

6,049

Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings

 

964

 

(35)

 

929

 

938

 

11

 

949

Unrealized (loss) gain on cash flow hedges

 

(77)

 

28

 

(49)

Total unrealized gain

$

3,098

$

6,457

$

9,555

Total unrealized gain (loss)

$

8,509

$

(1,511)

$

6,998

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15. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

Three Months Ended September 30, 2021

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income (1)

$

40,297

$

6,291

$

253

   

$

46,841

$

171

$

5,297

$

5,468

$

52,309

Noninterest income:

Service charges on deposit accounts

3,262

15

3,277

3,277

Mortgage banking income (1)

 

 

 

5,280

 

5,280

 

 

 

 

5,280

Interchange fee income

3,199

3,199

1

1

3,200

Program fees (1)

763

3,767

4,530

4,530

Increase in cash surrender value of BOLI (1)

626

626

626

Net gains (losses) on OREO

(52)

(52)

(52)

Other

 

1,073

 

 

62

 

1,135

 

(1)

 

 

(1)

 

1,134

Total noninterest income

 

8,108

 

15

 

5,342

 

13,465

 

763

 

3,767

 

4,530

 

17,995

Total net revenue

$

48,405

$

6,306

$

5,595

$

60,306

$

934

$

9,064

$

9,998

$

70,304

Net-revenue concentration from continuing operations (2)

69

%  

9

%  

8

%  

86

%  

1

%  

13

%  

14

%  

100

%  

Three Months Ended March 31, 2022

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income (1)

$

36,148

$

4,515

$

204

   

$

40,867

$

15,404

$

6,341

$

21,745

$

62,612

Noninterest income:

Service charges on deposit accounts

3,219

13

3,232

(6)

(6)

3,226

Net refund transfer fees

 

 

 

 

 

12,051

 

 

12,051

 

12,051

Mortgage banking income (1)

 

 

 

2,657

 

2,657

 

 

 

 

2,657

Interchange fee income

3,012

3,012

58

58

3,070

Program fees (1)

727

3,127

3,854

3,854

Increase in cash surrender value of BOLI (1)

612

612

612

Net losses on OREO

(53)

(53)

(53)

Contract termination fee

5,000

5,000

5,000

Other

 

444

 

 

34

 

478

 

106

 

 

106

 

584

Total noninterest income

 

7,234

 

13

 

2,691

 

9,938

 

17,936

 

3,127

 

21,063

 

31,001

Total net revenue

$

43,382

$

4,528

$

2,895

$

50,805

$

33,340

$

9,468

$

42,808

$

93,613

Net-revenue concentration (2)

46

%  

5

%  

3

%  

54

%  

36

%  

10

%  

46

%  

100

%  

Three Months Ended September 30, 2020

 

Three Months Ended March 31, 2021

 

Core Banking

Republic Processing Group

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Total

Tax

Republic

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income (1)

$

38,753

$

7,345

$

300

   

$

46,398

$

675

$

4,976

$

5,651

$

52,049

$

41,102

$

6,772

$

409

   

$

48,283

$

14,676

$

4,821

$

19,497

$

67,780

Noninterest income:

Service charges on deposit accounts

3,000

18

3,018

(1)

(1)

3,017

2,865

14

2,879

(6)

(6)

2,873

Net refund transfer fees

 

 

 

 

 

12,721

 

 

12,721

 

12,721

Mortgage banking income (1)

 

 

 

10,775

 

10,775

 

 

 

 

10,775

 

 

 

7,193

 

7,193

 

 

 

 

7,193

Interchange fee income

2,873

2,873

1

1

2,874

2,969

2,969

58

58

3,027

Program fees (1)

643

844

1,487

1,487

896

1,329

2,225

2,225

Increase in cash surrender value of BOLI (1)

400

400

400

390

390

390

Net gains (losses) on OREO

(14)

(14)

(14)

Net losses on OREO

(11)

(11)

(11)

Other

 

879

 

(39)

 

21

 

861

 

 

 

 

861

 

571

 

 

28

 

599

 

20

 

 

20

 

619

Total noninterest income

 

7,138

 

(21)

 

10,796

 

17,913

 

643

 

844

 

1,487

 

19,400

 

6,784

 

14

 

7,221

 

14,019

 

13,689

 

1,329

 

15,018

 

29,037

Total net revenue

$

45,891

$

7,324

$

11,096

$

64,311

$

1,318

$

5,820

$

7,138

$

71,449

$

47,886

$

6,786

$

7,630

$

62,302

$

28,365

$

6,150

$

34,515

$

96,817

Net-revenue concentration from continuing operations (2)

64

%  

10

%  

16

%  

90

%  

2

%  

8

%  

10

%  

100

%  

Net-revenue concentration (2)

50

%  

7

%  

8

%  

65

%  

29

%  

6

%  

35

%  

100

%  

(1)This revenue is not subject to ASC 606.
(2)Net revenue from continuing operations represents net interest income plus total noninterest income from continuing operations.income. Net-revenue concentration from continuing operations equals segment-level net revenue from continuing operations divided by total Company net revenue from continuing operations.revenue.

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Table of Contents

Nine Months Ended September 30, 2021

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income (1)

$

119,677

$

19,387

$

802

   

$

139,866

$

665

$

14,794

$

15,459

$

155,325

Noninterest income:

Service charges on deposit accounts

9,188

43

9,231

(10)

(10)

9,221

Mortgage banking income (1)

 

 

 

16,655

 

16,655

 

 

 

 

16,655

Interchange fee income

9,535

9,535

4

4

9,539

Program fees (1)

2,374

7,930

10,304

10,304

Increase in cash surrender value of BOLI (1)

1,616

1,616

1,616

Net gains (losses) on OREO

(107)

(107)

(107)

Other

 

2,630

 

 

140

 

2,770

 

(1)

 

 

(1)

 

2,769

Total noninterest income

 

22,862

 

43

 

16,795

 

39,700

 

2,367

 

7,930

 

10,297

 

49,997

Total net revenue

$

142,539

$

19,430

$

17,597

$

179,566

$

3,032

$

22,724

$

25,756

$

205,322

Net-revenue concentration from continuing operations (2)

70

%  

9

%  

9

%  

88

%  

1

%  

11

%  

12

%  

100

%  

Nine Months Ended September 30, 2020

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income (1)

$

118,409

$

17,715

$

932

   

$

137,056

$

1,622

$

17,655

$

19,277

$

156,333

Noninterest income:

Service charges on deposit accounts

8,576

46

8,622

(18)

(18)

8,604

Mortgage banking income (1)

 

 

 

23,968

 

23,968

 

 

 

 

23,968

Interchange fee income

8,090

8,090

3

3

8,093

Program fees (1)

1,573

3,676

5,249

5,249

Increase in cash surrender value of BOLI (1)

1,184

1,184

1,184

Net gains (losses) on OREO

(10)

(10)

(10)

Other

 

2,659

 

(39)

 

53

 

2,673

 

 

 

 

2,673

Total noninterest income

 

20,499

 

7

 

24,021

 

44,527

 

1,558

 

3,676

 

5,234

 

49,761

Total net revenue

$

138,908

$

17,722

$

24,953

$

181,583

$

3,180

$

21,331

$

24,511

$

206,094

Net-revenue concentration from continuing operations (2)

67

%  

9

%  

12

%  

88

%  

2

%  

10

%  

12

%  

100

%  

(1)This revenue is not subject to ASC 606.
(2)Net revenue from continuing operations represents net interest income plus total noninterest income from continuing operations. Net-revenue concentration from continuing operations equals segment-level net revenue from continuing operations divided by total Company net revenue from continuing operations.

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Table of Contents

The following represents information for significant revenue streams from continuing operations subject to ASC 606:

Service charges on deposit accounts – The Company earns revenue for account-based and event-driven services on its retail and commercial deposit accounts. Contracts for these services are generally in the form of deposit agreements, which disclose fees for deposit services. Revenue for event-driven services is recognized in close proximity or simultaneously with service performance. Revenue for certain account-based services may be recognized at a point in time or over the period the service is rendered, typically no longer than a month. Examples of account-based and event-driven service charges on deposits include per item fees, paper-statement fees, check-cashing fees, and analysis fees.

Net refund transfer fees – An RT is a fee-based product offered by the Bank through third-party tax preparers located throughout the United States, as well as tax-preparation software providers (collectively, the “Tax Providers”), with the Bank acting as an independent contractor of the Tax Providers. An RT allows a taxpayer to pay any applicable tax preparation and filing related fees directly from his federal or state government tax refund, with the remainder of the tax refund disbursed directly to the taxpayer. RT

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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 printed at a tax office, 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 fulfillment 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 writedowns 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 writedowns taken by the Company during the property’s holding period are generally at least 10% per year, but may be higher based on updated real estate appraisals or BPOs. Incremental expenditures to bring OREO to salable condition are generally expensed as-incurred.

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

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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, 2021,March 31, 2022, the Company was divided into 5 reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first 3 segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last 2 segments collectively constitute RPG operations.

See additional detail regarding the Bank’s agreement to sell TRS under Footnote 17 “Discontinued Operations” in this section of the filing.

The nature of segment operations and the primary drivers of net revenue by reportable segment are provided below:

Reportable Segment:

Nature of Operations:

Primary Drivers of Net Revenue:

Core Banking:

Traditional Banking

Provides traditional banking products to clients in its market footprint primarily via its network of banking centers and to clients outside of its market footprint primarily via its digital delivery channels.

Loans, investments, and deposits

Warehouse Lending

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

Mortgage warehouse lines of credit

Mortgage Banking

Primarily originates, sells and services long-term, single-family, first-lien residential real estate loans primarily to clients in the Bank's market footprint.

Loan sales and servicing

Republic Processing Group:

Tax Refund Solutions:Solutions

Continuing Operations

Continuing operations of TRS include its RPS division and certain indirect costs that are expected to remain with the Bank. The RPS division of TRS offers general-purpose reloadable cards primarily to clients outside of the Bank’s market footprint.

Prepaid Cards

Discontinued Operations

The Bank agreed to sell its TRS business to Green Dot in May 2021. The TRS business has traditionally contained the significant majority of revenue and expense generated at the TRS segment. The TRS business contracted to be sold offers tax-related credit products and facilitates the receipt and payment of federal and state tax refunds through Refund Transfer products. The RPS division of TRS offers general-purpose reloadable cards. TRS and RPS products are primarily provided to clients outside of the Bank’s market footprint.

Loans, and refund transfers, and prepaid cards.

Republic Credit Solutions

Offers consumer credit products. RCS products are primarily provided to clients outside of the Bank’s market footprint, with a substantial portion of RCS clients considered subprime or near-prime borrowers.

Unsecured, consumer loans

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 20202021 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.

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Segment information follows:

Three Months Ended September 30, 2021

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income

$

40,297

$

6,291

$

253

   

$

46,841

$

171

$

5,297

$

5,468

$

52,309

Provision for expected credit loss expense

 

(44)

 

(223)

 

 

(267)

 

 

3,820

 

3,820

 

3,553

Mortgage banking income

 

 

 

5,280

 

5,280

 

 

 

 

5,280

Program fees

763

3,767

4,530

4,530

Other noninterest income

 

8,108

 

15

 

62

 

8,185

 

 

 

 

8,185

Total noninterest income

 

8,108

 

15

 

5,342

 

13,465

 

763

 

3,767

 

4,530

 

17,995

Total noninterest expense

 

35,927

 

1,056

 

3,257

 

40,240

 

1,308

 

1,046

 

2,354

 

42,594

Income (loss) from continuing operations before income tax expense

 

12,522

 

5,473

 

2,338

 

20,333

 

(374)

 

4,198

 

3,824

 

24,157

Income tax expense (benefit)

3,038

1,258

514

4,810

(102)

1,037

935

5,745

Income (loss) from continuing operations

9,484

4,215

1,824

15,523

(272)

3,161

2,889

18,412

Discontinued operations:

Income from discontinued operations before income taxes

2,070

2,070

2,070

Income tax expense

473

473

473

Income from discontinued operations, net of tax

1,597

1,597

1,597

Net income

$

9,484

$

4,215

$

1,824

$

15,523

$

1,325

$

3,161

$

4,486

$

20,009

Period-end assets

$

4,907,503

$

750,266

$

41,196

$

5,698,965

$

365,552

$

123,117

$

488,669

$

6,187,634

Net interest margin from continuing operations

 

3.22

%  

 

3.51

%  

 

NM

 

3.25

%  

 

NM

 

NM

 

NM

 

3.55

%  

Net-revenue concentration from continuing operations*

69

%  

9

%  

8

%  

86

%  

1

%  

13

%  

14

%  

100

%  

Three Months Ended September 30, 2020

 

Three Months Ended March 31, 2022

 

Core Banking

Republic Processing Group

 

Core Banking

Republic Processing Group

 

    

    

    

    

    

Total

    

    

Tax

Republic

    

    

 

    

    

    

    

    

Total

    

    

Tax

Republic

    

    

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income

$

38,753

$

7,345

$

300

$

46,398

$

675

$

4,976

$

5,651

$

52,049

$

36,148

$

4,515

$

204

$

40,867

$

15,404

$

6,341

$

21,745

$

62,612

Provision for expected credit loss expense

 

5,857

 

(3)

 

 

5,854

 

 

(12)

 

(12)

 

5,842

 

320

 

(401)

 

 

(81)

 

7,912

 

1,395

 

9,307

 

9,226

Net refund transfer fees

 

 

 

 

 

12,051

 

 

12,051

 

12,051

Mortgage banking income

 

 

 

10,775

 

10,775

 

 

 

 

10,775

 

 

 

2,657

 

2,657

 

 

 

 

2,657

Program fees

643

844

1,487

1,487

727

3,127

3,854

3,854

Contract termination fee

5,000

5,000

5,000

Other noninterest income

 

7,138

 

(21)

 

21

 

7,138

 

 

 

 

7,138

 

7,234

 

13

 

34

 

7,281

 

158

 

 

158

 

7,439

Total noninterest income

 

7,138

 

(21)

 

10,796

 

17,913

 

643

 

844

 

1,487

 

19,400

 

7,234

 

13

 

2,691

 

9,938

 

17,936

 

3,127

 

21,063

 

31,001

Total noninterest expense

 

36,415

 

1,875

 

2,832

 

41,122

 

1,481

 

1,175

 

2,656

 

43,778

 

38,219

 

952

 

2,690

 

41,861

 

5,145

 

1,567

 

6,712

 

48,573

Income (loss) from continuing operations before income tax expense

 

3,619

 

5,452

 

8,264

 

17,335

 

(163)

 

4,657

 

4,494

 

21,829

Income tax expense (benefit)

 

558

 

1,226

 

1,736

 

3,520

 

(40)

 

1,074

 

1,034

 

4,554

Income (loss) from continuing operations

3,061

4,226

6,528

13,815

(123)

3,583

3,460

17,275

Discontinued operations:

Income from discontinued operations before income taxes

3,997

3,997

3,997

Income before income tax expense

 

4,843

 

3,977

 

205

 

9,025

 

20,283

 

6,506

 

26,789

 

35,814

Income tax expense

883

883

883

472

904

45

1,421

4,906

1,561

6,467

7,888

Income from discontinued operations, net of tax

3,114

3,114

3,114

Net income

$

3,061

$

4,226

$

6,528

$

13,815

$

2,991

$

3,583

$

6,574

$

20,389

$

4,371

$

3,073

$

160

$

7,604

$

15,377

$

4,945

$

20,322

$

27,926

Period-end assets

$

4,769,848

$

1,026,790

$

61,809

$

5,858,447

$

269,337

$

112,662

$

381,999

$

6,240,446

$

4,984,918

$

689,204

$

28,573

$

5,702,695

$

552,101

$

95,073

$

647,174

$

6,349,869

Net interest margin from continuing operations

 

3.22

%  

 

3.41

%  

 

NM

 

3.25

%  

 

NM

 

NM

 

NM

 

3.57

%  

Net interest margin

 

2.90

%  

 

3.09

%  

 

NM

 

2.92

%  

 

NM

 

NM

 

NM

 

4.30

%  

Net-revenue concentration from continuing operations*

64

%  

10

%  

16

%  

90

%  

2

%  

8

%  

10

%  

100

%  

Net-revenue concentration*

46

%  

5

%  

3

%  

54

%  

36

%  

10

%  

46

%  

100

%  

Three Months Ended March 31, 2021

 

Core Banking

Republic Processing Group

 

    

    

    

    

    

Total

    

    

Tax

Republic

    

    

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income

$

41,102

$

6,772

$

409

$

48,283

$

14,676

$

4,821

$

19,497

$

67,780

Provision for expected credit loss expense

 

(5)

 

(242)

 

 

(247)

 

15,884

 

(375)

 

15,509

 

15,262

Net refund transfer fees

 

 

 

 

 

12,721

 

 

12,721

 

12,721

Mortgage banking income

 

 

 

7,193

 

7,193

 

 

 

 

7,193

Program fees

896

1,329

2,225

2,225

Other noninterest income

 

6,784

 

14

 

28

 

6,826

 

72

 

 

72

 

6,898

Total noninterest income

 

6,784

 

14

 

7,221

 

14,019

 

13,689

 

1,329

 

15,018

 

29,037

Total noninterest expense

 

37,328

 

1,028

 

3,121

 

41,477

 

5,302

 

1,032

 

6,334

 

47,811

Income before income tax expense

 

10,563

 

6,000

 

4,509

 

21,072

 

7,179

 

5,493

 

12,672

 

33,744

Income tax expense

 

2,125

 

1,434

 

992

 

4,551

 

1,770

 

1,370

 

3,140

 

7,691

Net income

$

8,438

$

4,566

$

3,517

$

16,521

$

5,409

$

4,123

$

9,532

$

26,053

Period-end assets

$

4,789,840

$

865,655

$

78,760

$

5,734,255

$

625,690

$

116,595

$

742,285

$

6,476,540

Net interest margin

 

3.47

%  

 

3.43

%  

 

NM

 

3.46

%  

 

NM

 

NM

 

NM

 

4.66

%  

Net-revenue concentration*

50

%  

7

%  

8

%  

65

%  

29

%  

6

%  

35

%  

100

%  

*      Net revenue from continuing operations represents net interest income plus total noninterest income from continuing operations.income. Net-revenue concentration from continuing operations equals segment-level net revenue from continuing operations divided by total Company net revenue from continuing operations.

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Table of Contents

Nine Months Ended September 30, 2021

 

Core Banking

Republic Processing Group

 

    

    

    

    

    

Total

    

    

Tax

Republic

    

    

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income

$

119,677

$

19,387

$

802

$

139,866

$

665

$

14,794

$

15,459

$

155,325

Provision for expected credit loss expense

 

(126)

 

(530)

 

 

(656)

 

 

5,037

 

5,037

 

4,381

Mortgage banking income

 

 

 

16,655

 

16,655

 

 

 

 

16,655

Program fees

2,374

7,930

10,304

10,304

Other noninterest income

 

22,862

 

43

 

140

 

23,045

 

(7)

 

 

(7)

 

23,038

Total noninterest income

 

22,862

 

43

 

16,795

 

39,700

 

2,367

 

7,930

 

10,297

 

49,997

Total noninterest expense

 

110,192

 

3,150

 

9,384

 

122,726

 

4,239

 

3,028

 

7,267

 

129,993

Income (loss) from continuing operations before income tax expense

 

32,473

 

16,810

 

8,213

 

57,496

 

(1,207)

 

14,659

 

13,452

 

70,948

Income tax expense (benefit)

6,718

3,919

1,807

12,444

(373)

3,637

3,264

15,708

Income (loss) from continuing operations

25,755

12,891

6,406

45,052

(834)

11,022

10,188

55,240

Discontinued operations:

Income from discontinued operations before income taxes

19,584

19,584

19,584

Income tax expense

4,840

4,840

4,840

Income from discontinued operations, net of tax

14,744

14,744

14,744

Net income

$

25,755

$

12,891

$

6,406

$

45,052

$

13,910

$

11,022

$

24,932

$

69,984

Period-end assets

$

4,907,503

$

750,266

$

41,196

$

5,698,965

$

365,552

$

123,117

$

488,669

$

6,187,634

Net interest margin from continuing operations

 

3.21

%  

 

3.47

%  

 

NM

 

3.24

%  

 

NM

 

NM

 

NM

 

3.46

%  

Net-revenue concentration from continuing operations*

70

%  

9

%  

9

%  

88

%  

1

%  

11

%  

12

%  

100

%  

Nine Months Ended September 30, 2020

 

Core Banking

Republic Processing Group

 

    

    

    

    

    

Total

    

    

Tax

Republic

    

    

 

Traditional

Warehouse

Mortgage

Core

Refund

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Banking

Solutions

Solutions

RPG

Company

 

Net interest income

$

118,409

$

17,715

$

932

$

137,056

$

1,622

$

17,655

$

19,277

$

156,333

Provision for expected credit loss expense

 

14,526

 

778

 

 

15,304

 

 

251

 

251

 

15,555

Mortgage banking income

 

 

 

23,968

 

23,968

 

 

 

 

23,968

Program fees

1,573

3,676

5,249

5,249

Other noninterest income

 

20,499

 

7

 

53

 

20,559

 

(15)

 

 

(15)

 

20,544

Total noninterest income

 

20,499

 

7

 

24,021

 

44,527

 

1,558

 

3,676

 

5,234

 

49,761

Total noninterest expense

 

109,750

 

3,489

 

7,517

 

120,756

 

5,360

 

2,972

 

8,332

 

129,088

Income (loss) from continuing operations before income tax expense

 

14,632

 

13,455

 

17,436

 

45,523

 

(2,180)

 

18,108

 

15,928

 

61,451

Income tax expense (benefit)

 

1,747

 

3,027

 

3,662

 

8,436

 

(517)

 

4,188

 

3,671

 

12,107

Income (loss) from continuing operations

12,885

10,428

13,774

37,087

(1,663)

13,920

12,257

49,344

Discontinued operations:

Income from discontinued operations before income taxes

17,550

17,550

17,550

Income tax expense

4,004

4,004

4,004

Income from discontinued operations, net of tax

13,546

13,546

13,546

Net income

$

12,885

$

10,428

$

13,774

$

37,087

$

11,883

$

13,920

$

25,803

$

62,890

Period-end assets

$

4,769,848

$

1,026,790

$

61,809

$

5,858,447

$

269,337

$

112,662

$

381,999

$

6,240,446

Net interest margin from continuing operations

 

3.41

%  

 

3.07

%  

 

NM

 

3.37

%  

 

NM

 

NM

 

NM

 

3.69

%  

Net-revenue concentration from continuing operations*

67

%  

9

%  

12

%  

88

%  

2

%  

10

%  

12

%  

100

%  

*      Net revenue from continuing operations represents net interest income plus total noninterest income from continuing operations. Net-revenue concentration from continuing operations equals segment-level net revenue from continuing operations divided by total Company net revenue from continuing operations.revenue.

