Republic Bancorp (RBCAA) 10-Q 2020 Q3 Quarterly report

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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, 2020

or

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

Commission File Number: 0-24649

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, 2020, was 18,716,165 and 2,199,507.

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.	73
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	121
Item 4.	Controls and Procedures.	121
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings.	121
Item 1A.	Risk Factors.	122
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	124
Item 6.	Exhibits.	125
	SIGNATURES	126

2

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 Loss
CMO	Collateralized Mortgage Obligation
Core Bank	The Traditional Banking, Warehouse Lending, and Mortgage Banking reportable segments
COVID-19	Coronavirus Disease of 2019
CRE	Commercial Real Estate
Diluted EPS	Diluted earnings per Class A Common Share
EA	Easy Advance
ESPP	Employee Stock Purchase Plan
EVP	Executive Vice President
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FFTR	Federal Funds Target Rate
FHLB	Federal Home Loan Bank
FHLMC	Federal Home Loan Mortgage Corporation
FICO	Fair Isaac Corporation
FNMA	Federal National Mortgage Association
FOMC	Federal Open Market Committee
FRB	Federal Reserve Bank
FTE	Full Time Equivalent
FTP	Funds Transfer Pricing
GAAP	Generally Accepted Accounting Principles in the United States
HEAL	Home Equity Amortizing Loan
HELOC	Home Equity Line of Credit
HTM	Held to Maturity
IRS	Internal Revenue Service
ITM	Interactive Teller Machine
LGD	Loss Given Default
LIBOR	London Interbank Offered Rate
LPO	Loan Production Office
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
PCI	Purchased Credit Impaired
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
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
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	TPS Investment
Warehouse	Warehouse Lending segment

3

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)

	September 30,		December 31,
	2020		2019
ASSETS
Cash and cash equivalents	$	342,028	$	385,303
Available-for-sale debt securities, at fair value (amortized cost of $537,465 in 2020 and $467,122 in 2019, allowance for credit losses of $52 in 2020 and $0 in 2019)		550,218		471,355
Held-to-maturity debt securities (fair value of $55,163 in 2020 and $63,156 in 2019, allowance for credit losses of $295 in 2020 and $0 in 2019)		54,268		62,531
Equity securities with readily determinable fair value		3,070		3,188
Mortgage loans held for sale, at fair value		44,860		19,224
Consumer loans held for sale, at fair value		449		598
Consumer loans held for sale, at the lower of cost or fair value		11,443		11,646
Loans (loans carried at fair value of $588 in 2020 and $998 in 2019)		4,994,374		4,433,151
Allowance for credit losses		(59,891)		(43,351)
Loans, net		4,934,483		4,389,800
Federal Home Loan Bank stock, at cost		19,634		30,831
Premises and equipment, net		40,946		46,196
Right-of-use assets		43,643		35,206
Goodwill		16,300		16,300
Other real estate owned		2,056		113
Bank owned life insurance		67,617		66,433
Other assets and accrued interest receivable		109,431		81,595
TOTAL ASSETS	$	6,240,446	$	5,620,319
LIABILITIES
Deposits:
Noninterest-bearing	$	1,876,418	$	1,033,379
Interest-bearing		3,115,911		2,752,629
Total deposits		4,992,329		3,786,008
Securities sold under agreements to repurchase and other short-term borrowings		126,172		167,617
Operating lease liabilities		44,710		36,530
Federal Home Loan Bank advances		132,500		750,000
Subordinated note		41,240		41,240
Other liabilities and accrued interest payable		93,133		74,680
Total liabilities		5,430,084		4,856,075
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		4,900		4,907
Additional paid in capital		143,183		142,068
Retained earnings		652,724		614,171
Accumulated other comprehensive income		9,555		3,098
Total stockholders’ equity		810,362		764,244
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,240,446	$	5,620,319

See accompanying footnotes to consolidated financial statements.

4

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
INTEREST INCOME:
Loans, including fees	$	53,582	$	62,896	$	185,280	$	199,935
Taxable investment securities		2,266		3,221		7,761		10,096
Federal Home Loan Bank stock and other		190		1,942		1,247		6,325
Total interest income		56,038		68,059		194,288		216,356
INTEREST EXPENSE:
Deposits		2,876		8,042		12,825		21,693
Securities sold under agreements to repurchase and other short-term borrowings		22		298		158		1,049
Federal Reserve Payment Protection Plan Liquidity Facility		48		—		153		—
Federal Home Loan Bank advances		658		3,839		3,128		10,631
Subordinated note		182		394		829		1,252
Total interest expense		3,786		12,573		17,093		34,625
NET INTEREST INCOME		52,252		55,486		177,195		181,731
Provision for expected credit loss expense		1,500		3,153		30,794		24,844
NET INTEREST INCOME AFTER PROVISION		50,752		52,333		146,401		156,887
NONINTEREST INCOME:
Service charges on deposit accounts		3,017		3,749		8,604		10,650
Net refund transfer fees		1,152		317		19,888		21,046
Mortgage banking income		10,775		3,064		23,968		7,019
Interchange fee income		2,911		3,031		8,271		9,045
Program fees		1,487		1,317		5,249		3,428
Increase in cash surrender value of bank owned life insurance		400		394		1,184		1,154
Net gains (losses) on other real estate owned		(14)		267		(10)		487
Net loss on branch divestiture		—		(119)		—		(119)
Other		869		791		2,763		2,643
Total noninterest income		20,597		12,811		69,917		55,353
NONINTEREST EXPENSE:
Salaries and employee benefits		26,667		24,822		79,613		75,184
Occupancy and equipment, net		6,780		6,571		20,341		19,627
Communication and transportation		1,147		1,017		3,789		3,249
Marketing and development		919		1,420		2,770		3,800
FDIC insurance expense		345		—		644		743
Bank franchise tax expense		974		935		4,394		4,366
Data processing		3,340		2,344		8,632		6,657
Interchange related expense		1,056		1,138		3,305		3,755
Supplies		326		292		1,317		1,358
Other real estate owned and other repossession expense		6		130		45		324
Legal and professional fees		1,248		1,026		3,510		2,756
Other		2,715		2,716		8,957		9,529
Total noninterest expense		45,523		42,411		137,317		131,348
INCOME BEFORE INCOME TAX EXPENSE		25,826		22,733		79,001		80,892
INCOME TAX EXPENSE		5,437		4,325		16,111		14,961
NET INCOME	$	20,389	$	18,408	$	62,890	$	65,931
BASIC EARNINGS PER SHARE:
Class A Common Stock	$	0.98	$	0.88	$	3.02	$	3.17
Class B Common Stock		0.89		0.80		2.75		2.88
DILUTED EARNINGS PER SHARE:
Class A Common Stock	$	0.98	$	0.88	$	3.02	$	3.15
Class B Common Stock		0.89		0.80		2.74		2.87

See accompanying footnotes to consolidated financial statements.

5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income	$	20,389	$	18,408	$	62,890	$	65,931
OTHER COMPREHENSIVE INCOME (LOSS)
Change in fair value of derivatives used for cash flow hedges		(1)		(3)		(173)		(218)
Reclassification amount for net derivative losses (gains) realized in income		103		(2)		