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17. DISCONTINUED OPERATIONS

On May 13, 2021, the Bank entered into the Purchase Agreement with Green Dot providing for the Sale Transaction. As a result of the Purchase Agreement and the proposed Sale Transaction, the results for the Company, RPG, and its TRS segment are presented within this filing to reflect continuing versus discontinued operations. RPG’s continuing operations include its RCS segment, its RPS division, and certain overhead costs previously allocated to TRS that will remain with RPG. Discontinued operations are those contracted to be sold. These discontinued operations have historically contained the majority of TRS’s revenue and expense. Interest income and expense for continuing and discontinued operations also include intercompany interest charged and earned based on the Company’s funds transfer pricing methodology.

On October 4, 2021, Green Dot announced that it had been unable to obtain the Federal Reserve’s approval of or non-objection to the Sale Transaction and that, as a result, Green Dot would not consummate the Sale Transaction. On October 5, 2021, the Bank filed a lawsuit against Green Dot in the Delaware Court of Chancery alleging breach of contract. In so doing, the Bank seeks, among other relief, specific performance to require that Green Dot proceed with the Sale Transaction as the parties had agreed to in the Purchase Agreement. Due to the inherent uncertainties of legal proceedings, at this time, the Company cannot predict the outcome of these proceedings and their impact on the Company’s financial condition and results of operations.

Results of operations for the TRS business sold to Green Dot are presented separately as discontinued operations for all periods because the sale met the relevant criteria as of September 30, 2021. A summary income statement of discontinued operations for the three and nine months ended September 30, 2021 is presented below:

Three Months Ended

    

Nine Months Ended

 

September 30, 

September 30, 

(in thousands)

2021

2020

2021

2020

INTEREST INCOME:

Loans, including fees

$

76

$

135

$

14,815

$

20,978

Funds transfer credit

 

51

 

70

 

313

 

1,543

Total interest income

 

127

 

205

 

15,128

 

22,521

INTEREST EXPENSE:

Deposits

 

 

 

 

527

Funds transfer cost

 

4

 

2

 

200

 

1,132

Total interest expense

 

4

 

2

 

200

 

1,659

NET INTEREST INCOME

 

123

 

203

 

14,928

 

20,862

Provision for expected credit loss expense

 

(2,261)

 

(4,342)

 

7,850

 

15,239

NET INTEREST INCOME AFTER PROVISION

 

2,384

 

4,545

 

7,078

 

5,623

NONINTEREST INCOME:

Net refund transfer fees

 

1,280

 

1,152

 

19,922

 

19,888

Interchange fee income

 

63

 

37

 

232

 

178

Other

 

1

 

8

 

78

 

90

Total noninterest income

 

1,344

 

1,197

 

20,232

 

20,156

NONINTEREST EXPENSE:

Salaries and employee benefits

 

1,043

 

1,460

 

4,268

 

4,208

Technology, equipment, and communication

 

86

 

131

 

260

 

461

Occupancy

 

 

 

1

 

7

Marketing and development

 

45

 

55

 

160

 

196

FDIC insurance expense

 

 

 

150

 

Bank franchise tax expense

 

9

 

2

 

14

 

1,729

Legal and professional fees

303

8

1,382

173

Other

 

172

 

89

 

1,491

 

1,455

Total noninterest expense

 

1,658

 

1,745

 

7,726

 

8,229

INCOME FROM DISCONTINUED OPERATIONS BEFORE INCOME TAX EXPENSE

 

2,070

 

3,997

 

19,584

 

17,550

INCOME TAX EXPENSE

 

473

 

883

 

4,840

 

4,004

INCOME FROM DISCONTINUED OPERATIONS

$

1,597

$

3,114

$

14,744

$

13,546

Through its TRS business, 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”). Substantially all of 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.

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 0 credit risk or borrowing cost associated with these products because they are only delivered to the

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Table of Contents

taxpayer upon receipt of the tax refund directly from the governmental paying authority. Fees earned by the Company on RTs, net of revenue share, are reported as noninterest income under the line item “Net refund transfer fees.”

The EA tax credit product is a loan that allows a taxpayer to borrow funds as an advance of a portion of their tax refund. The EA product had the following features during 2021 and 2020:

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

During 2020, EAs were generally repaid within 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. EAs do not have a contractual due date but the Company considered an EA delinquent if it remained unpaid 21 days in 2020 and 35 days in 2021 after the taxpayer’s tax return was submitted to the applicable taxing authority. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. Provisions on EAs are estimated when advances are made. Unpaid EAs are charged-off by June 30th of each year, with EAs collected during the second half of each year recorded as recoveries of previously charged-off loans.

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 payment patterns. Because the substantial majority of the EA 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.

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Table of Contents

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

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

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

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

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 the COVID-19COVID pandemic on Company operations;
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;descriptions and projections related to management strategies for loans, deposits, investments and borrowings;
statements relating to the completionforecasts of the Sale Transaction and the potential timing thereof;future economic performance; and
descriptions of assumptions underlying or relating to any of the foregoing.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to the following:

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

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inflation;
recession;
future acquisitions;

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integrations of acquired businesses;
changes in technology;
changes in applicable laws and regulations or the interpretation and enforcement thereof;
changes in fiscal, monetary, regulatory, and tax policies;
changes in accounting standards;
monetary fluctuations;
changes to the Company’s overall internal control environment;
success in gaining regulatory approvals when required;
the Company’s ability to qualify for future R&D federal tax credits;
risks related to the completion of the proposed Sale Transaction and the potential timing thereof;
disruption from the proposed Sale Transaction making it difficult to maintain business and operational relationships, including retaining and hiring key personnel and maintaining relationships with the Bank’s customers, vendors and others with whom the Bank does business;
the risk of litigation and/or regulatory actions related to the proposed Sale Transaction;
information security breaches or cyber security attacks involving either the Company or one of the Company’s third-party service providers; and
other risks and uncertainties reported from time to time in the Company’s filings with the SEC, including Part 1I Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021 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 fiscal year ended December 31, 2020.2021.

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.

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ACLL and Provision — As of September 30, 2021,March 31, 2022, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the ACLL monthly and presents and discusses the ACLL with the Audit Committee and the Board of Directors quarterly.

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

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

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

Adjustments to the historical loss rate for current conditions include differences in underwriting standards, portfolio mix or term, delinquency level, as well as for changes in environmental conditions, such as changes in property values or other relevant factors.

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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.

The impact of utilizing the CECL approach to calculate 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.

See additional detail regarding the Company’s adoption of ASC 326 and the CECL method under Footnote 1“Summary of Significant Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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BUSINESS SEGMENT COMPOSITION

As of September 30, 2021,March 31, 2022, the Company was divided into five reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute RPG operations.

(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, 2021,March 31, 2022, Republic had 42 full-service banking centers with locations as follows:

Kentucky — 28

Metropolitan Louisville — 18

Central Kentucky — 7

Georgetown — 1

Lexington — 5

Shelbyville — 1

Northern Kentucky — 3

Covington — 1

Crestview Hills — 1

Florence — 1

Southern Indiana — 3

Floyds Knobs — 1

Jeffersonville — 1

New Albany — 1

Metropolitan Tampa, Florida — 7

Metropolitan Cincinnati, Ohio — 2

Metropolitan Nashville, Tennessee — 2

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.loans and HELOCs. In addition, the Bank originates HEALs and HELOCs 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 theits Consumer Direct channel are generally secured by owner occupied-collateral located outside of the Bank’s market footprint.

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

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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.

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Aircraft LendingIn October 2017, the Bank created an Aircraft Lending division. Aircraft loans are typically made to purchase or refinance personal aircrafts, along with engine overhauls and avionic upgrades. Loans range between $55,000 and $3,000,000 in size and have terms up to 20 years. The aircraft loan program is open to all states, except for Alaska and Hawaii.

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.

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. Reverse mortgage loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each individual loan during the time the loan remains on the warehouse line and collected when the loan is sold. The Core Bank receives the sale proceeds of each loan directly from the investor and applies the funds to pay off the warehouse advance and related accrued interest and fees. The remaining proceeds are credited to the mortgage-banking client.

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

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(III)  Mortgage Banking segment

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

See additional detail regarding the Mortgage Banking segment 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 U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). Substantially all of 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.

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

The EA tax credit product is a loan that allows a taxpayer to borrow funds as an advance of a portion of their tax refund. The EA product had the following features during 2022 and 2021:

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

The Company reports fees paid for the EA product as interest income on loans. During 2021, EAs were repaid, on average, within 32 days after the taxpayer’s tax return was submitted to the applicable taxing authority. EAs do not have a contractual due date but the Company considered an EA delinquent in 2022 and 2021 if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. Provisions on EAs are estimated when advances are made. Unpaid EAs are charged-off by June 30th of each year, with EAs collected during the second half of each year recorded as recoveries of previously charged-off loans.

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 payment patterns. Because the substantial majority of the EA 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 EAs product parameters. Further changes in EA product parameters do not ensure positive results and could have an overall material negative impact on the performance of the EA product offering and therefore on the Company’s financial condition and results of operations.

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(IV)  Tax Refund Solutions segment

Tax Refund Solutions segment — On May 13, 2021, the Bank entered into the Purchase Agreement with Green Dot providing for the Sale Transaction. As a result of the Purchase Agreement and the proposed Sale Transaction, the results for the Company, RPG, and its TRS segment are presented within this filing to reflect continuing versus discontinued operations. RPG’s continuing operations include its RCS segment, its RPS division, and certain overhead costs previously allocated to TRS that will remain with RPG. Discontinued operations are those contracted to be sold. These discontinued operations have historically contained the majority of TRS’s revenue and expense. Interest income and expense for continuing and discontinued operations also include intercompany interest charged and earned based on the Company’s funds transfer pricing methodology.

On October 4, 2021, Green Dot announced that it had been unable to obtain the Federal Reserve’s approval of or non-objection to the Sale Transaction and that, as a result, Green Dot would not consummate the Sale Transaction. On October 5, 2021, the Bank filed a lawsuit against Green Dot in the Delaware Court of Chancery alleging breach of contract. In so doing, the Bank seeks, among other relief, specific performance to require that Green Dot proceed with the Sale Transaction as the parties had agreed to in the Purchase Agreement. Due to the inherent uncertainties of legal proceedings, at this time, the Company cannot predict the outcome of these proceedings and their impact on the Company’s financial condition and results of operations.

See additional detail regarding the Bank’s agreement to sell TRSEA product under Footnote 17 “Discontinued Operations”4 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”

Cancelled TRS Sale Transaction - As previously disclosed, Green Dot Corporation paid RB&T a contract termination fee of $5.0 million during the first quarter of 2022 after RB&T provided Green Dot a notice of termination of the May 2021 Purchase Agreement for the sale of substantially all of RB&T’s TRS assets and operations to Green Dot. RB&T continues to pursue other legal remedies against Green Dot related to the Sale Transaction. The Company recorded the contract termination fee within noninterest income during the first quarter of 2022.

Republic Payment Solutions division

RPS is currently managed and operated within the TRS segment’s continuing operations.segment. The RPS division offers general-purpose reloadable prepaid cards, payroll debit cards, and limited-purpose demand deposit accounts with linked debit cards as an issuing bank through third-party service providers. 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’s continuing operations.segment. The RPS division will not be considered a separate reportable segment until such time, if any, that it meets quantitative reporting thresholds.thresholds.

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

 (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. The first of these two products (the “LOC I”) has been originated by the Bank since 2014. The second (the “LOC II”) was introduced in January 2021.

oRCS’s LOC I representsrepresented the substantial majority of RCS activity.activity during 2021. Elastic Marketing, LLC and Elevate Decision Sciences, LLC are third-party service providers for the product and are subject to the Bank’s oversight and supervision. Together, these companies provide the Bank with certain marketing, servicing, technology, and support services, while a separate third party provides customer support, servicing, and other services on the Bank’s behalf. The Bank is the lender for this product and is marketed as such. Further, 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.

oIn January 2021, RCS began originating balances through its LOC II. One of RCS’s existing third-party service providers, subject to the Bank’s oversight and supervision, provides the Bank with marketing services and loan

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

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RCS installment loan product – In December 2019, through RCS, the Bank began offering 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 itsa third-party, who is an affiliate of the Bank’s third-party service provider, generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through two different third-party service providers. In one program, the Bank retains 100% of the receivables originated. In the other program, the Bank retains 100% of the receivables originated in some instances, and in other instances, sells 100% of the receivables within one month of origination. Loan balances held for sale through this program are carried at the lower of cost or fair value.

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

OVERVIEW (Three Months Ended September 30, 2021March 31, 2022 Compared to Three Months Ended September 30, 2020)March 31, 2021)

Total Company net income for the thirdfirst quarter of 20212022 was $20.0$27.9 million, a $380,000, or 2%, decrease from the same period in 2020. Diluted EPS was $0.99 for the three months ended September 30, 2021, an increase of approximately 1% compared to $0.98 for the same period in 2020. The 3% difference between the 2% decrease in net income and the 1% increase in Diluted EPS of the Company represents the benefit of the Company’s on-going stock buyback program. As of September 30, 2021, the stock buyback program has reduced the number of shares outstanding by approximately 748,000 shares since the buyback was implemented in early 2021. The decrease in net income reflected a $1.5 million decrease in net income from discontinued operations, driven by a change in the timing of Easy Advance recoveries, as the Company received a higher rate and a higher volume of EA recoveries during the third quarter of 2020 compared to the third quarter of 2021.

Net income from continuing operations was $18.4 million for the third quarter of 2021, a $1.1$1.9 million, or 7%, increase from the same period in 2020.2021. Diluted EPS from continuing operations was $0.91increased to $1.40 for the three months ended September 30, 2021, an increasefirst quarter of approximately 10% over the $0.832022 compared to $1.25 for the same period in 2020.2021. The overall increase in net income from continuing operations generallyprimarily reflected an increase in RPG program fees,the benefit of a $5.0 million pre-tax contract termination fee and a positive reduction in Provision, partially offset by a reductiondecrease in net interest income and Mortgage Banking income. Compared to the first quarter of 2022, the first quarter of 2021 was significantly and positively impacted by strong fee income from the Paycheck Protection Program and higher demand for mortgage refinancing, driving strong mortgage banking income.

The following are general highlights by reportable segment. Discontinued operations for the periods discussed relate entirely to the TRS segment.

See additional detail regarding the Bank’s agreement to sell TRS under Footnote 17 “Discontinued Operations” of Part I Item 1 “Financial Statements.”segment:

Traditional Banking segment

Net income increased $6.4decreased $4.1 million, or 48%, for the thirdfirst quarter of 20212022 compared to the same period in 2020.2021.

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Net interest income increased $1.5decreased $5.0 million, or 4%12%, for the thirdfirst quarter of 20212022 compared to the same period in 2020. The Traditional Bank’s net interest margin remained at 3.22% for the third quarter of 2021.

Provision decreased $5.9 millionwas a net charge of $320,000 for the first quarter of 2022 compared to a net credit of $44,000 for the third quarter of 2021 compared to a net charge of $5.9 million$5,000 for the same period in 2020.2021.

Noninterest income increased $970,000,$450,000, or 14%7%, for the thirdfirst quarter of 20212022 compared to the same period in 2020.2021.

Noninterest expense increased $891,000, or 2%, for the first quarter of 2022 compared to the same period in 2021.

Total noninterest expense decreased $488,000,Traditional Bank loans increased $69 million, or 1%2%, forduring the thirdfirst quarter of 2021 compared to same period in 2020.2022, driven primarily by strong CRE loan growth.

Total nonperforming loans to total loans for the Traditional Banking segment was 0.47% as of March 31, 2022 compared to 0.59% as of December 31, 2021.

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

Total Traditional Bank deposits increased $94 million, or 2%, during the first quarter of 2022.

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Warehouse Lending segment

Net income remained at $4.2decreased $1.5 million, or 33%, for the thirdfirst quarter of 20212022 compared to the same period in 2020.2021.

Net interest income decreased $1.1$2.3 million, or 14%33%, for the thirdfirst quarter of 20212022 compared to the same period in 2020.2021.

The Warehouse Provision was a net credit of $223,000$401,000 for the thirdfirst quarter of 20212022 compared to a net credit of $3,000$242,000 for the same period in 2020.2021.

Average committed Warehouse lines increaseddecreased to $1.4 billion duringin the thirdfirst quarter of 2021 from $1.32022 compared to $1.5 billion duringin the same period in 2020.first quarter of 2021.

Average line usage was 51%42% during the thirdfirst quarter of 20212022 compared to 68%54% during the same period in 2020.2021.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income decreased $5.5$4.5 million, or 51%63%, during the thirdfirst quarter of 20212022 compared to the same period in 2020.2021.

Overall, Republic’s originationsproceeds from sale of secondary market loans totaled $170$119 million during the thirdfirst quarter of 20212022 compared to $204 million during the same period in 2020,2021, with the Company’s cash gain-as-a-percent-of-loans-soldcash-gain-as-a-percent-of-loans-sold decreasing to 2.29% from 4.49% to 2.94%3.95% from period to period.

Tax Refund Solutions segment

Continuing Operations

Net income increased $10.0 million, or 184%, for the first quarter of 2022 compared to the same period in 2021.

Net loss from continuing operations was $272,000interest income increased $728,000, or 5%, for the thirdfirst quarter of 20212022 compared to a net loss of $123,000 for the same period in 2020. 2021.

Discontinued Operations

Net income from discontinued operations decreased $1.5Total EA originations were $311 million during the first quarter of 2022 compared to $250 million for the thirdfirst quarter of 2021 compared to the same period in 2020.2021.

Overall, TRS recorded a net creditcharge to the Provision from discontinued operations of $2.3$7.9 million during the thirdfirst quarter of 20212022 compared to a net creditcharge to the Provision of $4.3$15.9 million for the same period in 2020.2021.

Noninterest income from discontinued operations increased $147,000, or 12%,$4.2 million for the thirdfirst quarter of 20212022 compared to the same period in 2020.2021. Noninterest income for the first quarter of 2022 included a $5.0 million contract termination fee.

Net RT revenue from discontinued operations increased to $1.3 milliondecreased $670,000 for the thirdfirst quarter of 20212022 compared to $1.2 million for the same period in 2020.2021.

Noninterest expense from discontinued operations was $1.7$5.1 million for the thirdfirst quarter of 2021, equal2022 compared to $1.7$5.3 million for the same period in 2020.2021.

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

2021

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

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

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2022

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

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

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

4)The Bank received a $5.0 million termination fee in January 2022 following the cancellation of the Sales Transaction.

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

Conversely, the timing of the IRS tax season during the first quarter of 2022 was more in-line with non-COVID seasons than the first quarter of 2021. As a result, the Company believes that it likely received a greater percentage of its funded RT volume in the first quarter of 2022 as compared to 2021, and that it likely received a greater percentage of its EA loan repayments in the first quarter of 2022 than it did during 2021. This estimated timing, if correct, generally provided more favorable first quarter 2022 results for TRS as compared to the first quarter of 2021, but will likely provide for less favorable quarterly comparisons throughout the remainder of 2022 as compared to 2021.

In addition to the more normal timing of the tax season in 2022 as compared to 2021, the first quarter 2022 tax season was also favorably impacted by a contractual change with one of the Company’s large Tax Providers. As a result of the amended contract, TRS provides this tax provider a revenue share, while this tax provider covers certain overhead costs of the program and furnishes to RB&T a loan loss guaranty for EAs originated through this provider. Through this specific provider, TRS originated $172 million of EAs during the first quarter of 2022 as compared to $135 million originated during the first quarter of 2021. The net cost of the revenue share to the provider from RB&T was approximately $268,000 for the $172 million of EA volume. Under the amended contract, during the first quarter of 2022 the net benefit to TRS of the covered overhead costs and to the Provision from the loan loss guaranty was approximately $3.0 million.

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

As a net result of all the factors in the preceding paragraphs, TRS experienced a significant net positive improvement to its first quarter 2022 tax results as compared to the first quarter of 2021. Because many of these factors may only be timing in nature, management believes TRS’s results of operations, and more specifically RT revenue and net recoveries for previously charged-off EAs for the remainder of 2022 will likely be negative as compared to the same periods in 2021.

Republic Credit Solutions segment

Net income decreased $422,000,increased $822,000, or 12%20%, for the thirdfirst quarter of 20212022 compared to the same period in 2020.2021.

Net interest income increased $321,000,$1.5 million, or 6%32%, for the thirdfirst quarter of 20212022 compared to the same period in 2020.2021.

Overall, RCS recorded a net charge to the Provision of $3.8$1.4 million during the thirdfirst quarter of 20212022 compared to a net credit of $12,000$375,000 for the same period in 2020.2021.

Noninterest income increased $2.9$1.8 million, or 135%, from the thirdfirst quarter of 20202022 to the thirdfirst quarter of 2021.2022.

Noninterest expense was $1.0$1.6 million for the thirdfirst quarter of 2021 compared to $1.22022 and $1.0 million for the same period in 2020.2021.

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Total nonperforming loans to total loans for the RCS segment was 0.04% as of March 31, 2022 compared to 0.05% as of December 31, 2021.

Delinquent loans to total loans for the RCS segment was 6.47% as of March 31, 2022 compared to 6.48% as of December 31, 2021.

RESULTS OF OPERATIONS (Three Months Ended September 30, 2021March 31, 2022 Compared to Three Months Ended September 30, 2020)March 31, 2021)

Net Interest Income

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

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

A large amount of the Company’s financial instruments track closely with, or are primarily indexed to, either the FFTR, Prime, or LIBOR. These market rates trended lower since the first quarter of 2020 andwith the onset of COVID-19the COVID pandemic, as the FOMC reduced the FFTR to approximately 25 basis points during 2020. TheWith the rise of inflation during the latter half of 2021 and early 2022, the FOMC has provided on-going guidance that it is unlikelyincreased the FFTR will be increasedand announced the end to its quantitative easing program in March 2022. In addition, the FOMC also signaled a more aggressive and hawkish approach to its monetary policies, including additional and larger increases to the FFTR, and monetary tightening through reducing the size of its balance sheet and selling certain types of bonds in the near term.market.

Additional increases in short-termThe FOMC’s actions and signals continued to place upward pressure on long-term market interest rates for bonds and overall market rates are generally believedloans during the first quarter of 2022. Further monetary tightening by management to be favorable to the Bank’s net interest income and net interest marginFederal Reserve in the near term, while additional decreases infuture will likely cause both short-term interest rates and overalllong-term market rates are generally believed by management to be unfavorable to the Bank’s net interest income and net interest margin in the near term. Increases in short-term interest rates, however, could have a negative impact on net interest income and net interest margin if the Bank is unable to maintain its deposit balances and the cost of those deposits at the levels assumed in its interest-rate-risk model. In addition, a flattening or inversion of the yield curve, causing the spread between long-term interest rates and short-term interest rates to decrease, could negativelyincrease during the remainder of 2022. Increases in market interest rates are expected to impact the Company’s net interest incomevarious business segments of the Company differently and net interest margin. Unknown variables, which may impact the Company’s net interest income and net interest marginwill be discussed in further detail 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.sections below.

Total Company net interest income from continuing operations increased $260,000was $62.6 million during the thirdfirst quarter of 2021 compared to2022 and represented a decrease of $5.2 million, or 8%, from the same period in 2020.first quarter of 2021. Total Company net interest margin from continuing operations decreased to 3.55%4.30% during the thirdfirst quarter of 20212022 compared to 3.57%4.66% for the same period in 2020. Net interest income from discontinued operations was $123,000 during the third quarter of 2021 compared to $203,000 during the third quarter of 2020.2021.

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

Traditional Banking segment

The Traditional Banking’s net interest income increased $1.5decreased $5.0 million, or 4%12%, for the thirdfirst quarter of 20212022 compared to the same period in 2020. Traditional Banking’s net interest margin remained at 3.22% for the third quarter of 2021 compared to the same period in 2020.

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Table 1 — Traditional Bank Net Interest Income and Net Interest Margin Excluding PPP (Non-GAAP)

The Company earns fees and a coupon interest of 1.0% on its PPP portfolio. Due to the short-term nature of the PPP, management believes Traditional Bank net interest income excluding PPP fees and interest is a more appropriate measure to analyze the challenges within the Traditional Bank’s net interest income and net interest margin. The following table reconciles Traditional Bank net interest income and net interest margin to Traditional Bank net interest income and net interest margin excluding PPP fees and interest, a non-GAAP measure. Net interest margin excluding PPP fees and interest presented below also excludes average PPP loans of $186 million and $513 million for the quarters ended September 30, 2021 and 2020.

Net Interest Income

Net Interest Margin

Three Months Ended Sep. 30,

Three Months Ended Sep. 30,

(dollars in thousands)

2021

2020

$ Change

% Change

2021

2020

Change

Traditional Banking - GAAP

$

40,297

$

38,753

$

1,544

4

%

3.22

%

3.22

%

%

Less: PPP fees and interest

5,668

3,497

2,171

62

0.35

(0.06)

0.41

Traditional Banking ex PPP fees and interest - non-GAAP

$

34,629

$

35,256

$

(627)

(2)

%

2.87

3.28

(0.41)

The increase in the Traditional Bank’s net interest income and static net interest margin during the third quarter of 2021 was primarily attributable to the following factors:

The Traditional Bank recognized $5.7 million of fees and interest on its PPP portfolio during the third quarter of 2021 compared to $3.5 million of similar fees and interest during the same period in 2020. The $2.2 million increase in PPP fees and interest was driven significantly by the forgiveness, payoff, and paydown of $130 million of PPP loans during the third quarter of 2021. As of September 30, 2021, net PPP loans of $126 million remained on the Traditional Bank’s balance sheet, including $19 million in loan balances originated during 2020, $111 million in loan balances originated during 2021, and $4 million of unaccreted PPP fees reported as a credit offset to these originated balances. Unaccreted PPP fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated.

Traditional Bank net interest income, excluding PPP fees and interest, decreased $627,000, or 2%, from the third quarter 2020, as the Traditional Bank’s net interest margin, excluding PPP loans and related fees and interest, declined from 3.28% for the third quarter of 2020 to 2.87% for the third quarter of 2021. The decline in the net interest margin was substantially driven by a 66-basis point decline in the Traditional Bank’s yield on its average non-PPP interest-earning assets from the third quarter of 2020 to the third quarter of 2021, as the majority of the Traditional Bank’s growth in non-PPP interest-earning assets during the previous 12 months was in lower-yielding cash instead of loans.

Warehouse Lending segment

Net interest income from the Warehouse segment decreased $1.1 million, or 14%, from the third quarter of 2020 to the third quarter of 2021 driven primarily by a decrease in average outstanding balances, while the net interest margin for the Warehouse segment increased from 3.41% to 3.51% during the same time periods.

Overall average outstanding Warehouse balances declined from $860 million during the third quarter of 2020 to $717 million for the third quarter of 2021, as home-mortgage refinancing dipped from record highs during 2020. Committed Warehouse lines-of-credit grew to $1.4 billion as of September 30, 2021 from $1.3 billion as of September 30, 2020, while average usage rates for Warehouse lines were 51% and 68%, respectively, during the third quarters of 2021 and 2020.

The net interest margin for the Warehouse segment improved from quarter to quarter due to a decline in the segment’s assigned cost of funds while many of the segment’s lines-of-credit reached contractual floors for their interest rates, allowing the yield for the Warehouse portfolio to remain higher than it otherwise would have been by contractual formula. Due to increasing competitive pressures, however, the Company began lowering the contractual interest-rate floors on its Warehouse lines during the third quarter of 2021. Management expects these lower floors to have a negative impact on the Warehouse net interest margin going forward.

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Republic Credit Solutions segment

RCS’s net interest income increased $321,000, or 6%, from the third quarter of 2020 to the third quarter of 2021. The increase was driven primarily by an increase in fee income from RCS’s LOC I product. Loan fees on this product, recorded as interest income on loans, increased to $4.2 million during the third quarter of 2021 compared to $4.0 million during the same period in 2020 and accounted for 77% and 76% of all RCS interest income on loans during the periods. The increase in loan fees was the direct result of a change in marketing strategy for the product from period to period.

Future loan fee income from RCS’s LOC I product may be negatively impacted by the on-going COVID-19 pandemic.

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Table 2 — Total Company Average Balance Sheets and Interest Rates from Continuing Operations

Three Months Ended September 30, 2021

Three Months Ended September 30, 2020

    

Average

    

    

Average

    

Average

    

    

Average

 

(dollars in thousands)

    

Balance

    

Interest

    

Rate

    

Balance

    

Interest

    

Rate

ASSETS (1)

Interest-earning assets:

 

Federal funds sold and other interest-earning deposits

$

924,859

$

359

 

0.16

%  

  

  

$

313,281

$

94

 

0.12

%  

Investment securities, including FHLB stock (2)

555,934

1,928

 

1.39

600,943

2,363

 

1.57

Intercompany funds loaned to discontinued operations

5,964

4

0.27

2,316

1

0.17

RCS LOC I product (3) (7)

19,231

4,166

86.65

17,369

3,996

92.03

Other RPG loans (7)

 

109,317

 

1,212

 

4.43

 

97,379

 

1,137

 

4.67

Outstanding Warehouse lines of credit (4) (7)

717,036

6,698

3.74

860,420

7,966

3.70

Paycheck Protection Program loans (5) (7)

185,931

5,668

12.19

513,201

3,497

2.73

All other Core Bank loans (6) (7)

 

3,373,085

 

33,665

 

3.99

 

3,419,261

 

36,851

 

4.31

Total interest-earning assets

 

5,891,357

 

53,700

 

3.65

 

5,824,170

 

55,905

 

3.84

Allowance for credit losses

 

(61,562)

 

(55,213)

Noninterest-earning assets:

Noninterest-earning cash and cash equivalents

 

133,743

 

92,731

Premises and equipment, net

 

38,242

 

42,167

Bank owned life insurance

 

99,386

 

67,447

Other assets (2)

 

186,848

 

180,236

Total assets

$

6,288,014

$

6,151,538

LIABILITIES AND STOCKHOLDERS’ EQUITY (1)

Interest-bearing liabilities:

Transaction accounts

$

1,569,407

$

91

 

0.02

%  

$

1,366,830

$

178

 

0.05

%  

Money market accounts

 

822,190

96

 

0.05

 

734,203

 

235

 

0.13

Time deposits

 

298,179

835

 

1.12

 

409,088

 

2,025

 

1.98

Reciprocal money market and time deposits

188,357

 

124

 

0.26

 

292,948

 

378

 

0.52

Brokered deposits

 

30,001

 

2

 

0.03

 

135,994

 

60

 

0.18

Total interest-bearing deposits

 

2,908,134

 

1,148

 

0.16

 

2,939,063

 

2,876

 

0.39

SSUARs

 

242,867

21

 

0.03

 

213,010

22

 

0.04

Intercompany funds borrowed from discontinued operations

43,259

50

0.46

28,732

70

0.97

Federal Reserve PPP Liquidity Facility

 

53,338

48

0.36

Federal Home Loan Bank advances

 

25,000

6

 

0.10

 

126,250

658

 

2.08

Subordinated note

 

40,792

166

 

1.63

 

41,240

182

 

1.77

Total interest-bearing liabilities

 

3,260,052

 

1,391

 

0.17

 

3,401,633

 

3,856

 

0.45

Noninterest-bearing liabilities and Stockholders’ equity:

Noninterest-bearing deposits

 

2,074,941

 

1,817,820

Other liabilities

 

104,086

 

120,734

Stockholders’ equity

 

848,935

 

811,351

Total liabilities and stockholders’ equity

$

6,288,014

$

6,151,538

Net interest income

$

52,309

$

52,049

Net interest spread

 

3.48

%  

 

3.39

%  

Net interest margin

 

3.55

%  

 

3.57

%  

(1)The table above excludes average assets, average liabilities, interest income, and interest expense for discontinued operations; however, loans to and borrowings from discontinued operations are included above based on the Company’s funds transfer pricing methodology. Net interest income would be $52.4 million and $52.3 million and net interest margin would be 3.56% and 3.59% for the quarters ended September 30, 2021 and 2020 if continuing and discontinued operations were consolidated above.
(2)For the purpose of this calculation, the fair market value adjustment on debt securities is included as a component of other assets.
(3)Interest income is entirely composed of loan fees.
(4)Interest income includes loan fees of $779,000 and $942,000 for the quarters ended September 30, 2021 and 2020.
(5)Interest income includes loan fees of $5.2 million and $2.1 million for the quarters ended September 30, 2021 and 2020.
(6)Interest income includes loan fees of $1.2 million and $680,000 for the quarters ended September 30, 2021 and 2020.
(7)Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs.

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Table 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 from continuing operations 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 from Continuing Operations

Three Months Ended September 30, 2021

Compared to

Three Months Ended September 30, 2020

Total Net

Increase / (Decrease) Due to

(in thousands)

    

Change

    

Volume

    

Rate

    

Interest income:

Federal funds sold and other interest-earning deposits

$

265

$

230

$

35

Investment securities, including FHLB stock

(435)

(169)

(266)

Intercompany funds loaned to discontinued operations

3

2

1

RCS LOC I product

170

412

(242)

Other RPG loans

 

75

 

135

 

(60)

Outstanding Warehouse lines of credit

(1,268)

(1,339)

71

Paycheck Protection Program loans

2,171

(3,432)

5,603

All other Core Bank loans

 

(3,186)

 

(492)

 

(2,694)

Net change in interest income

 

(2,205)

 

(4,653)

 

2,448

Interest expense:

Transaction accounts

 

(87)

 

24

 

(111)

Money market accounts

 

(139)

 

26

 

(165)

Time deposits

 

(1,190)

 

(457)

 

(733)

Reciprocal money market and time deposits

(254)

 

(107)

 

(147)

Brokered deposits

 

(58)

 

(28)

 

(30)

SSUARs

 

(1)

 

3

 

(4)

Intercompany funds borrowed from discontinued operations

(20)

 

27

 

(47)

Federal Reserve PPP Liquidity Facility

(48)

 

(48)

 

Federal Home Loan Bank advances

 

(652)

 

(298)

 

(354)

Subordinated note

 

(16)

 

(5)

 

(11)

Net change in interest expense

 

(2,465)

 

(863)

 

(1,602)

Net change in net interest income

$

260

$

(3,790)

$

4,050

* The table above does not consider average assets, average liabilities, interest income, and interest expense for discontinued operations.

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Provision

Total Company Provision from continuing operations was a net charge of $3.6 million for the third quarter of 2021 compared to a net charge of $5.8 million for the same period in 2020. Provision from discontinued operations was a net credit of $2.3 million for the third quarter of 2021 compared to a net credit of $4.3 million for the same period in 2020.

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

Traditional Banking segment

The Traditional Banking Provision during the third quarter of 2021 was a net credit of $44,000 compared to a net charge of $5.9 million for the third quarter of 2020. An analysis of the Provision for the third quarter of 2021 compared to the same period in 2020 follows:

For the third quarter of 2021, the Traditional Bank’s net credit to the Provision was primarily driven by net loan loss recoveries of $167,000 for the quarter. Loan loss recoveries were positively impacted by a $286,000 recovery from one borrower.

During the third quarter of 2020, the Traditional Bank recorded $5.6 million of additional Provision due to the expected economic impact of the COVID-19 pandemic. Offsetting the increase in Provision due to the impact of the COVID-19 pandemic during the third quarter of 2020 was a reduction in Provision of $1.2 million consistent with an $83 million decrease in Traditional Bank non-PPP loan spot balances during the same quarter.

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.42% as of September 30, 2021 compared to 1.34% as of December 31, 2020 and 1.26% as of September 30, 2020. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of September 30, 2021.

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 credit to the Provision of $223,000 for the third quarter of 2021 compared to a net credit of $3,000 for the same period in 2020. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $89 million during the third quarter of 2021 compared to a decrease of $1 million during the third quarter of 2020.

As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% as of September 30, 2021, December 31, 2020, and September 30, 2020. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses as of September 30, 2021.

Tax Refund Solutions segment

Discontinued Operations

TRS recorded a net credit to the Provision from discontinued operations of $2.3 million during the third quarter of 2021 compared to a net credit of $4.3 million for the same period in 2020. These credits to the Provision primarily reflected recoveries on EA loans charged off during the first six months of the year. While TRS experienced a higher rate of EAs charged-off during the first six months of 2020 than the comparable six months in 2021, it also experienced a higher rate of EA recoveries during the third quarter of 2020 than the comparable quarter of 2021. Management believes the higher rate of EAs charged-off through the first six months of 2020 and recovered during the third quarter of 2020 was directly related to the impact of the COVID-19 pandemic and the resulting delay in tax return processing by the IRS for certain types of tax returns that require further taxpayer communication and verification.

With the third quarter EA paydowns, the percent of unpaid EAs to total EAs originated was 3.19% as of September 30, 2021. This compares to 3.93% as of September 30, 2020, a positive difference of 74 basis points. With all unpaid EAs having been charged off as of June 30, 2021, any EA payments received during the fourth quarter of 2021 will continue to represent recovery credits directly to income from discontinued operations.

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See additional detail regarding the EA product under Footnote 4 “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 $3.8 million during the third quarter of 2021 compared to a net credit to the Provision of $12,000 for the same period in 2020. The negative swing in the Provision was driven by a $6.0 million increase in outstanding balances for RCS’s lines of credit during the third quarter of 2021 compared to a $1.3 million decrease in similar balances during the third quarter of 2020. The Company reduced marketing for its LOC I product during the second and third quarters of 2020, then began incrementally increasing such marketing during the fourth quarter of 2020. The Company began offering its LOC II product during the first quarter of 2021.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 9.99% as of September 30, 2021, 7.94% as of December 31, 2020, and 7.82% as of September 30, 2020. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of September 30, 2021.

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

Table 4 — RCS Provision by Product

Three Months Ended Sep. 30,

(in thousands)

2021

2020

$ Change

% Change

Product:

Lines of credit

$

3,830

$

(40)

$

3,870

NM

%

Hospital receivables

(10)

28

(38)

(136)

Total

$

3,820

$

(12)

$

3,832

NM

%

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Table 5 — Summary of Loan and Lease Loss Experience

    

Three Months Ended

September 30, 

(dollars in thousands)

2021

    

2020

ACLL at beginning of period

$

60,291

$

55,097

Charge-offs:

Traditional Banking:

Residential real estate

 

(13)

Commercial & industrial

 

(35)

 

(255)

Home equity

 

 

(14)

Consumer

(279)

(227)

Total Traditional Banking

(314)

(509)

Warehouse lines of credit

 

 

Total Core Banking

(314)

(509)

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

Other TRS loans

 

(22)

Republic Credit Solutions

(1,064)

 

(684)

Total Republic Processing Group

(1,064)

(706)

Total charge-offs

 

(1,378)

 

(1,215)

Recoveries:

Traditional Banking:

Residential real estate

329

28

Commercial real estate

 

3

 

Commercial & industrial

 

16

 

80

Home equity

 

5

 

21

Consumer

128

77

Total Traditional Banking

481

206

Warehouse lines of credit

 

 

Total Core Banking

481

206

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

2,242

 

4,294

Other TRS loans

19

 

Republic Credit Solutions

75

 

83

Total Republic Processing Group

2,336

4,377

Total recoveries

 

2,817

 

4,583

Net loan recoveries (charge-offs)

 

1,439

 

3,368

Provision from continuing operations- Core Banking

 

(265)

 

5,780

Provision from continuing operations - RPG

3,820

(12)

Provision from discontinued operations - RPG

 

(2,261)

 

(4,342)

Total Provision

 

1,294

 

1,426

ACLL at end of period

$

63,024

$

59,891

Credit Quality Ratios - Total Company:

ACLL to total loans

 

1.45

%  

 

1.20

%  

ACLL to nonperforming loans

 

301

 

284

Net loan charge-offs (recoveries) to average loans

(0.13)

 

(0.27)

Net loan charge-offs from continuing operations to average loans

 

0.07

 

0.07

Credit Quality Ratios - Core Banking:

ACLL to total loans

 

1.22

%  

 

1.05

%  

ACLL to nonperforming loans

 

254

 

245

Net loan charge-offs (recoveries) to average loans

(0.02)

0.03

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Noninterest Income

Total Company noninterest income from continuing operations decreased $1.4 million during the third quarter of 2021 compared to the same period in 2020. Noninterest income from discontinued operations increased $147,000, or 12% comparing the same periods.

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 increased $970,000, or 14%, for the third quarter of 2021 compared to the same period in 2020. Interchange Fee Income increased $326,000 from the third quarter of 2020 to the same period in 2021, while Service Charges on Deposit Accounts increased $262,000 comparing the same periods. Service Charges on Deposit Accounts were below normal levels during the third quarter of 2020, as a pandemic-driven rise in the consumer savings rates drove a reduction in the Bank’s overdraft-related fees. Both Interchange Fee Income and Service Charges on Deposits began to trend upward toward more normal levels during the first quarter of 2021 following the removal of many pandemic-related restrictions.

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 Accounts for the three months ended September 30, 2021 and 2020 were $1.6 million and $1.3 million. The total daily overdraft charges, net of refunds, included in interest income for the three months ended September 30, 2021 and 2020 were $304,000 and $99,000. The Bank suspended its daily overdraft charges during 2020 to soften the economic hardship of the COVID-19 pandemic on its clients. The Bank reinstituted the charging of its daily overdraft fee on September 1, 2020.

Mortgage Banking segment

Mortgage Banking income decreased from $10.8 million for the third quarter of 2020 to $5.3 million for the third quarter of 2021. For the third quarter of 2021, the Core Bank originated $170 million in secondary market loans and achieved an average cash gain-as-a-percent-of-loans-sold during the quarter of 2.94%, with both figures solid by normal historical comparisons. During the third quarter of 2020, however, secondary market originations were $204 million with comparable gains-as-a-percent-of-loans-sold of 4.49%. Favorable market conditions during the third quarter of 2020 brought on by the COVID pandemic drove gains-as-a-percent-of-loans-sold to all-time record highs for the Core Bank and, in general, the entire mortgage industry.

Republic Credit Solutions segment

RCS’s noninterest income increased $2.9 million during the third quarter of 2021 compared to the same period in 2020, with program fees representing the entirety of RCS’s noninterest income. Pandemic-driven restrictions negatively impacted RCS program fees during the third quarter of 2020, with those program fees beginning to normalize during 2021 following the removal of restrictions.

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The following table presents RCS program fees by product:

Table 6 — RCS Program Fees by Product

Three Months Ended Sep. 30,

(in thousands)

2021

2020

$ Change

% Change

Product:

Lines of credit

$

2,046

$

752

$

1,294

172

%

Hospital receivables

62

45

17

38

Installment loans*

1,659

47

1,612

NM

Total

$

3,767

$

844

$

2,923

346

%

*

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 from continuing operations decreased $1.2 million during the third quarter of 2021 compared to the same period in 2020. Noninterest expense from discontinued operations decreased $87,000 comparing the same periods.

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

Traditional Banking segment

Traditional Banking noninterest expense decreased $488,000, or 1%, for the third quarter of 2021 compared to the same period in 2020. The following primarily drove the change in noninterest expense:

Bank Franchise Tax expense decreased $661,000. As previously reported, Kentucky enacted HB354 in March 2019 and as a result, the Bank transitioned from a capital-based bank franchise tax to corporate income tax on January 1, 2021 for Kentucky state taxes.

Other expenses decreased $717,000. Within this decrease, Provision for credit losses on off-balance sheet credit exposures decreased $283,000, driven by lower expected usage rates on the Bank’s committed credit lines coupled with a generally improving economic outlook. Additionally, within the other expenses line item, the following expenses experienced decreases: fraud-related expenses, supplies, freight, core deposit amortization, and ATM promotions, with most of these decreases generally driven by the impact of the ongoing pandemic.

Salaries and Benefits increased from $21.1 million during the third quarter of 2020 to $21.7 million for the third quarter of 2021, driven primarily by annual merit increases, which averaged approximately 3%, along with higher equity-based compensation expenses. These increases to compensation expense were partially offset by lower salaries resulting from a reduction in full-time equivalent employees, which decreased from 976 FTEs as of December 31, 2020 to 949 FTEs as of September 30, 2021.

Warehouse Lending segment

Noninterest expense at the Warehouse segment decreased $819,000 during the third quarter of 2021 compared to the same period in 2020, primarily due to higher incentive compensation expense recorded during 2020, generally due to higher Warehouse client loan volumes during 2020.

Mortgage Banking segment

Noninterest expense at the Mortgage Banking segment increased $425,000, or 15%, during the third quarter of 2021 compared to the same period in 2020, primarily due to higher mortgage commissions recorded during 2021, as the Company broadened the base of associates eligible to receive commissions during 2021.

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OVERVIEW (Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020)

Total Company net income for the first nine months of 2021 was $70.0 million, a $7.1 million, or 11%, increase from the same period in 2020. Diluted EPS increased to $3.39 for the nine months of September 30, 2021 compared to $3.02 for the same period in 2020.

Net income from continuing operations was $55.2 million for the first nine months of 2021, a $5.9 million increase from the same period in 2020. Diluted EPS from continuing operations increased to $2.68 for the nine months ended September 30, 2021 compared to $2.37 for the same period in 2020. The increase in net income and net income from continuing operations primarily reflected a positive reduction in Provision partially offset by a decrease in Mortgage Banking income and net interest income.

The following are general highlights by reportable segment. Discontinued operations for the periods discussed relate entirely to the TRS segment.

See additional detail regarding the Bank’s agreement to sell TRS under Footnote 17 “Discontinued Operations” of Part I Item 1 “Financial Statements.”

Traditional Banking segment

Net income increased $12.9 million, or 100%, for the first nine months of 2021 compared to the same period in 2020.

Net interest income increased $1.3 million, or 1%, for the first nine months of 2021 compared to the same period in 2020.

Provision had a $14.7 million positive swing to a net credit of $126,000 for the first nine months of 2021 compared to a net charge of $14.5 million for the same period in 2020.

Noninterest income increased $2.4 million, or 12%, for the first nine months of 2021 compared to the same period in 2020.

Total noninterest expense increased $442,000 for the first nine months of 2021 compared to same period in 2020.

Total Traditional Bank loans decreased $239 million, or 6%, during the first nine months of 2021, driven primarily by a $266 million decrease in PPP loans.

Total nonperforming loans to total loans for the Traditional Banking segment was 0.58% as of September 30, 2021 compared to 0.63% as of December 31, 2020.

Delinquent loans to total loans for the Traditional Banking segment was 0.22% as of September 30, 2021 compared to 0.26% as of December 31, 2020.

Total Traditional Bank deposits increased $188 million, or 4%, during the first nine months of 2021.

Warehouse Lending segment

Net income increased $2.5 million, or 24%, for the first nine months of 2021 compared to the same period in 2020.

Net interest income increased $1.7 million, or 9%, for the first nine months of 2021 compared to the same period in 2020.

The Warehouse Provision was a net credit of $530,000 for the first nine months of 2021 compared to a net charge of $778,000 for the same period in 2020.

Average committed Warehouse lines increased to $1.4 billion during the first nine months of 2021 from $1.2 billion during the same period in 2020.

Average line usage was 52% during the first nine months of 2021 compared to 65% during the same period in 2020.

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Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income decreased $7.3 million, or 31%, during the first nine months of 2021 compared to the same period in 2020.

Overall, Republic’s originations of secondary market loans totaled $525 million during the first nine months of 2021 compared to $548 million during the same period in 2020, with the Company’s gain-as-a-percent-of-loans-sold decreasing from 4.57% to 3.11% from period to period.

Tax Refund Solutions segment

Continuing Operations

Net loss from continuing operations was $834,000 for the first nine months of 2021 compared to a net loss of $1.7 million for the same period in 2020. The higher loss during the first nine months of 2020 primarily reflected general operating losses related to TRS’s prepaid card division, with such losses substantially occurring prior to May 1, 2020. On May 1, 2020, the RPS division added a large depository relationship that significantly improved profitability on a subsequent basis.

Discontinued Operations

Net income from discontinued operations increased $1.2 million, or 9%, for the first nine months of 2021 compared to the same period in 2020.

Net interest income from discontinued operations decreased $5.9 million, or 28%, for the first nine months of 2021 compared to the same period in 2020.

Total EA originations were $250 million during the first nine months of 2021 compared to $388 million for the first nine months of 2020.

Overall, TRS recorded a net charge to the Provision from discontinued operations of $7.9 million during the first nine months of 2021 compared to a net charge to the Provision of $15.2 million for the same period in 2020.

Noninterest income from discontinued operations increased $76,000 for the first nine months of 2021 compared to the same period in 2020.

Net RT revenue increased $54,000 for the first nine months of 2021 compared to the same period in 2020.

Noninterest expense from discontinued operations was $7.7 million for the first nine months of 2021 compared to $8.2 million for the same period in 2020.

Republic Credit Solutions segment

Net income decreased $2.9 million, or 21%, for the first nine months of 2021 compared to the same period in 2020.

Net interest income decreased $2.9 million, or 16%, for the first nine months of 2021 compared to the same period in 2020.

Overall, RCS recorded a net charge to the Provision of $5.0 million during the first nine months of 2021 compared to a net charge of $251,000 for the same period in 2020.

Noninterest income increased $4.3 million, or 116%, from the first nine months of 2020 to the first nine months of 2021.

Noninterest expense was $3.0 million for the first nine months of 2021 and $3.0 million for the same period in 2020.

Total nonperforming loans to total loans for the RCS segment was 0.59% as of September 30, 2021 compared to 0.04% as of December 31, 2020.

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Delinquent loans to total loans for the RCS segment was 8.31% as of September 30, 2021 compared to 9.23% as of December 31, 2020.

RESULTS OF OPERATIONS (Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020)

Net Interest Income

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

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

A large amount of the Company’s financial instruments track closely with, or are primarily indexed to, either the FFTR, Prime, or LIBOR. These market rates trended lower since the first quarter of 2020 and the onset of COVID-19 pandemic, as the FOMC reduced the FFTR to approximately 25 basis points during 2020. The FOMC has provided on-going guidance that it is unlikely the FFTR will be increased in the near term.

Additional increases in short-term interest rates and overall market rates are generally believed by management to be favorable to the Bank’s net interest income and net interest margin in the near term, while additional decreases in short-term interest rates and overall market rates are generally believed by management to be unfavorable to the Bank’s net interest income and net interest margin in the near term. Increases in short-term interest rates, however, could have a negative impact on net interest income and net interest margin if the Bank is unable to maintain its deposit balances and the cost of those deposits at the levels assumed in its interest-rate-risk model. In addition, a flattening or inversion of the yield curve, causing the spread between long-term interest rates and short-term interest rates to decrease, could negatively impact the Company’s net interest income and net interest margin. Unknown variables, which may impact the Company’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.

Total Company net interest income from continuing operations decreased $1.0 million, or 1%, during the first nine months of 2021 compared to the same period in 2020. Total Company net interest margin from continuing operations decreased to 3.46% during the first nine months of 2021 compared to 3.69% for the same period in 2020. Net interest income from discontinued operations was $14.9 million during the first nine months of 2021 compared to $20.9 million during the same period in 2020.

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

Traditional Banking segment

The Traditional Banking’s net interest income increased $1.3 million for the first nine months of 2021 compared to the same period in 2020. Traditional Banking’s net interest margin was 3.21%2.90% for the first nine monthsquarter of 2021,2022, a decrease of 2057 basis points from the same period in 2020.2021.

Table 71 — Traditional Bank Net Interest Income and Net Interest Margin Excluding PPP (Non-GAAP)

The Company earns fees and a coupon interest rate of 1.0% on its PPP portfolio. Due to the short-term nature of the PPP, management believes Traditional Bank net interest income excluding PPP fees and coupon interest is a more appropriate measure to analyze the challenges withinperformance of the Traditional Bank’s net interest income and net interest margin. The following table reconciles Traditional Bank net interest income and net interest margin to Traditional Bank net interest income and net interest margin excluding PPP fees and interest, a non-GAAP measure. Net interest margin excluding PPP fees and interest presented below also excludes average PPP loans of $299 million and $301 million for the nine months ended September 30, 2021 and 2020.

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Net Interest Income

Net Interest Margin

Net Interest Income

Interest-Earning Assets

Net Interest Margin

Nine Months Ended Sep. 30,

Nine Months Ended Sep. 30,

Three Months Ended Mar. 31,

Three Months Ended Mar. 31,

Three Months Ended Mar. 31,

(dollars in thousands)

2021

2020

$ Change

% Change

2021

2020

Change

  

  

2022

    

2021

    

$ Change

    

% Change

  

  

2022

    

2021

    

$ Change

% Change

  

  

2022

    

2021

    

% Change

Traditional Banking - GAAP

$

119,677

$

118,409

$

1,268

1

%

3.21

%

3.41

%

(0.20)

%

$

36,148

$

41,102

$

(4,954)

(12)

%

$

4,984,524

$

4,740,971

$

243,553

5

%

2.90

%

3.47

%

(0.57)

%

Less: PPP fees and interest

16,949

6,149

10,800

176

0.28

(0.05)

0.33

Less: Impact of PPP fees and interest

955

6,698

(5,743)

(86)

30,601

364,765

(334,164)

(92)

0.06

0.33

(0.27)

Traditional Banking ex PPP fees and interest - non-GAAP

$

102,728

$

112,260

$

(9,532)

(8)

%

2.93

3.46

(0.53)

$

35,193

$

34,404

$

789

2

$

4,953,923

$

4,376,206

$

577,717

13

2.84

3.14

(0.30)

The decrease in the Traditional Bank’s net interest income and net interest margin during the first nine monthsquarter of 20212022 was primarily attributable to the following factors:

The Traditional Bank recognized $955,000 of fees and interest on its PPP portfolio during the first quarter of 2022 compared to $6.7 million of similar income during the same period in 2021. The $5.7 million decrease in PPP fees and interest primarily highlighted the short-term nature of this program, which was closer to its peak during the first quarter of 2021.

To facilitate pandemic relief for the communities it serves, the Traditional Bank originated 3,700 PPP loans totaling $528 million during 2020 and another 1,900 PPP loans totaling $210 million in early 2021. As of March 31, 2022, net PPP loans of $18 million remained on the Traditional Bank’s balance sheet, including $3 million in loan balances originated during 2020 and $15 million in loan balances originated during 2021.

Traditional Bank net interest income, excluding PPP fees and interest, decreased $9.5 million,increased $789,000, or 8%2%, from the first nine monthsquarter of 2020,2021, as average non-PPP loans at the Traditional Bank grew from $3.3 billion for the first quarter of 2021 to $3.5 billion for the first quarter of 2022. Offsetting the benefit of growth in non-PPP Traditional Bank loans was a 30-basis point decrease in the Traditional Bank’s net interest margin excluding PPP loans and related fees and interest. The Traditional Bank’s net interest margin, excluding the PPP-related elements, declined from 3.46%3.14% for the first nine monthsquarter of 20202021 to 2.93%2.84% for the first nine monthsquarter of 2021. The decline in the net interest margin was substantially driven by an 83-basis point decline in the Traditional Bank’s yield on its average non-PPP interest-earning assets from the first nine months of 2020 to the first nine months of 2021, as the majority of the Traditional Bank’s growth in interest-earning assets during the previous 12 months was in lower-yielding cash or cash equivalents instead of loans.2022.

Partially offsetting the Traditional Bank’s margin compression, the Traditional Bank recognized $16.9 million of fees and interest on its PPP portfolio during the first nine months of 2021 compared to $6.1 million of similar income during the same period in 2020. The $10.8 million increase in PPP fees and interest was driven significantly by the forgiveness, payoff, and paydown of $480 million of PPP loans during the first nine months of 2021. As of September 30, 2021, net PPP loans of $126 million remained on the Traditional Bank’s balance sheet, including $19 million in loan balances originated during 2020, $111 million in loan balances originated during 2021, and $4 million of unaccreted PPP fees reported as a credit offset to these originated balances. Unaccreted PPP fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated.

The decline in the net interest margin was substantially driven by the Company’s internal Funds Transfer Pricing methodology in combination with the change in the timing of cash received for tax refunds at TRS during 2022 as compared to 2021. More specifically, as part of its internal FTP process, the Traditional Bank purchases the cash from the deposits of the various business segments and sells cash to the various business segments for loans funded by those segments. The FTP price (or interest) paid or earned by the Traditional Bank for those internal FTP transactions may not be indicative of the real interest earned or paid for the Traditional Bank in the actual market. As a result, the Traditional Bank often earns a lower, and sometimes negative, spread on this cash, negatively impacting its net interest margin. With the tax refund season delayed during 2021, the cash purchased by the Traditional Bank from TRS was significantly more during the first quarter of 2022 as compared to the first quarter of 2021, resulting in the Traditional Bank having substantially more cash during the first quarter of 2022 than 2021 and generating a lower overall net interest margin.

As previously disclosed, both short-term and long-term market interest rates are expected to increase during 2022 as a result of expected monetary tightening by the FOMC. Additional increases in short-term interest rates and overall market rates are generally believed by management to be favorable to the Traditional Bank’s net interest income and net interest margin in the near term, while decreases in short-term interest rates and overall market rates are generally believed by management to be unfavorable to the Traditional Bank’s net interest income and net interest margin in the near term.

Increases in market interest rates, however, could have a negative impact on net interest income and net interest margin if the Traditional Bank is unable to maintain its deposit balances and the cost of those deposits at the levels assumed in its interest-rate-risk model. In addition, a flattening or inversion of the yield curve, causing the spread between long-term interest rates and short-term interest rates to decrease, could negatively impact the Traditional Bank’s net interest income and net interest margin. Variables which may impact the Traditional 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 Traditional Bank’s financial products and the Traditional Bank’s overall future liquidity needs.

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Warehouse Lending segment

Net interest income increased $2.5within the Warehouse segment decreased $2.3 million, or 24%33%, from the first quarter of 2021 to the first quarter of 2022, driven by decreases in both average outstanding balances and net interest margin. Overall average outstanding Warehouse balances declined from $790 million during the first quarter of 2021 to $585 million for the first nine monthsquarter of 2021 compared to the same period2022, as home-mortgage refinancing dipped from historically high volume in 2020.

Average committed Warehouse lines increased to $1.4 billion during the first nine months of 2021 from $1.2 billion during the same period in 2020, while overall usage rates on Warehouse lines of credit were 52% and 65%, respectively for the same periods. In addition, theearly 2021. The Warehouse net interest margin increased to 3.47% for the first nine months of 2021 compared to 3.07% for the first nine months of 2020, as many of the Bank’s Warehouse clients reached contractual interest rate floors on their lines-of-creditcompressed 43 basis points from 3.43% during the first nine monthsquarter of 2020 preventing further declines in2021 to 3.09% during the segment’s loan yields, while the segment’s costfirst quarter of funds continued to decline. Due to increasing2022, as competitive pressures, the Companyforces began loweringdriving down the contractual interest-rate floorsinterest rates on itsthe Company’s Warehouse lines during the third quarter of 2021. Management expects these lower floors

Committed Warehouse lines-of-credit remained at $1.4 billion from March 31, 2021 to have a negative impact onMarch 31, 2022, while average usage rates for Warehouse lines were 42% and 54%, respectively, during the Warehousefirst quarters of 2022 and 2021.

Additional increases in short-term interest rates and overall market rates are generally believed by management to be favorable to Warehouse’s net interest income and net interest margin going forward.in the near term, however, the benefit of an increase in rates could be partially or entirely offset by a reduction in average outstanding balances driven by a decline in demand from Warehouse clients, as higher long-term interest rates generally drive lower demand for Warehouse borrowings. In addition, a lower demand for Warehouse borrowings could cause additional competitive pricing pressures for the industry, driving down the yield Warehouse earns on its lines of credits.

Tax Refund Solutions segment

Discontinued Operations

TRS’s net interest income from discontinued operations decreased $5.9 millionincreased $728,000 for the first nine monthsquarter of 20212022 compared to the same period in 2020.2021. TRS’s EA product earned $13.2$13.4 million in interest income during the first nine monthsquarter of 2021,2022, a $6.4 million decrease$655,000 increase from the first nine monthsquarter of 20202021 resulting primarily from a $138$61 million decreaseincrease in EA originations from period to period. Management believes that economic impact (stimulus) payments, pandemic health risks, and a two-week delay inFor factors affecting the start tocomparison of the 2021 tax season, all, in varying degrees, negatively impacted demandTRS results of operations for its EA product during the first nine monthsquarter of 2021.2022 and the first quarter of 2021, see section titled “OVERVIEW (Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021) - Tax Refund Solutions.”

See additional detail regarding the EA product under Footnote 4 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”

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Republic Credit Solutions segment

RCS’s net interest income decreased $2.9increased $1.5 million, or 16%32%, from the first nine monthsquarter of 20202021 to the first nine monthsquarter of 2021.2022. The decreaseincrease was driven primarily by a declinean increase in fee income from RCS’s LOC I product.products. Loan fees on this product,these products, recorded as interest income on loans, decreasedincreased to $11.5$5.7 million during the first nine monthsquarter of 20212022 compared to $14.7$3.8 million during the same period in 2020 and accounted for 76% and 78% of all RCS interest2021.

Interest income on loans during the periods. The decrease in loan fees was the direct result of a decline in balances for RCS’s LOC I product followingincreased $917,000, driven by a reduction of marketing$5 million increase in average outstanding balances for this product duringfrom the second and third quarters of 2020. While the marketing for this product was reinstated during the fourthfirst quarter of 2020, management believes2021 to the ongoing impactfirst quarter of government stimulus payments continued to reduce demand for2022. Interest income on RCS’s LOC II product increased $912,000, as the Company first piloted this product during the first six monthsquarter of 2021.2021 with limited outstanding balances during the pilot phase.

Future loan fee income from RCS’s LOC IOverall product will likely continuedemand for the RCS segment is not assumed to be negatively impacted byinterest rate sensitive and therefore management does not believe a rising interest rate environment will impact demand for its various consumer loan products. A rising interest rate environment, however, likely will impact the on-going COVID-19 pandemic.Company’s internal FTP cost allocated to this segment. As a result, the impact of rising interest rates to RCS during 2022 will be negative to the segment’s financial results, although the exact amount of the negative impact will depend on the internal FTP cost assigned, as well as, the overall volume and mix of loans it generates.

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Table 82 — Total Company Average Balance Sheets and Interest Rates from Continuing Operations

Nine Months Ended September 30, 2021

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

Average

    

    

Average

    

Average

    

    

Average

    

Average

    

    

Average

    

Average

    

    

Average

    

(dollars in thousands)

Balance

Interest

Rate

Balance

Interest

Rate

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS (1)

Interest-earning assets:

Federal funds sold and other interest-earning deposits

$

792,858

$

774

 

0.13

%  

  

$

273,604

$

818

 

0.40

%  

$

861,822

$

429

 

0.20

%  

  

$

510,433

$

154

 

0.12

%  

Investment securities, including FHLB stock (2)(1)

560,780

5,860

 

1.39

575,575

8,191

 

1.90

606,182

2,111

 

1.39

563,985

2,017

 

1.43

Intercompany funds loaned to discontinued operations

108,228

199

0.25

103,442

1,131

1.46

RCS LOC I product (3) (7)

16,885

11,505

90.85

21,300

14,692

91.97

Other RPG loans (7)

 

105,292

3,539

 

4.48

 

92,803

3,519

 

5.06

TRS Easy Advance loans (2)

84,557

13,444

63.60

89,732

12,789

57.01

RCS LOC products (2)

26,279

5,702

86.79

16,284

3,770

92.61

Other RPG loans (3) (7)

 

120,917

1,984

 

6.56

 

139,729

2,789

 

7.98

Outstanding Warehouse lines of credit (4) (7)

744,522

20,892

3.74

770,454

22,305

3.86

584,519

4,878

3.34

790,244

7,370

3.73

Paycheck Protection Program loans (5) (7)

299,458

16,949

7.55

300,733

6,149

2.73

30,601

955

12.48

288,115

6,698

9.30

All other Core Bank loans (6) (7)

 

3,349,804

100,548

 

4.00

 

3,508,851

117,637

 

4.47

 

3,508,382

34,052

 

3.88

 

3,421,552

33,970

 

3.97

Total interest-earning assets

 

5,977,827

 

160,266

 

3.57

 

5,646,762

 

174,442

 

4.12

 

5,823,259

 

63,555

 

4.37

 

5,820,074

 

69,557

 

4.78

Allowance for credit loss

 

(60,682)

 

(52,652)

 

(69,287)

 

(66,561)

Noninterest-earning assets:

Noninterest-earning cash and cash equivalents

 

117,763

 

94,679

 

354,165

 

249,842

Premises and equipment, net

 

38,845

 

43,836

 

35,460

 

39,185

Bank owned life insurance

 

88,414

 

67,061

 

99,532

 

68,257

Other assets (2)(1)

 

173,927

 

148,773

 

180,779

 

191,497

Total assets

$

6,336,094

$

5,948,459

$

6,423,908

$

6,302,294

LIABILITIES AND STOCKHOLDERS’ EQUITY (1)

Interest-bearing liabilities:

Transaction accounts

$

1,551,690

$

266

 

0.02

%  

$

1,253,811

$

1,019

 

0.11

%  

$

1,692,120

$

97

 

0.02

%  

$

1,485,015

$

82

 

0.02

%  

Money market accounts

 

776,448

292

 

0.05

 

741,205

1,725

 

0.31

 

798,943

94

 

0.05

 

732,328

103

 

0.06

Time deposits

 

305,456

2,871

 

1.25

 

417,171

6,370

 

2.04

 

261,703

640

 

0.98

 

314,904

1,105

 

1.40

Reciprocal money market and time deposits

273,312

585

0.29

263,681

1,432

0.72

74,730

48

0.26

313,445

255

0.33

Brokered deposits

 

38,864

23

 

0.08

 

176,127

 

1,752

 

1.33

 

 

 

63,325

20

 

0.13

Total interest-bearing deposits

 

2,945,770

 

4,037

 

0.18

 

2,851,995

 

12,298

 

0.57

 

2,827,496

 

879

 

0.12

 

2,909,017

 

1,565

 

0.22

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

 

201,992

 

37

 

0.02

 

199,556

 

158

 

0.11

 

300,169

 

28

 

0.04

 

192,669

 

9

 

0.02

Intercompany funds borrowed from discontinued operations

102,190

 

313

 

0.41

 

132,497

 

1,543

 

1.55

Federal Reserve PPP Liquidity Facility

 

 

 

58,683

 

153

 

0.35

Federal Home Loan Bank advances

 

30,989

 

47

 

0.20

 

253,157

 

3,128

 

1.65

 

23,333

 

36

 

0.62

 

43,167

 

31

 

0.29

Subordinated note

 

41,089

 

507

 

1.65

 

41,240

 

829

 

2.68

 

 

 

 

41,240

 

172

 

1.67

Total interest-bearing liabilities

 

3,322,030

 

4,941

 

0.20

 

3,537,128

 

18,109

 

0.68

 

3,150,998

 

943

 

0.12

 

3,186,093

 

1,777

 

0.22

Noninterest-bearing liabilities and Stockholders’ equity:

Noninterest-bearing deposits

 

2,061,144

 

1,506,109

 

2,313,549

 

2,146,036

Other liabilities

 

108,035

 

109,339

 

112,331

 

133,953

Stockholders’ equity

 

844,885

 

795,883

 

847,030

 

836,212

Total liabilities and stock-holders’ equity

$

6,336,094

$

5,948,459

$

6,423,908

$

6,302,294

Net interest income

$

155,325

$

156,333

$

62,612

$

67,780

Net interest spread

 

3.37

%  

 

3.44

%  

 

4.25

%  

 

4.56

%  

Net interest margin

 

3.46

%  

 

3.69

%  

 

4.30

%  

 

4.66

%  

(1)The table above excludes average assets, average liabilities, interest income, and interest expense for discontinued operations; however, loans to and borrowings from discontinued operations are included above based on the Company’s funds transfer pricing methodology. Net interest income would be $170.3 million and $177.2 million and net interest margin would be 3.84% and 4.21% for the nine months ended September 30, 2021 and 2020 if continuing and discontinued operations were consolidated above.
(2)For the purpose of this calculation, the fair market value adjustment on debt securities is included as a component of other assets.
(3)(2)Interest income for Easy Advances and RCS line-of-credit products is composed entirely of loan fees.
(3)Interest income includes loan fees of $662,000 and $1.7 million for the three months ended March 31, 2022 and 2021.
(4)Interest income includes loan fees of $2.4 million$574,000 and $2.4 million$871,000 for the ninethree months ended September 30, 2021March 31, 2022 and 2020.2021.
(5)Interest income includes loan fees of $14.6 million$879,000 and $3.7$5.8 million for the ninethree months ended September 30, 2021March 31, 2022 and 2020.2021.
(6)Interest income includes loan fees of $3.0$1.5 million and $2.4 million$895,000 for the ninethree months ended September 30, 2021March 31, 2022 and 2020.2021.
(7)Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs.

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Table 93 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 93 — Total Company Volume/Rate Variance Analysis from Continuing Operations

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Compared to

Compared to

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Total Net

Increase / (Decrease) Due to

Total Net

Increase / (Decrease) Due to

(in thousands)

Change

    

Volume

    

Rate

Change

    

Volume

    

Rate

Interest income:

Federal funds sold and other interest-earning deposits

$

(44)

$

781

$

(825)

$

275

$

141

$

134

Investment securities, including FHLB stock

(2,331)

(205)

(2,126)

94

148

(54)

Intercompany funds loaned to discontinued operations

(932)

50

(982)

TRS Easy Advance loans*

655

2,831

(2,176)

RCS LOC I product

(3,187)

(7,321)

4,134

1,932

1,250

682

Other RPG loans

 

20

 

444

 

(424)

 

(805)

 

363

 

(1,168)

Outstanding Warehouse lines of credit

(1,413)

(739)

(674)

(2,492)

(1,942)

(550)

Paycheck Protection Program loans

10,800

(26)

10,826

(5,743)

(8,570)

2,827

All other Core Bank loans

 

(17,089)

 

(5,164)

 

(11,925)

 

82

 

299

 

(217)

Net change in interest income

 

(14,176)

 

(12,180)

 

(1,996)

 

(6,002)

 

(5,480)

 

(522)

Interest expense:

Transaction accounts

 

(753)

 

198

 

(951)

 

15

 

12

 

3

Money market accounts

 

(1,433)

 

78

 

(1,511)

 

(9)

 

9

 

(18)

Time deposits

 

(3,499)

 

(1,436)

 

(2,063)

 

(465)

 

(166)

 

(299)

Reciprocal money market and time deposits

(847)

 

51

 

(898)

(207)

 

(162)

 

(45)

Brokered deposits

 

(1,729)

 

(784)

 

(945)

 

(20)

 

(20)

 

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

 

(121)

 

2

 

(123)

 

19

 

7

 

12

Intercompany funds borrowed from discontinued operations

(1,230)

 

(292)

 

(938)

Federal Reserve PPP Liquidity Facility

(153)

 

(153)

 

Federal Home Loan Bank advances

 

(3,081)

 

(1,540)

 

(1,541)

 

5

 

(19)

 

24

Subordinated note

 

(322)

 

(3)

 

(319)

 

(172)

 

(172)

 

Net change in interest expense

 

(13,168)

 

(3,879)

 

(9,289)

 

(834)

 

(511)

 

(323)

Net change in net interest income

$

(1,008)

$

(8,301)

$

7,293

$

(5,168)

$

(4,969)

$

(199)

* The table above does not consider average assets, average liabilities,*Since interest income for Easy Advances is composed entirely of loan fees and interest expenseEAs are only offered during the first two months of each year, volume and rate measurements for discontinued operations.this product are based on total EAs originated instead of average EA balances during the period. EA originations totaled $311 million and $250 million for the quarters ended March 31, 2022 and 2021. The unannualized EA yield as a function of total EA originations was 4.32% and 5.11% for the quarters ended March 31, 2022 and 2021.

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Provision

Total Company Provision from continuing operations was a net charge of $4.4$9.2 million for the first nine monthsquarter of 20212022 compared to a net charge of $15.6$15.3 million for the same period in 2020. Total Company Provision from discontinued operations was a net charge of $7.9 million for the first nine months of 2021 compared to a net charge of $15.2 million for the same period in 2020.2021.

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 nine monthsquarter of 20212022 was a net charge of $320,000 compared to a net credit of $126,000 compared to a net charge of $14.5 million$5,000 for the first nine monthsquarter of 2020.2021. An analysis of the Provision for the first nine monthsquarter of 20212022 compared to the same period in 20202021 follows:

For the first nine monthsquarter of 2022, the Traditional Bank Provision primarily reflected formula reserves tied to general loan growth.  Non-PPP Traditional Bank loans grew $107 million from December 31, 2021 to March 31, 2022.

For the first quarter of 2021, there was a minimal net credit to the Traditional Bank Provision generally based on an improving economic outlook in conjunction with limited net charge-offs incurred byduring the quarter as the Traditional Bank since making significant life-of-loan reserves during 2020 following the onset of the pandemic. The net credit recorded during the first nine months of 2021 primarily included nominal ACLL releases for the residential real estate, CRE, and HELOC portfolios offsetnon-PPP loan balances declined by additional reserves for certain Special Mention loans with continued signs of pandemic-related hardship through September 30, 2021.

During the first nine months of 2020, the Traditional Bank recorded $17.7approximately $51 million of additional Provision due to the expected economic impact of the COVID-19 pandemic. Offsetting the increase in Provision due to the impact of the COVID-19 pandemic during the first nine months of 2020 was a reduction in Provision of $3.2 million consistent with a $254 million decrease in Traditional Bank loan spot balances from December 31, 20192020 to September 30, 2020.March 31, 2021.

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.42%1.39% as of September 30, 2021March 31, 2022 compared to 1.34%1.41% as of December 31, 20202021 and 1.26%1.35% as of September 30, 2020.March 31, 2021. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of September 30, 2021.March 31, 2022.

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 credit to the Provision of $530,000$401,000 for the first nine monthsquarter of 20212022 compared to a net chargecredit of $778,000$242,000 for the same period in 2020.2021. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $212$160 million during the first nine monthsquarter of 20212022 compared to an increasea decrease of $311$97 million during the first nine monthsquarter of 2020.2021.

As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% as of September 30, 2021,March 31, 2022, December 31, 2020,2021, and September 30, 2020.March 31, 2021. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses as of September 30, 2021.March 31, 2022.

Tax Refund Solutions segment

Discontinued Operations

TRS recorded a net charge to the Provision from discontinued operations of $7.9 million during the first nine monthsquarter of 20212022 compared to a net charge of $15.2$15.9 million for the same period in 2020.2021. Substantially all TRS Provision in both periods was related to its EA product.

TRS’sTRS recorded a charge to the Provision for EA loan losses was $8.0loans of $8.3 million, or 3.19%2.67% of its $250$311 million in EAs originated during the first nine monthsquarter of 2021,2022 compared to a charge to the Provision of $15.2$16.0 million, or 3.93%6.41% of its $388$250 million inof EAs originated during the first nine monthsquarter of 2020.2021. The lowerdecrease in Provision duringfor the first nine monthsquarter of 2021 resulted from repayment rates on EA loans from the U.S. Treasury that exceeded those during the first nine months of 2020. Management believes the slower repayment rates from the U.S. Treasury during

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the first nine months of 20202022 was directly relatedprimarily due to the impact of the COVID-19 pandemic and the resulting delay in tax-return processing by the IRS for certain types of tax returns that required further taxpayer communication and verification.following two factors:

1)TRS received a contractual guaranty during 2022 that limits its EA losses for EAs originated through one of its largest Tax Providers. Through this particular provider, TRS originated $172 million of EAs during the first quarter of 2022. The net benefit to the Provision for TRS during the first quarter of 2022 was approximately $2.6 million.

2)In addition to its contractual guaranty discussed in the previous bullet (1), TRS experienced delayed EA paydowns during the first quarter of 2021 with the start of the IRS tax season delayed into mid-February 2021, combined with federal government stimulus programs during the first quarter of 2021, which generally utilized resources of the IRS and U.S. Treasury to administer the programs.

EAs are only originated during the first two months of each year, with all uncollected EAs charged off by June 30th30th of each year. EAs collected during the second half of each year are recorded as recoveries of previously charged-off loans. TRS’s loss rate as of June 30, 2021 was 4.09% of total originations and it finished 2021 with an EA loss rate of 2.69% of total EAs originated.

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For factors affecting the comparison of the TRS results of operations for the first quarter of 2022 and the first quarter of 2021, see section titled “OVERVIEW (Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021) - Tax Refund Solutions.”

See additional detail regarding the EA product under Footnote 4 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”

Republic Credit Solutions segment

As illustrated in Table 104 below, RCS recorded a net charge to the Provision of $5.0$1.4 million during the first nine monthsquarter of 20212022 compared to a net chargecredit to the Provision of $251,000$375,000 for the same period in 2020.2021. The increase in the Provision was driven primarily by ana $1.7 million increase in outstanding balancesnet charge-offs on RCS’s line-of-credit products. Net charge-offs for RCS’s linesLOC I product increased to $1.7 million for the first quarter of credit2022 from $672,000 during the first nine monthsquarter of 2021, compared to a decrease in similar balances during the same period in 2020. The Company reduced marketing for its LOC I product during the second and third quarterswith government stimulus programs generally driving down usage of 2020, then began incrementally increasing such marketing during the fourth quarter of 2020. The Company began offering its LOC IIthis product during the first quarter of 2021. Net charge-offs for RCS’s LOC II product were $672,000 for the first quarter of 2022, with no charge-offs for this product during its pilot phase during the first quarter of 2021.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 9.99%13.63% as of September 30, 2021, 7.94%March 31, 2022, 13.91% as of December 31, 2020,2021, and 7.82%7.16% as of September 30, 2020.March 31, 2021. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of September 30, 2021.March 31, 2022.

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

Table 104 — RCS Provision by Product

Nine Months Ended Sep. 30,

Three Months Ended Mar. 31,

(in thousands)

2021

2020

$ Change

% Change

2022

2021

$ Change

% Change

Product:

Lines of credit

$

5,036

$

214

$

4,822

NM

%

$

1,403

$

(374)

$

1,777

(475)

%

Hospital receivables

1

37

(36)

(97)

(8)

(1)

(7)

NM

Total

$

5,037

$

251

$

4,786

NM

%

$

1,395

$

(375)

$

1,770

(472)

%

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Table 115 — Summary of Loan and Lease Loss Experience

Nine Months Ended

Three Months Ended

September 30, 

March 31, 

(dollars in thousands)

2021

    

2020

2022

    

2021

ACLL at beginning of period

$

61,067

$

43,351

$

64,577

$

61,067

Adoption of ASC 326

6,734

Charge-offs:

Traditional Banking:

Residential real estate

 

(40)

Commercial real estate

 

(428)

 

(270)

 

 

(428)

Commercial & industrial

 

(35)

 

(447)

Home equity

 

 

(14)

Consumer

(649)

(960)

(263)

(209)

Total Traditional Banking

(1,112)

(1,731)

(263)

(637)

Warehouse lines of credit

 

 

 

 

Total Core Banking

(1,112)

(1,731)

(263)

(637)

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

(10,256)

 

(19,575)

 

Other TRS loans

(51)

 

(94)

 

(22)

Republic Credit Solutions

(2,427)

 

(5,401)

(2,673)

 

(766)

Total Republic Processing Group

(12,734)

(25,070)

(2,673)

(788)

Total charge-offs

 

(13,846)

 

(26,801)

 

(2,936)

 

(1,425)

Recoveries:

Traditional Banking:

Residential real estate

376

116

43

27

Commercial real estate

 

82

 

472

 

1

 

68

Commercial & industrial

 

27

 

124

 

9

 

7

Home equity

 

46

 

108

 

3

 

7

Consumer

371

399

89

146

Total Traditional Banking

902

1,219

145

255

Warehouse lines of credit

 

 

 

 

Total Core Banking

902

1,219

145

255

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

2,272

 

4,336

 

Other TRS loans

27

 

1

362

 

9

Republic Credit Solutions

247

 

553

275

 

93

Total Republic Processing Group

2,546

4,890

637

102

Total recoveries

 

3,448

 

6,109

 

782

 

357

Net loan charge-offs

 

(10,398)

 

(20,692)

 

(2,154)

 

(1,068)

Provision from continuing operations- Core Banking

 

(532)

 

15,008

Provision from continuing operations - RPG

5,037

251

Provision from discontinued operations - RPG

 

7,850

 

15,239

Provision - Core Banking

 

(74)

 

(172)

Provision - RPG

 

9,307

 

15,509

Total Provision

 

12,355

 

30,498

 

9,233

 

15,337

ACLL at end of period

$

63,024

$

59,891

$

71,656

$

75,336

Credit Quality Ratios - Total Company:

ACLL to total loans

 

1.45

%  

 

1.20

%  

 

1.63

%  

 

1.61

%  

ACLL to nonperforming loans

 

301

 

284

 

422

 

335

Net loan charge-offs to average loans

 

0.30

 

0.58

 

0.20

 

0.09

Net loan charge-offs from continuing operations to average loans

0.07

0.15

Credit Quality Ratios - Core Banking:

ACLL to total loans

 

1.22

%  

 

1.05

%  

 

1.20

%  

 

1.14

%  

ACLL to nonperforming loans

 

254

 

245

 

303

 

234

Net loan charge-offs to average loans

0.01

0.01

0.01

0.03

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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, 

2022

    

2021

Traditional Banking:

Residential real estate:

Owner occupied

%  

(0.01)

%  

Nonowner occupied

Commercial real estate

0.11

Construction & land development

Commercial & industrial

(0.01)

Paycheck Protection Program

Lease financing receivables

Aircraft

Home equity

(0.01)

(0.01)

Consumer:

Credit cards

0.58

1.14

Overdrafts

90.70

29.00

Automobile loans

(0.03)

0.09

Other consumer

(0.26)

(0.65)

Total Traditional Banking

0.01

0.04

Warehouse lines of credit

Total Core Banking

0.01

0.03

Republic Processing Group:

Tax Refund Solutions:

Easy Advances*

Other TRS loans

(1.16)

0.17

Republic Credit Solutions

2.62

0.62

Total Republic Processing Group

0.97

0.28

Total

0.20

%  

0.09

%  

*     Easy Advances are originated during the first two months of each year, with all EAs charged-off by June 30th of each year. Due to their relatively short life, EA net charge-offs are typically analyzed by the Company as a percentage of total EA originations, not as a percentage of average outstanding balances.

The Company’s net charge-offs to average total Company loans increased from 0.09% during the first quarter of 2021 to 0.20 % during the first quarter of 2022, with net charge-offs increasing $1.1 million, or 102%, and average total Company loans decreasing $390 million, or 8%. The increase in net charge-offs was primarily driven by a $1.4 million increase in net charge-offs within the Company’s RPG operations, which has historically conducted higher-risk lending activities that the Company’s Core Banking operations.

From the first quarter of 2021 to the first quarter of 2022, RPG experienced a $1.7 million increase in net charge-offs within its RCS segment. Net charge-offs for RCS’s LOC I product increased to $1.7 million for the first quarter of 2022 from $672,000 for the first quarter of 2021, with government stimulus programs generally driving down usage of this product during the first quarter of 2021. Net charge-offs for RCS’s LOC II product were $672,000 for the first quarter of 2022, with no charge-offs for this product during its pilot phase during the first quarter of 2021.

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

Noninterest Income

Total Company noninterest income from continuing operations increased $236,000$2.0 million during the first nine monthsquarter of 20212022 compared to the same period in 2020. Total Company noninterest income from discontinued operations increased $76,000 during the first nine months of 2021 compared to the same period in 2020.2021.

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 increased $2.4 million,$450,000, or 12%7%, for the first nine monthsquarter of 20212022 compared to the same period in 2020. Interchange Fee Income increased $1.4 million from the first nine months of 2020 to the same period2021, driven primarily by a $354,000 increase in 2021, while Service Charges on Deposit Accounts increased $612,000 comparing the same periods. Service Charges on Deposit Accounts were below normal levels during the first nine months of 2020, as a pandemic-driven rise in the consumer savings rate drove a reduction in the Bank’s overdraft-related fees. Both Interchange Fee Income and Service Charges on Deposits began to trend upward toward more normal levels during the first quarter of 2021 following the removal of pandemic-related restrictions.Accounts.

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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 ninethree months ended September 30,March 31, 2022 and 2021 and 2020 were $4.0$1.6 million and $4.1$1.2 million. The total daily overdraft charges, net of refunds, included in interest income for the ninethree months ended September 30,March 31, 2022 and 2021 were $288,000 and 2020 were $810,000 and $517,000. The Bank suspended its daily overdraft charges during the first nine months of 2020 to soften the economic hardship of the COVID-19 pandemic on its clients. The Bank reinstituted the charging of its daily overdraft fee on September 1, 2020.$249,000.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income decreased $7.3 million, or 31%,A significant rise in long-term interest rates during the first nine monthsquarter of 2022 led to a significant slowdown in the origination and subsequent sale of mortgage loans into the secondary market. As a result, Mortgage Banking income decreased from $7.2 million during the first quarter of 2021 compared to $2.7 million for the same period in 2020.first quarter of 2022. For the first nine monthsquarter of 2021,2022, the Core Bank originated $525sold $119 million in secondary market loans and achieved an average gain-as-a-percent-of-loans-soldcash-gain-as-a-percent-of-loans-sold during the periodquarter of 3.11%,2.29%. During the first quarter of 2021, however, long-term interest rates were still near historical lows, driving secondary market loan sales of $204 million with comparable originationscash-gain-as-a-percent-of-loans-sold of $5483.95%.

With the FOMC forecasting an end to its quantitative easing program in March 2022 and a more aggressive and hawkish approach to its monetary policies during 2022, management believes it is likely that the Core Bank’s mortgage origination volume will continue to be negatively impacted by rising interest rates causing additional declines in mortgage banking income throughout 2022.

Tax Refund Solutions segment

TRS’s noninterest income increased $4.2 million, and comparable gains of 4.57%or 31%, during the first nine monthsquarter of 2020. Favorable market conditions drove2022 compared to the same period in 2021. As previously disclosed, Green Dot paid RB&T a higher gain percentagecontract termination fee of $5.0 million during the first quarter of 2022 after RB&T provided Green Dot a notice of termination of the Purchase Agreement for the Core Banksale of substantially all of RB&T’s TRS assets and the mortgage industry, in general, during the last nine monthsoperations to Green Dot. RB&T maintains that its notice of 2020 and for a portiontermination of the first nine monthsPurchase Agreement and corresponding payment of 2021. These favorable conditions beganthe $5.0 million termination fee does not release Green Dot from any liability, in addition to normalize during February 2021 causing the Core Bank’s gain-as-a-percentage-of-loans-soldtermination fee, related to trend toward more normal historical levels at or near 2.50%. Management believes this trend will likely continue during the remainderSale Transaction occurring before RB&T’s notice of 2021.termination.

Regarding TRS’s RT product, net RT revenue decreased 5% from $12.7 million during the first quarter of 2021 to $12.1 million during the same period in 2022. RT revenue for the first quarter of 2022 was negatively impacted by the departure of one of TRS’s Tax Providers, who ended their relationship with the Bank following the announcement of the Purchase Agreement. The loss of this revenue was partially offset during the first quarter of 2022 by higher RT volume from TRS’s remaining Tax Providers. The higher first quarter 2022 RT volume from the remaining Tax Providers was partially driven by the two-week delay in the 2021 tax season, with this year-over-year difference in volume expected to recede as the 2022 tax season winds down and the impact of the 2021 delay diminishes.

For factors affecting the comparison of the TRS results of operations for the first quarter of 2022 and the first quarter of 2021, see section titled “OVERVIEW (Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021) - Tax Refund Solutions.”

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Republic Credit Solutions segment

RCS’s noninterest income increased $4.3$1.8 million, or 116%135%, during the first nine monthsquarter of 20212022 compared to the same period in 2020,2021, with program fees representing the entirety of RCS’s noninterest income. Pandemic-driven restrictions negatively impactedThe increase in RCS program fees primarily reflected higher sales volume from RCS’s line of credit and installment loan products as sales volume was negatively impacted during the first nine monthsquarter of 2020, with those program fees beginning2021 by federal government stimulus programs implemented to normalizecombat the economic impact of the COVID pandemic. Proceeds from the sale of RCS loan products totaled $256 million during 2021 following the removalfirst quarter of restrictions.2022, a 138% increase from the same period in 2021.

The following table presents RCS program fees by product:

Table 127 — RCS Program Fees by Product

Nine Months Ended Sep. 30,

Three Months Ended Mar. 31,

(in thousands)

2021

2020

$ Change

% Change

2022

2021

$ Change

% Change

Product:

Lines of credit

$

4,168

$

2,199

$

1,969

90

%

$

1,188

$

768

$

420

55

%

Hospital receivables

173

53

120

226

61

48

13

27

Installment loans*

3,589

1,424

2,165

NM

1,878

513

1,365

NM

Total

$

7,930

$

3,676

$

4,254

116

%

$

3,127

$

1,329

$

1,798

135

%

*

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 from continuing operations increased $905,000,$762,000, or 1%2%, during the first nine monthsquarter of 20212022 compared to the same period in 2020. Total Company noninterest expense from discontinued operations decreased $503,000 during the first nine months of 2021 compared to the same period in 2020.2021.

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

Traditional Banking segment

Traditional Banking noninterest expense increased $442,000$891,000 for the first nine monthsquarter of 20212022 compared to the same period in 2020.2021. The following primarily drove the change in noninterest expense:

Salaries and benefits expenseOther expenses increased approximately $2.4 million, or 4%, primarily driven$726,000. Within this increase the most notable change was a $250,000 increase in fraud losses, as the Bank’s clients experienced an increase in fraudulent check activity during the quarter. As required by annual merit increases and increases in contract labor, equity compensation, payroll taxes, and health benefits from period to period.regulation, the Traditional Bank reimburses its clients for these specific types of check fraud losses as they are incurred.

Technology, Equipment,Salaries and Communication expense increased $683,000, as the Traditional Bank strategically added 24 Interactive Teller Machines over the previous 12 months, bringing its ITM fleet to over 70 ITMs as of September 30, 2021.

Interchange-related expense increased $430,000, or 13%, as transaction volume began rising to normal levels during the first quarter of 2021 following the removal of pandemic-related restrictions.

Partially offsetting the increases above, Bank Franchise Taxbenefits expense decreased $1.6 million. As previously reported, Kentucky enacted HB354 in March 2019 and as a result, the Bank transitioned from a capital-based bank franchise tax to the Kentucky corporate income tax on January 1, 2021.

Other expenses decreased $1.9 million. Within this decrease, Provision for credit losses on off-balance sheet credit exposures decreased $518,000,approximately $180,000, or 1%, primarily driven by lower expected usage rates on the Bank’s committed credit lines coupled with a generally improving economic outlook. Additionally, within the other expenses line item, the following expenses experienced decreases: fraud-related expenses, supplies, freight,reduction in health benefits costs partially offset by annual merit increases and ATM promotions, with most of these decreases generally driven by the impact of the ongoing pandemic.a 34-count decrease in FTE’s from period to period.

Mortgage Banking segment

Noninterest expense at the Mortgage Banking segment increased $1.9 million,decreased $431,000, or 25%14%, during the first nine monthsquarter of 20212022 compared to the same period in 2020,2021, primarily due to highera reduction in mortgage commissions, recorded during 2021.which declined consistent with the previously discussed period-to-period decrease in mortgage origination volume.

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COMPARISON OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 2021MARCH 31, 2022 AND DECEMBER 31, 20202021

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 $1.0$1.1 billion in cash and cash equivalents as of September 30, 2021March 31, 2022 compared to $486$757 million as of December 31, 2020.2021. The growth in cash balances was driven by continued growth in deposit balances, along with a continued general decline in loans. Given the near-term riskincluding $100 million of inflation and rising market interest rates, combined with the requirement that the term of the investments would have to be extended in order to pick up a meaningful increaseshort-term tax refund deposits at TRS. As described in the overall yield,“Investment Securities” section below, management chose to not redeploy significantbegan some deployment of its excess cash intothrough the purchase of longer-term investment portfolio through September 30, 2021. Duringsecurities during the fourth quarter of 2021, however, management began evaluating potential changes to its existing strategy for redeploying excess cashwith additional purchases made during the first quarter of 2022 as a result of a recent steepening of the yield curve.

For cash held at the FRB, the Bank earns a yield on amounts more than required reserves. This yield wascash earned a weighted-average 0.13% foryield of 0.20% during the first nine monthsquarter of 2021.2022 with a spot balance yield of 0.40% on March 31, 2022. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.

Investment Securities

During the first quarter of 2022, the Bank purchased $116 million in investment debt securities, allocated among $86 million in U.S. Treasuries, a $20 million MBS, and a $10 million U.S. government agency security. The U.S. Treasuries had an expected weighted-average yield of approximately 1.51% and a weighted average life at purchase of 2.5 years. The MBS had an expected yield of approximately 1.25% and a stated maturity at purchase of 10 years. The U.S. Government agency had an expected yield of approximately 1.39% and a maturity of 10 years.

Entering the second quarter of 2022, management believes investment securities with a maturity of approximately two years offer an attractive risk-based return as compared to overnight cash at the Federal Reserve. As a result, management anticipates the Company will make additional purchases of investment securities during the second quarter of 2022 targeting a maturity of approximately two years. The overall timing of these purchases and the amount of these purchases will depend on many factors including, but not limited to, the Company’s overall current and projected liquidity positions, its customers’ demand for its loans and deposit products, the interest rate environment at the time, as well as the anticipated interest rate environment in the near and long term.

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Table 8 — Loan Portfolio Composition

(in thousands)

    

September 30, 2021

    

December 31, 2020

 

$ Change

% Change

(dollars in thousands)

    

March 31, 2022

    

December 31, 2021

$ Change

Percent Change

Traditional Banking:

Residential real estate:

Owner occupied

$

827,898

$

879,800

$

(51,902)

(6)

%

$

808,658

$

820,731

$

(12,073)

(1)

%  

Nonowner occupied

 

294,818

 

264,780

30,038

11

 

314,933

 

306,323

 

8,610

3

Commercial real estate

 

1,393,241

 

1,349,085

44,156

3

 

1,556,575

 

1,456,009

 

100,566

7

Construction & land development

 

105,968

 

98,674

7,294

7

 

129,970

 

129,337

 

633

0

Commercial & industrial

 

333,795

 

325,596

8,199

3

 

342,175

 

340,363

 

1,812

1

Paycheck Protection Program

 

126,271

 

392,319

(266,048)

(68)

 

18,276

 

56,014

 

(37,738)

(67)

Lease financing receivables

 

9,427

 

10,130

(703)

(7)

 

10,396

 

8,637

 

1,759

20

Aircraft

 

130,398

 

101,375

29,023

29

 

151,284

 

142,894

 

8,390

6

Home equity

 

215,282

 

240,640

(25,358)

(11)

 

210,364

 

210,578

 

(214)

(0)

Consumer:

Credit cards

14,781

 

14,196

585

4

14,654

 

14,510

 

144

1

Overdrafts

753

 

587

166

28

716

 

683

 

33

5

Automobile loans

17,533

 

30,300

(12,767)

(42)

11,846

 

14,448

 

(2,602)

(18)

Other consumer

6,223

 

8,167

(1,944)

(24)

939

 

1,432

 

(493)

(34)

Total Traditional Banking

3,476,388

3,715,649

(239,261)

(6)

3,570,786

3,501,959

68,827

2

Warehouse lines of credit*

 

750,682

 

962,796

(212,114)

(22)

 

690,200

 

850,550

 

(160,350)

(19)

Total Core Banking

4,227,070

4,678,445

(451,375)

(10)

4,260,986

4,352,509

(91,523)

(2)

Republic Processing Group*:

Tax Refund Solutions:

 

 

 

 

 

Easy Advances

 

 

NA

 

16,475

 

 

16,475

NM

Other TRS loans

1

1

NA

25,132

50,987

(25,855)

(51)

Republic Credit Solutions

 

116,711

 

110,893

5,818

5

 

87,650

 

93,066

 

(5,416)

(6)

Total Republic Processing Group

 

116,712

 

110,893

5,819

5

 

129,257

 

144,053

 

(14,796)

(10)

Total loans**

4,343,782

4,789,338

(445,556)

(9)

4,390,243

4,496,562

(106,319)

(2)

Allowance for credit losses

 

(63,024)

 

(61,067)

(1,957)

3

 

(71,656)

 

(64,577)

 

(7,079)

11

Total loans, net

$

4,280,758

$

4,728,271

$

(447,513)

(9)

%

$

4,318,587

$

4,431,985

$

(113,398)

(3)

*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.

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Gross loans decreased by $446$106 million, or 9%2%, during the first nine monthsquarter of 20212022 to $4.3$4.4 billion as of September 30, 2021.March 31, 2022. The most significant components comprising the change in loans by reportable segment follow:

Traditional Banking segment

Period-end balances for Traditional Banking loans decreased $239increased $69 million, or 6%2%, from December 31, 20202021 to September 30, 2021.March 31, 2022. The following primarily drove the change in loan balances during the first nine monthsquarter of 2021:2022:

DuringCRE loans grew $101 million, or 7%, during the first nine monthsquarter of 2021,2022, as the Traditional Bank experienced strong loan demand within its Corporate Lending division and its Northern Kentucky/Cincinnati market.

Offsetting the growth above, during the first quarter of 2022, the Core Bank’s PPP portfolio decreased $266$38 million, primarily reflecting the forgiveness and payoff of $382 million of 2020 PPP originations and the net increase of $111 million of 2021 PPP loans during the first nine months of 2021.as this temporary government program continued to wind down.

The CARES Act was enacted in March 2020 and provided for the SBA’s PPP, which allowed the Bank to lend to its qualifying small business clients to assist them in their efforts to meet their cash-flow needs during the COVID-19COVID pandemic. The Economic Aid Act was enacted in December 2020 and provided for a second round of PPP loans. PPP loans are fully backed by the SBA and may be entirely forgiven if the loan client uses loan funds for qualifying reasons. As of September 30, 2021,March 31,

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2022, net PPP loans of $126$18 million remained on the Traditional Bank’s balance sheet, including $19$3 million in loan balances originated during 2020 $111and $15 million in loan balances originated during 2021, and $4 million of unaccreted PPP fees reported as a credit offset to these originated balances. Unaccreted PPP fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated. While no guarantee can be made as to the overall remaining life of these loans, management believes the loans are likely to remain on the Company’s balance sheet less than one year, as it expects the substantial majority of its clients to request forgiveness for their loans at the earliest possible time, presuming these clients achieve the required program metrics.2022.

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

The owner-occupied residential real estate and home equity categories decreased $52 million and $25 million during the first nine months of 2021. These decreases largely reflect the impact of a sharp drop in long-term market interest rates during the previous 12 months that drove an increase in refinance volume for residential mortgages, with much of the refinance activity going into fixed-rate products sold on the secondary market.

Offsetting the decreases above, the CRE category increased $44 million and the Aircraft category increased $29 million, as lending activity began normalizing following the removal of pandemic-driven restrictions during the first nine months of 2021.

Warehouse Lending segment

Outstanding Warehouse period endperiod-end balances decreased $212$160 million from December 31, 20202021 to September 30, 2021.March 31, 2022. 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 71% during the fourth quarter of 2019. On an annual basis, weighted average usage rates on the Bank’s Warehouse lines have ranged from a low of 40% during 2013 to a high of 66% during 2020.

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

Tax Refund Solutions segment

Outstanding TRS loans decreased $9 million from December 31, 2021 to March 31, 2022 primarily reflecting $16 million of unpaid EAs partially offset by a $25 million reduction in other TRS loans. EAs are only made during the first two months of each year, with all unpaid EAs charged off by June 30th of each year. Other TRS loans as of December 31, 2021 were primarily commercial loans to Tax Providers. These loans are typically made in the fourth quarter of each year and fully repaid by the end of the first quarter of the following year.

Republic Credit Solutions segment

Outstanding RCS loans decreased $5 million from December 31, 2021 to March 31, 2022 primarily reflecting a $2 million decrease in outstanding balances for RCS’s LOC I product and a $2 million decrease in hospital receivables.

Allowance for Credit Losses

As of September 30, 2021,March 31, 2022, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. The Bank also maintained an ACLS and an ACLC for expected losses in its securities portfolio and its off-balance sheet credit exposures, respectively. Management evaluates the adequacy of the ACLL monthly, and the adequacy of the ACLS and ACLC quarterly. All ACLs are presented and discussed with the Audit Committee and the Board of Directors quarterly.

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The Company’s ACLL increased $2$7 million from $61$65 million as of December 31, 20202021 to $63$72 million as of September 30, 2021.March 31, 2022. As a percent of total loans, the total Company’s ACLL increased to 1.45%1.63% as of September 30, 2021March 31, 2022 compared to 1.27%1.44% as of December 31, 2020.2021. An analysis of the ACL by reportable segment follows:

Traditional Banking segment

The Traditional Banking ACLL decreased approximately $212,000 to $49 million as of September 30, 2021 driven primarily by net charge-offs during the first nine months of 2021.  

The Traditional Banking ACLL increased approximately $209,000 to $50 million as of March 31, 2022 driven primarily by formula reserves tied to loan growth during the first quarter of 2022.  

The Traditional Bank decreased its ACLS $124,000 during the first nine months of 2021 to $54,000 based on improved PD and LGD expectations on its corporate bond portfolios.

The Traditional Bank decreased its ACLC $52,000 during the first nine months of 2021 to $937,000 based on an improving economic outlook.

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Warehouse Lending segment

The Warehouse ACLL decreased to approximately $1.9$1.7 million, and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparing September 30, 2021March 31, 2022 to December 31, 2020.2021. As of September 30, 2021,March 31, 2022, the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for the first ninequarter of 2022. 

Tax Refund Solutions segment

The TRS ACLL increased to $8 million as of March 31, 2022 from $96,000 as of December 31, 2021, driven primarily by estimated losses on TRS’s EA product. Due to the seasonal nature of the EA, estimated reserves are generally made during the first two months of the year when the product is offered, with losses charged against those reserves in the second quarter of each year. Based on the timing of EA reserves versus charge-offs, the ACLL for EAs to total remaining outstanding EAs is relatively substantial at the end of the first quarter, or 50% and 52% as of March 31, 2022 and March 31, 2021. The Company provided an ACLL for expected losses equal to 2.67% of total originations during the first quarter of 2022 as compared to 6.41% during the first quarter of 2021 because a lower percentage of EAs remained outstanding as of March 31, 2022 compared to March 31, 2021.  Management believes it has adequately adjusted its expected loss rate to absorb EA losses based on information known through the date of this filing.

Republic Credit Solutions segment

The RCS ACLL increased $3decreased $1 million from $9$13 million as of December 31, 20202021 to $12 million as of September 30, 2021,March 31, 2022, with this increasedecrease driven by growtha decrease in balances on RCS’s line-of-credit products.RCS loan balances.

RCS maintained an ACLL for two distinct credit products offered as of September 30, 2021,March 31, 2022, including its line-of-credit products and its healthcare-receivables products. As of September 30, 2021,March 31, 2022, 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 49% 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

COVID-19COVID Loan Accommodations

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

As of September 30, 2021, $3 million,March 31, 2022, $148,000, or less than 1% of the Company’s Traditional Bank portfolio remained under a COVID-19COVID hardship accommodation.

The ultimate long-term impact of the above accommodated loan balances on the Company’s Classified, Special Mention, nonperforming, and delinquent loans is currently uncertain. When evaluating its borrowers for further accommodation, the Bank considers prudent options based on the borrower’s credit risk; applicable federal and state laws and regulations, including COVID-related accommodations provided by applicable federal, state, and local laws; and the Bank’s ability to ease cash flow pressures on the affected borrowers while improving the Bank’s likelihood of collection on its loans. If enough borrowers were unable to meet their loan payment obligations at the end of their accommodation periods and were also unable to further extend their accommodation arrangements with the Bank, the Bank’s Classified, Special Mention, nonperforming, and delinquent loans would increase and negatively impact the Company’s overall operating performance.

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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 increaseddecreased approximately $12$10 million during the first nine monthsquarter of 2021,2022, driven primarily by commercial-purpose loans within the hospitality and leisure industry downgradedrepaid or upgraded to Special Mentiona Pass rating during the first nine monthsquarter of 2021. As previously mentioned, the ultimate long-term impact of loans accommodated due to COVID-19 on the Company’s Classified and Special Mention loans is currently uncertain.2022.

See Footnote 4 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding Classified and Special Mention loans.

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Table 149 — Classified and Special Mention Loans

(in thousands)

    

September 30, 2021

    

December 31, 2020

$ Change

% Change

 

(dollars in thousands)

    

March 31, 2022

    

December 31, 2021

$ Change

% Change

Loss

$

$

$

$

$

$

%

Doubtful

 

 

 

 

Substandard

 

24,501

 

30,193

(5,692)

(19)

%  

 

18,681

 

21,714

(3,033)

(14)

PCD - Substandard

 

1,739

 

1,887

(148)

(8)

PCD* - Substandard

 

1,644

 

1,692

(48)

(3)

Total Classified Loans

 

26,240

 

32,080

(5,840)

(18)

 

20,325

 

23,406

(3,081)

(13)

Special Mention

 

107,227

 

89,206

18,021

20

 

107,186

 

114,496

(7,310)

(6)

PCD - Special Mention

 

831

 

895

(64)

(7)

PCD* - Special Mention

 

776

 

795

(19)

(2)

Total Special Mention Loans

 

108,058

 

90,101

17,957

20

 

107,962

 

115,291

(7,329)

(6)

Total Classified and Special Mention Loans

$

134,298

$

122,181

$

12,117

10

$

128,287

$

138,697

$

(10,410)

(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 TDRs totaling approximately $6 million and $7$6 million as of September 30, 2021March 31, 2022 and December 31, 2020.2021.

Nonperforming loans to total loans remaineddecreased to 0.39% at 0.48%March 31, 2022 from 0.46% at December 31, 20202021, as the total balance of nonperforming loans decreased by $4 million, or 17%, while total loans decreased $106 million, or 2%, during the first quarter of 2022. As presented in Tables 13 and 14 below, the decrease in nonperforming loans during 2022, including the nonaccrual loan component, was primarily driven by the refinancing of $5 million of these loans to September 30, 2021. As previously mentioned,another financial institution.

The ACLL to total nonperforming loans increased to 423% as of March 31, 2022 from 315% as of December 31, 2021, as the ultimate long-term impacttotal ACLL increased $7 million, or 11%, and the balance of nonperforming loans accommodated due to COVID-19 ondecreased by $4 million, or 17%. The driver of the increase in ACLL was primarily EAs originated through the Company’s TRS segment, while the driver of the decrease in nonperforming loans is currently uncertain.was primarily the refinancing out of the Bank of $5 million of these loans during the first quarter of 2022.

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Table 1510 — Nonperforming Loans and Nonperforming Assets Summary

(in thousands)

    

September 30, 2021

    

December 31, 2020

    

(dollars in thousands)

    

March 31, 2022

    

December 31, 2021

    

Loans on nonaccrual status*

$

20,252

$

23,548

$

16,935

$

20,504

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

 

691

 

47

 

31

 

48

Total nonperforming loans

 

20,943

 

23,595

 

16,966

 

20,552

Other real estate owned

 

1,845

 

2,499

 

1,740

 

1,792

Total nonperforming assets

$

22,788

$

26,094

$

18,706

$

22,344

Credit Quality Ratios - Total Company:

ACLL to total loans

1.63

%  

1.44

%

Nonaccrual loans to total loans

0.39

0.46

ACLL to nonaccrual loans

423

315

Nonperforming loans to total loans

 

0.48

%  

 

0.49

%

 

0.39

 

0.46

Nonperforming assets to total loans (including OREO)

 

0.52

 

0.54

 

0.43

 

0.50

Nonperforming assets to total assets

 

0.37

 

0.42

 

0.29

 

0.37

Credit Quality Ratios - Core Bank:

ACLL to total loans

 

1.20

%  

1.18

%

Nonaccrual loans to total loans

0.40

0.47

ACLL to nonaccrual loans

303

251

Nonperforming loans to total loans

 

0.48

%  

0.50

%

 

0.40

0.47

Nonperforming assets to total loans (including OREO)

 

0.52

 

0.56

 

0.44

 

0.51

Nonperforming assets to total assets

 

0.39

 

0.45

 

0.33

 

0.40

*

Loans on nonaccrual status include collateral-dependent loans. See Footnote 4 “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 1611 — Nonperforming Loan Composition

September 30, 2021

December 31, 2020

March 31, 2022

December 31, 2021

Percent of

Percent of

Percent of

Percent of

   

Total

Total

   

Total

Total

(in thousands)

Balance

Loan Class

Balance

Loan Class

   

(dollars in thousands)

Balance

Loan Class

Balance

Loan Class

   

   

   

Traditional Banking:

Residential real estate:

   

   

Owner occupied

   

$

11,708

1.41

%  

  

$

14,328

1.63

%  

   

$

11,728

1.45

%  

  

$

12,039

1.47

%  

Nonowner occupied

 

   

 

99

0.03

 

81

0.03

 

   

 

132

0.04

 

95

0.03

Commercial real estate

 

   

 

6,607

0.47

 

6,762

0.50

 

   

 

3,581

0.23

 

6,557

0.45

Construction & land development

 

   

 

 

 

   

 

 

Commercial & industrial

 

   

 

93

0.03

 

55

0.02

 

   

 

 

13

0.00

Paycheck Protection Program

 

 

Lease financing receivables

 

   

 

 

 

   

 

 

Aircraft

 

 

Home equity

 

   

 

1,657

0.77

  

 

2,141

0.89

 

   

 

1,431

0.68

  

 

1,700

0.81

Consumer:

   

   

Credit cards

5

0.04

Overdrafts

1

0.15

Automobile loans

84

0.48

170

0.56

60

0.51

97

0.67

Other consumer

4

0.06

11

0.13

3

0.32

3

0.21

Total Traditional Banking

20,252

0.58

23,553

0.63

16,935

0.47

20,505

0.59

Warehouse lines of credit

 

   

 

 

 

   

 

 

Total Core Banking

20,252

0.48

23,553

0.50

16,935

0.40

20,505

0.47

Republic Processing Group:

Tax Refund Solutions:

 

   

 

 

 

   

 

 

Easy Advances

 

   

 

 

 

   

 

 

Other TRS loans

Republic Credit Solutions

 

   

 

691

0.59

 

42

0.04

 

   

 

31

0.04

 

47

0.05

Total Republic Processing Group

   

 

691

0.59

 

42

0.04

   

 

31

0.02

 

47

0.03

   

   

Total nonperforming loans

   

$

20,943

0.48

%  

$

23,595

0.49

%  

   

$

16,966

0.39

%  

$

20,552

0.46

%  

   

   

88

Table of Contents

Table 12 — Stratification of Nonperforming Loans

Number of Nonperforming Loans and Recorded Investment

 

    

    

    

    

Balance

    

    

    

    

 

March 31, 2022

Balance

> $100 &

Balance 

Total

 

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

 

 

 

 

Traditional Banking:

Residential real estate:

Owner occupied

 

148

$

4,853

 

31

$

5,370

 

1

$

1,505

 

180

$

11,728

Nonowner occupied

 

4

 

132

 

 

 

 

 

4

 

132

Commercial real estate

 

 

 

1

 

264

 

2

 

3,317

 

3

 

3,581

Construction & land development

 

 

 

 

 

 

 

 

Commercial & industrial

 

 

 

 

 

 

 

 

Paycheck Protection Program

Lease financing receivables

 

 

 

 

 

 

 

 

Aircraft

 

 

 

 

 

 

 

Home equity

 

25

 

643

 

5

 

788

 

 

 

30

 

1,431

Consumer:

Credit cards

 

 

 

 

 

 

 

 

Overdrafts

NM

 

 

 

 

 

 

NM

 

Automobile loans

7

 

60

 

 

 

 

 

7

 

60

Other consumer

3

3

3

 

3

Total Traditional Banking

187

5,691

37

6,422

3

4,822

227

16,935

Warehouse lines of credit

 

 

 

 

 

 

 

 

Total Core Banking

187

5,691

37

6,422

3

4,822

227

16,935

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

Other TRS loans

 

Republic Credit Solutions

NM

31

NM

 

31

Total Republic Processing Group

NM

31

NM

31

Total

 

187

$

5,722

 

37

$

6,422

 

3

$

4,822

 

227

$

16,966

Number of Nonperforming Loans and Recorded Investment

 

    

    

    

    

Balance

    

    

    

    

 

December 31, 2021

Balance

> $100 &

Balance 

Total

 

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

Traditional Banking:

Residential real estate:

Owner occupied

 

146

$

5,042

 

27

$

4,857

 

2

$

2,140

 

175

$

12,039

Nonowner occupied

 

3

 

95

 

 

 

 

 

3

 

95

Commercial real estate

 

 

 

4

 

872

 

3

 

5,685

 

7

 

6,557

Construction & land development

 

 

 

 

 

 

 

 

Commercial & industrial

 

1

 

13

 

 

 

 

 

1

 

13

Paycheck Protection Program

 

Lease financing receivables

 

 

 

 

 

 

 

 

Aircraft

 

 

 

 

Home equity

 

25

 

695

 

5

 

1,005

 

 

 

30

 

1,700

Consumer:

Credit cards

 

 

 

 

 

 

 

NM

 

Overdrafts

NM

 

1

 

 

 

 

 

NM

 

1

Automobile loans

13

 

97

 

 

 

 

 

13

 

97

Other consumer

4

3

4

 

3

Total Traditional Banking

192

5,946

36

6,734

5

7,825

233

20,505

Warehouse lines of credit

 

 

 

 

 

 

 

 

Total Core Banking

192

5,946

36

6,734

5

7,825

233

20,505

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

Other TRS loans

 

Republic Credit Solutions

NM

47

NM

 

47

Total Republic Processing Group

NM

47

NM

47

Total

 

192

$

5,993

 

36

$

6,734

 

5

$

7,825

 

233

$

20,552

10489

Table of Contents

Table 17 — Stratification of Nonperforming Loans

Number of Nonperforming Loans and Recorded Investment

 

    

    

    

    

Balance

    

    

    

    

 

September 30, 2021

Balance

> $100 &

Balance 

Total

 

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

 

 

 

 

Traditional Banking:

Residential real estate:

Owner occupied

 

143

$

5,002

 

25

$

4,511

 

2

$

2,195

 

170

$

11,708

Nonowner occupied

 

3

 

99

 

 

 

 

 

3

 

99

Commercial real estate

 

 

 

4

 

895

 

3

 

5,712

 

7

 

6,607

Construction & land development

 

 

 

 

 

 

 

 

Commercial & industrial

 

4

 

93

 

 

 

 

 

4

 

93

Paycheck Protection Program

Lease financing receivables

 

 

 

 

 

 

 

 

Aircraft

 

 

 

 

 

 

 

Home equity

 

27

 

741

 

4

 

916

 

 

 

31

 

1,657

Consumer:

Credit cards

 

 

 

 

 

 

 

NM

 

Overdrafts

 

 

 

 

 

 

 

Automobile loans

10

 

84

 

 

 

 

 

10

 

84

Other consumer

4

4

4

 

4

Total Traditional Banking

191

6,023

33

6,322

5

7,907

229

20,252

Warehouse lines of credit

 

 

 

 

 

 

 

 

Total Core Banking

191

6,023

33

6,322

5

7,907

229

20,252

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

Other TRS loans

 

Republic Credit Solutions

NM

691

NM

 

691

Total Republic Processing Group

NM

691

NM

691

Total

 

191

$

6,714

 

33

$

6,322

 

5

$

7,907

 

229

$

20,943

Number of Nonperforming Loans and Recorded Investment

 

    

    

    

    

Balance

    

    

    

    

 

December 31, 2020

Balance

> $100 &

Balance 

Total

 

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

Traditional Banking:

Residential real estate:

Owner occupied

 

146

$

5,110

 

27

$

4,966

 

5

$

4,252

 

178

$

14,328

Nonowner occupied

 

3

 

81

 

 

 

 

 

3

 

81

Commercial real estate

 

2

 

45

 

3

 

925

 

3

 

5,792

 

8

 

6,762

Construction & land development

 

 

 

 

 

 

 

 

Commercial & industrial

 

2

 

55

 

 

 

 

 

2

 

55

Paycheck Protection Program

 

Lease financing receivables

 

 

 

 

 

 

 

 

Aircraft

 

 

 

 

Home equity

 

26

 

867

 

6

 

1,274

 

 

 

32

 

2,141

Consumer:

Credit cards

 

NM

 

5

 

 

 

 

 

NM

 

5

Overdrafts

 

 

 

 

 

 

 

Automobile loans

14

 

170

 

 

 

 

 

14

 

170

Other consumer

7

11

7

 

11

Total Traditional Banking

200

6,344

36

7,165

8

10,044

244

23,553

Warehouse lines of credit

 

 

 

 

 

 

 

 

Total Core Banking

200

6,344

36

7,165

8

10,044

244

23,553

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

 

Other TRS loans

 

Republic Credit Solutions

NM

42

NM

 

42

Total Republic Processing Group

NM

42

NM

42

Total

 

200

$

6,386

 

36

$

7,165

 

8

$

10,044

 

244

$

23,595

105

Table of Contents

Table 1813 — Rollforward of Nonperforming Loans

    

Three Months Ended

    

Nine Months Ended

 

    

Three Months Ended

 

September 30, 

September 30, 

March 31, 

(in thousands)

2021

2020

2021

2020

2022

2021

    

Nonperforming loans at the beginning of the period

$

22,344

$

20,419

$

23,595

$

23,489

$

20,552

$

23,595

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

 

1,248

 

3,721

 

2,641

 

8,169

 

1,607

 

846

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

 

(2,233)

 

(2,251)

 

(4,839)

 

(5,932)

 

(4,799)

 

(1,891)

Principal balance paydowns of loans nonperforming at both period ends

(384)

(360)

(1,098)

(4,660)

(378)

(499)

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

 

(32)

 

(444)

 

644

 

19

 

(16)

 

470

Nonperforming loans at the end of the period

$

20,943

$

21,085

$

20,943

$

21,085

$

16,966

$

22,521

*

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

Table 1914 — Detail of Loans Removed from Nonperforming Status

    

Three Months Ended

    

Nine Months Ended

    

    

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

    

2021

    

2020

    

2021

    

2020

    

2022

    

2021

    

Loans charged off

$

$

$

$

(2)

$

$

Loans transferred to OREO

 

 

 

 

(2,109)

 

 

Loans refinanced at other institutions

 

(2,150)

 

(1,917)

 

(4,559)

 

(2,870)

 

(4,595)

 

(1,891)

Loans returned to accrual status

 

(83)

 

(334)

 

(280)

 

(951)

 

(204)

 

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

$

(2,233)

$

(2,251)

$

(4,839)

$

(5,932)

$

(4,799)

$

(1,891)

Based on the Bank’s review as of September 30, 2021,March 31, 2022, management believes that its reserves are adequate to absorb expected losses on all nonperforming loans.

Delinquent Loans

Total Company delinquent loans to total loans decreasedincreased to 0.40%0.37% as of September 30, 2021March 31, 2022 from 0.42%0.30% as of December 31, 2020.2021. Core Bank delinquent loans to total Core Bank loans decreased to 0.18%0.14% as of September 30, 2021March 31, 2022 from 0.21%0.17% as of December 31, 2020.2021. With the exception of small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of September 30, 2021March 31, 2022 and December 31, 20202021 were on nonaccrual status. As previously mentioned, the ultimate long-term impact of loans accommodated due to COVID-19 on the Company’s delinquent loans is currently uncertain.

10690

Table of Contents

Table 2015 — Delinquent Loan Composition* 

September 30, 2021

December 31, 2020

March 31, 2022

December 31, 2021

Percent of

Percent of

Percent of

Percent of

Total

Total

Total

Total

(in thousands)

    

Balance

Loan Class

Balance

Loan Class

(dollars in thousands)

    

Balance

Loan Class

Balance

Loan Class

Traditional Banking:

Residential real estate:

Owner occupied

   

$

2,128

0.26

%  

   

$

3,260

0.37

%  

   

$

2,628

0.32

%  

   

$

1,599

0.19

%  

Nonowner occupied

   

 

   

 

   

 

41

0.01

   

 

Commercial real estate

   

 

5,037

0.36

   

 

5,457

0.40

   

 

2,464

0.16

   

 

5,292

0.36

Construction & land development

   

 

   

 

   

 

   

 

Commercial & industrial

   

 

66

0.02

   

 

12

0.00

   

 

   

 

21

0.01

Paycheck Protection Program

   

 

   

 

Lease financing receivables

Aircraft

Home equity

259

0.12

702

0.29

555

0.26

314

0.15

Consumer:

Credit cards

45

0.30

73

0.51

39

0.27

30

0.21

Overdrafts

145

19.26

147

25.04

119

16.62

164

24.01

Automobile loans

11

0.06

56

0.18

17

0.14

9

0.06

Other consumer

1

0.02

6

0.07

1

0.07

Total Traditional Banking

7,692

0.22

9,713

0.26

5,863

0.16

7,430

0.21

Warehouse lines of credit

Total Core Banking

7,692

0.18

9,713

0.21

5,863

0.14

7,430

0.17

Republic Processing Group:

   

 

   

 

Tax Refund Solutions:

   

 

   

 

Easy Advances

   

 

   

 

   

 

4,524

27.46

   

 

Other TRS loans

   

 

   

 

   

 

160

0.64

   

 

Republic Credit Solutions

   

 

9,701

8.31

   

 

10,234

9.23

   

 

5,668

6.47

   

 

6,035

6.48

Total Republic Processing Group

   

 

9,701

8.31

   

 

10,234

9.23

   

 

10,352

8.01

   

 

6,035

4.19

   

   

   

   

Total delinquent loans

   

$

17,393

0.40

%  

   

$

19,947

0.42

%  

   

$

16,215

0.37

%  

   

$

13,465

0.30

%  

*     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.

10791

Table of Contents

Table 2116 — Rollforward of Delinquent Loans

    

Three Months Ended

Nine Months Ended

    

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

    

2021

    

2020

    

2021

    

2020

    

    

2022

    

2021

    

Delinquent loans at the beginning of the period

$

18,718

$

14,046

$

19,947

$

20,804

$

13,465

$

19,947

Loans that became delinquent during the period - Easy Advances*

4,524

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

 

945

 

6,093

 

1,268

 

7,817

 

2,103

 

992

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

 

(3,109)

 

(2,205)

 

(3,179)

 

(8,488)

 

(3,604)

 

(2,017)

Principal balance paydowns of loans delinquent at both period ends

(34)

(788)

(81)

(2,977)

(28)

(29)

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

 

873

 

(93)

 

(562)

 

(103)

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

 

(245)

 

(3,907)

Delinquent loans at the end of period

$

17,393

$

17,053

$

17,393

$

17,053

$

16,215

$

14,986

*

EAs do not have a contractual due date but the Company considered an EA delinquent in 2022 and 2021 if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority.

**

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

Table 2217 — Detail of Loans Removed from Delinquent Status

    

Three Months Ended

Nine Months Ended

Three Months Ended

September 30, 

September 30, 

March 31, 

(in thousands)

    

2021

    

2020

    

2021

    

2020

    

2022

    

2021

    

    

Loans charged off

$

$

$

(1)

$

(3)

$

(1)

$

Easy Advances paid off or charged off

Loans transferred to OREO

 

 

 

 

(2,109)

 

 

Loans refinanced at other institutions

 

(1,652)

 

(1,189)

 

(1,938)

 

(3,856)

 

(3,418)

 

(1,270)

Loans paid current

 

(1,457)

 

(1,016)

 

(1,240)

 

(2,520)

 

(185)

 

(747)

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

$

(3,109)

$

(2,205)

$

(3,179)

$

(8,488)

$

(3,604)

$

(2,017)

Collateral-Dependent Loans and Troubled Debt Restructurings

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

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

Table 2318 — Collateral-Dependent Loans and Troubled Debt Restructurings

(in thousands)

    

September 30, 2021

    

December 31, 2020

$ Change

% Change

 

(dollars in thousands)

    

March 31, 2022

    

December 31, 2021

$ Change

% Change

 

Cashflow-dependent TDRs

$

6,227

$

10,938

$

(4,711)

(43)

%

$

4,963

$

5,960

$

(997)

(17)

%

Collateral-dependent TDRs

10,224

9,840

384

4

10,224

9,426

798

8

Total TDRs

16,451

20,778

(4,327)

(21)

15,187

15,386

(199)

(1)

Collateral-dependent loans (which are not TDRs)

 

14,781

 

20,806

(6,025)

(29)

 

10,935

 

14,645

(3,710)

(25)

Total recorded investment in TDRs and collateral-dependent loans

$

31,232

$

41,584

$

(10,352)

(25)

%

$

26,122

$

30,031

$

(3,909)

(13)

%

See Footnote 4 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding collateral-dependent loans and TDRs.

10892

Table of Contents

Deposits

Table 2419 — Deposit Composition

(in thousands)

    

September 30, 2021

    

December 31, 2020

$ Change

% Change

 

(dollars in thousands)

    

March 31, 2022

    

December 31, 2021

$ Change

% Change

Core Bank:

Demand

$

1,342,395

$

1,217,263

$

125,132

10

%

$

1,415,655

$

1,381,522

$

34,133

2

%

Money market accounts

 

793,236

 

712,824

80,412

11

 

793,953

 

789,876

4,077

1

Savings

 

295,663

 

236,335

59,328

25

 

327,358

 

311,624

15,734

5

Individual retirement accounts (1)

 

46,196

 

47,889

(1,693)

(4)

 

42,149

 

43,724

(1,575)

(4)

Time deposits, $250 and over (1)

 

84,340

 

83,448

892

1

 

60,738

 

81,050

(20,312)

(25)

Other certificates of deposit (1)

 

163,345

 

199,214

(35,869)

(18)

 

139,735

 

154,174

(14,439)

(9)

Reciprocal money market and time deposits (1)

 

101,109

 

314,109

(213,000)

(68)

 

70,030

 

77,950

(7,920)

(10)

Brokered deposits (1)

 

30,001

 

25,010

4,991

20

 

 

Total Core Bank interest-bearing deposits

2,856,285

2,836,092

20,193

1

2,849,618

2,839,920

9,698

0

Total Core Bank noninterest-bearing deposits

 

1,691,413

 

1,503,662

187,751

12

 

1,630,926

 

1,579,173

51,753

3

Total Core Bank deposits

 

4,547,698

 

4,339,754

207,944

5

 

4,480,544

 

4,419,093

61,451

1

Republic Processing Group:

Money market accounts

5,114

6,673

(1,559)

(23)

10,774

9,717

1,057

11

Total RPG interest-bearing deposits

5,114

6,673

(1,559)

(23)

10,774

9,717

1,057

11

Brokered prepaid card deposits

323,250

257,856

65,394

25

412,746

320,907

91,839

29

Other noninterest-bearing deposits

38,822

110,021

(71,199)

(65)

183,042

90,701

92,341

102

Total RPG noninterest-bearing deposits

362,072

367,877

(5,805)

(2)

595,788

411,608

184,180

45

Total RPG deposits

367,186

374,550

(7,364)

(2)

606,562

421,325

185,237

44

Deposits of discontinued operations (2)

33,063

18,877

14,186

75

Total deposits

$

4,947,947

$

4,733,181

$

214,766

5

%

$

5,087,106

$

4,840,418

$

246,688

5

%

(1)Includes time deposit
(2)See additional detail regarding the Bank’s agreement to sell TRS under Footnote 17 “Discontinued Operations” in this section of the filing.

Total Company deposits increased $215$247 million, or 5%, from December 31, 20202021 to $4.9$5.1 billion as of September 30, 2021.March 31, 2022.

Total Core Bank deposits increased $208minimally by $61 million, or 5%1%, with no notable changes during the following primarily driving growth:quarter.

Management believes its deposit balances continue to be the beneficiary of Federal government stimulus brought about by the COVID-19 pandemic. During the first nine months of 2021, the Federal government issued two rounds of economic stimulus payments. At this time, management is uncertain how long these stimulus funds may remain at the Bank.

The Core Bank originated $210 million of PPP loans during the first nine months of 2021, with PPP borrowers generally retaining their loan proceeds within a deposit account at the Bank.

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

Offsetting the positive growth mentioned above, deposit balances were negatively impacted by a shift of approximately $140 million in balances from interest-bearing reciprocal money market accounts to SSUARs. This shift occurred as the Bank lowered its reciprocal money market account pricing to its clients due to the high cost of the additional fees associated with participation in the money market network, which allows clients to fully insure their deposits through FDIC insurance by spreading their funds across multiple banks.

Total RPG deposits from continuing operations decreased $7increased $185 million, or 2%44%, for the first nine monthsquarter of 2021,2022, with the following primarily driving growth:

RPG noninterest-bearing deposits growth was primarily driven by the following:

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RPG prepaid card balancesRPG’s other noninterest-bearing deposits increased approximately $92 million due to seasonal short-term RT deposits generated within its RPS division increased $65 million, driven by government stimulus funds appliedthe TRS segment. These deposits are expected to prepaid card deposit balances. At this time, management is uncertain how long these stimulus funds may remain atexit the Bank.Bank during the next quarter.

RPG other noninterest-bearing deposits decreased $71RPS’s prepaid card balances within its RPS division of TRS increased $92 million, driven primarily by an outflowtax-refund related deposits loaded onto prepaid cards during the first quarter of commercial settlement deposits associated with the RCS segment’s line-of-credit products.2022.

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

SSUARs are collateralized by securities and are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements are under the Bank’s control.

SSUARs increased $50 million during the first nine months of 2021 to $261 million as of September 30, 2021 compared to $211 million as of December 31, 2020. As mentioned above, Bank clients shifted approximately $140 million in balances from interest-bearing reciprocal money market accounts to SSUARs after the Bank lowered its reciprocal money market account pricing due to the high cost to the Bank of participating in the money market network. The increase driven by this shift was partially offset by a $94 million decrease in SSUARs during the first nine months of 2021, driven by the exit of one corporate client following the acquisition of this client by another company. The substantial majority of SSUARs are indexed to immediately repricing indices such as the FFTR.

Federal Home Loan Bank Advances

FHLB advances declined by $210 million from December 31, 2020 to September 30, 2021, as the Bank continued to maintain sufficient deposit balances to meet its current liquidity needs. The Bank held $20 million of long-term FHLB advances at March 31, 2022 compared to $25 million inof overnight FHLB advances at a rate of 0.14% as of September 30, 2021, compared to $225 million in overnight advances at a rate of 0.16% as of December 31, 2020. Given2021. During the overall amountfirst quarter of liquidity2022, the Bank extended the term on $20 million of its FHLB advances in anticipation of increasing long-term interest rates and repaid the remaining $5 million. As of March 31, 2022, the Company’s balance sheet as$20 million of September 30, 2021, management does not anticipate that FHLB term or overnight advances will likely be utilized to any material extent over the near term.had a weighted average maturity of five years and a weighted average cost of 1.89%.

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.

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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 Company had a loan to deposit ratio (excluding brokered deposits) of 95% as of September 30, 2021 and 108% as of December 31, 2020. As of September 30, 2021 and December 31, 2020, the Company had cash and cash equivalents on-hand of $1.0 billion and $486 million. The Bank also had available borrowing capacity of $898 million and $683 million from the FHLB as of September 30, 2021 and December 31, 2020. In addition, the Bank’s liquidity resources included unencumbered debt securities of $187 million and $274 million as of September 30, 2021 and December 31, 2020 and unsecured lines of credit of $125 million available through various other financial institutions as of the same period-ends.

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

Table 20 — Liquid Assets and Borrowing Capacity

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

(in thousands)

    

March 31, 2022

    

December 31, 2021

Cash and cash equivalents

$

1,077,158

$

756,971

Unincumbered debt securities

 

281,521

 

219,775

Total liquid assets

1,358,679

976,746

Borrowing capacity with the FHLB

 

887,520

 

900,424

Borrowing capacity through unsecured credit lines

 

125,000

 

125,000

Total borrowing capacity

1,012,520

1,025,424

Total liquid assets and borrowing capacity

$

2,371,199

$

2,002,170

The Bank had a loan to sell certain investment securities, which is limited due to the leveldeposit ratio (excluding brokered deposits) of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings,94% as of March 31, 2022 and for other purposes,99% as required by law. As of September 30, 2021 and December 31, 2020, these pledged investment securities had a fair value of $354

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million and $304 million.2021. 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 canceled,cancelled, or if the Bank cannot obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.

As of September 30, 2021,March 31, 2022, the Bank had approximately $1.6$1.5 billion in deposits from 245244 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded $2 million. The 20 largest non-sweep deposit relationships represented approximately $609$520 million, or 12%10%, of the Company’s total deposit balances as of September 30, 2021.as of March 31, 2022. These accounts do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances were moved from the Bank, the Bank would likely utilize overnight borrowing lines in the short-term to replace the balances. On a longer-term basis, the Bank would likely utilize wholesale-brokered deposits to replace withdrawn balances, or alternatively, higher-cost internet-sourced deposits. Based on past experience utilizing brokered deposits and internet-sourced deposits, the Bank believes it can quickly obtain these types of deposits if needed. The overall cost of gathering these types of deposits, however, could be substantially higher than the Traditional Bank deposits they replace, potentially decreasing the Bank’s earnings.

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, 2022 and December 31, 2021, these pledged investment securities had a fair value of $331 million and $320 million.

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Capital

Total stockholders’ equity increased from $823$834 million as of December 31, 20202021 to $839$840 million as of September 30, 2021.March 31, 2022. The increase in stockholders’ equity was primarily attributable to net income earned during 20212022 reduced primarily by cash dividends declared and Class A common stock repurchased.

See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” for additional detail regarding stock repurchases and stock buyback programs.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 September 30, 2021,April 1, 2022, RB&T could, without prior approval, declare dividends of approximately $176$123 million. Any payment of dividends in the future will depend, in large part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors.

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

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

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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 13.33%13.19% as of September 30, 2021March 31, 2022 compared to 13.35%13.41% as of December 31, 2020.2021. 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, an unconsolidated trust subsidiary of Republic, was formed and issued $40 million in TPS. On September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic redeemed these securities at the par amount of approximately $40 million, without penalty. Republic’s capital ratios remained well above “well capitalized” levels following the redemption of the TPS, which were treated as part of Republic’s Tier I Capital while outstanding.

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Table 2521 — Capital Ratios (1)

As of September 30, 2021

As of December 31, 2020

 

As of March 31, 2022

As of December 31, 2021

 

(dollars in thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

 

    

Amount

    

Ratio

    

Amount

    

Ratio

 

Total capital to risk-weighted assets

Republic Bancorp, Inc.

$

877,936

 

18.25

%  

$

896,053

 

18.52

%  

$

906,036

 

18.13

%  

$

878,488

 

17.47

%  

Republic Bank & Trust Company

 

849,951

 

17.67

 

796,114

 

16.46

 

873,513

 

17.49

 

861,815

 

17.14

Common equity tier 1 capital to risk-weighted assets

Republic Bancorp, Inc.

$

824,203

 

17.13

%  

$

803,682

 

16.61

%  

$

843,538

 

16.88

%  

$

823,504

 

16.37

%  

Republic Bank & Trust Company

 

796,218

 

16.56

 

743,743

 

15.38

 

811,075

 

16.24

 

806,831

 

16.05

Tier 1 (core) capital to risk-weighted assets

Republic Bancorp, Inc.

$

824,203

 

17.13

%  

$

843,682

 

17.43

%  

$

843,538

 

16.88

%  

$

823,504

 

16.37

%  

Republic Bank & Trust Company

 

796,218

 

16.56

 

743,743

 

15.38

 

811,075

 

16.24

 

806,831

 

16.05

Tier 1 leverage capital to average assets

Republic Bancorp, Inc.

$

824,203

 

13.13

%  

$

843,682

 

13.70

%  

$

843,538

 

13.15

%  

$

823,504

 

13.35

%  

Republic Bank & Trust Company

 

796,218

 

12.72

 

743,743

 

12.11

 

811,075

 

12.65

 

806,831

 

13.10

(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 been approximately 1415 basis points lower than those presented in the table above as of September 30,March 31, 2022 and December 31, 2021.

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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.

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As of September 30, 2021,March 31, 2022, a dynamic simulation model was run for interest rate changes from “Down 100” basis points to “Up 400” basis points. The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning OctoberApril 1, 20212022 and ending September 30, 2022March 31, 2023 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 includes secondary market loan fees and excludes Traditional Bank loan fees.

Table 2622 — Bank Interest Rate Sensitivity (Continuing Operations)

Change in Rates

Change in Rates

-100

    

+100

    

+200

    

+300

    

+400

    

-100

    

+100

    

+200

    

+300

    

+400

    

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

% Change from base net interest income as of September 30, 2021

 

%  

 

(1.8)

%  

 

(1.7)

%  

 

2.8

%

 

7.3

%

% Change from base net interest income as of December 31, 2020

 

0.4

%  

 

(4.5)

%  

 

(7.0)

%  

 

(5.7)

%

 

(4.2)

%

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

 

2.0

%  

 

0.2

%  

 

2.5

%  

 

4.9

%

 

7.7

%

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

 

1.3

%  

 

(0.6)

%  

 

0.7

%  

 

4.7

%

 

9.3

%

The Bank’s dynamic

For the Down-100, Up-100, Up-200, and Up-300 scenarios, the March 31, 2022 simulation model runreflected a more positive outcome for September 2021 projected no change in the Bank’s net interest income plus secondary market loan fees forthan the “Down-100”comparable December 31, 2021 simulation. For the Up-400 scenario, a decrease in the “Up-100” and “Up-200” scenarios, and an increase in the “Up-300” and “Up-400” rate scenarios. The projections as of December 20202021 simulation reflected a modest increasemore positive outcome than the March 2022 simulation. The changes in the Down-100 scenario and decreases in all Up-rate scenarios.

As comparedsimulation outcomes from December 2021 to December 2020, the deterioration in the Down-100 rate scenario for September 2021 was generally because the Bank had less ability in September 2021 than December 2020 to reprice its liabilities downward.  The improvement in the Up-rate scenariosMarch 2022 was primarily due to the following:

GrowthThe positive impact from the growth in interest-earning cash balances from December 20202021 to September 2021; andMarch 2022;
A smallerThe negative impact from a larger projected falloffdecline in secondary market fees for the September 2021March 2022 Up-400 simulation than previously projected for the December 20202021 simulation.

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LIBOR Exposure

In July 2017, the Financial Conduct Authority (the “FCA”(“FCA”), the authority regulating LIBOR, along with various other regulatory bodies, announced that LIBOR would likely be discontinued at the end of 2021. Subsequent to that announcement, in November 2020, the FCA announced that many tenors of LIBOR would continue to be published through June 2023. In compliance with regulatory guidance, the Bank regulators have instructed banks to discontinue new originationsdiscontinued referencing LIBOR as soon as possible, but no later than December 2021. To facilitatefor new financial instruments during 2021 and chose SOFR to be its primary alternative reference rate for most transaction types upon the transition process, management has instituted an enterprise-wide program to identify, assess, and monitor risks associated with the expected discontinuance or unavailability of LIBOR.

Management focuses on operational readiness, as well as instituting processes and systems to validate that contract risk is clearly identified and understood. New originations and any modifications or renewals of LIBOR-based contracts contain fallback language to assist in an orderly transition to an alternative reference rate. For Bank contracts that have a duration beyond December 31, 2021, andRegarding its legacy assets that reference LIBOR, allthe Bank has previously disclosed that the underlying contracts for these assets may not include adequate “fallback” language to use alternative indexes and margins when LIBOR ceases. However, on March 15, 2022, President Biden signed into law the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Law”), which is designed to accomplish the following:

Establish a clear and uniform process, on a nationwide basis, for replacing LIBOR in existing contracts the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate, without affecting the ability of parties to use any appropriate benchmark rate in new contracts;
Preclude litigation related to existing contracts, the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate;
Allow existing contracts that reference LIBOR but provide for the use of a clearly defined and practicable replacement rate to operate according to their terms; and
Address LIBOR references in federal law.

With limited exception, the LIBOR Law generally covers legacy LIBOR contracts with no or inadequate fallback provisionsprovisions. Additionally, under the LIBOR Law, by September 11, 2022, the Board of Governors of the Federal Reserve System (the “Board”) must issue regulations to give effect to the law, including the selection of a Board-Selected Benchmark Replacement that is based on SOFR and variations are currently being identifiedincorporates an applicable tenor spread adjustment and sorted into classifications based upon those provisions. Upon classification, the contracts are monitored and possibly remediated if fallback provisions are not deemed sufficiently robust. The Bank realizes that remediating certain contracts indexed to LIBOR may require consent from the counterparties, which could be difficult and costly to obtain in certain limited circumstances.identification of any related conforming changes.

As of September 30, 2021,March 31, 2022, the Company had approximately $1.3$1.1 billion of legacy assets that reference LIBOR, with short-term Warehouse balancesloans representing $751$631 million of these assets and commercial and mortgage loans primarily making up the remainder. As of March 31, 2021, of the Bank’s legacy assets that reference LIBOR, approximately $434 million of those assets were scheduled to mature after June 30, 2023. These amounts exclude derivative assets and liabilities on the Company’s consolidated balance sheet.

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As of September 30, 2021,March 31, 2022, the notional amount of the Company’s LIBOR-referenced interest rate derivative contracts was more than $250 million. Eachapproximately $246 million, with $230 million of the LIBOR-referenced amounts discussed above will vary in future periods as current contracts expire with potential replacement contracts using either LIBOR or an alternative reference rate. The Company, and other industry participants, continuesuch notional scheduled to review alternative reference rates that could be utilized as a replacement for LIBOR.

mature after June 30, 2023.

For additional discussion regarding the Bank’s net interest income, see the sections titled “Net Interest Income” in this section of the filing under “RESULTS OF OPERATIONS (Three Months Ended September 30, 2021months ended March 31, 2022 Compared to Three Months Ended September 30, 2020) and “RESULTS OF OPERATIONS (Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020.months ended March 31, 2021.)

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.

See Footnote 1 “Basis of Presentation and Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements” for discussion regarding the Bank’s lawsuit against Green Dot.

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.

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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, 2020.2021. You should carefully consider the risk factors discussed in Republic’s 20202021 Form 10-K, which could materially affect its business, financial condition, or future results.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Details of Republic’s Class A Common Stock purchases during the thirdfirst quarter of 20212022 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

 

198,409

 

$

46.89

 

198,409

439,871

August 1 - August 31

 

82,529

 

49.75

 

82,529

357,342

September 1 - September 30

 

106,094

 

49.29

 

106,094

251,248

Total

 

387,032

 

$

48.16

 

387,032

 

251,248

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

$

270,328

February 1 - February 28

270,328

March 1 - March 31

270,328

Total

$

270,328

The Company repurchased 387,032did not repurchase any of its shares during the thirdfirst quarter of 2021.2022. In addition, in connection with employee stock awards, there were 945 shares withheld upon exercise of stock options to satisfy the withholding taxes and exercise price. On January 27, 2021, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase shares of its Class A Common Stock to 1,000,000 shares. On November 17, 2021, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase shares of its Class A Common Stock by an increase of 941,577 shares from the buyback program that was previously in place.additional 250,000 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 September 30, 2021,March 31, 2022, the Company had 251,248 remaining270,328 shares thatwhich could be repurchased under its current share repurchase program.programs.

During the thirdfirst quarter of 2021,2022, there were approximately 1,000no 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.

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Item 6.Exhibits.

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

Exhibit Number

Description of Exhibit

10.1

Seventh Amendment to Office Lease dated as of September 1, 2021 to the Office Lease dated August 1, 1999, as amended, by and between Jaytee-Springhurst, LLC and Republic Bank & Trust Company

10.2

Termination of Employment Agreement dated September 15, 2021 between Republic Bank & Trust Company and Logan M. Pichel (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed September 15, 2021 (Commission File Number: 0-24649))

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

The following financial statements from the Company’s quarterly report on Form 10-Q were formatted in iXBRL(Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2021March 31, 2022 and December 31, 2020,2021, (ii) Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30,March 31, 2022 and 2021, and 2020, (iii) Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30,March 31, 2022 and 2021, and 2020, (iv) Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2022 and 2021 and 2020 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.

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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:

Date: November 5, 2021May 6, 2022

     

     

/s/ Steven E. Trager

By: Steven E. Trager

Chairman and Chief Executive OfficerChair (Principal Executive Officer)

Principal Financial Officer:

Date: November 5, 2021May 6, 2022

/s/ Kevin Sipes

By: Kevin Sipes

Executive Vice President, Chief Financial

Officer and Chief Accounting Officer (Principal Financial Officer)

117101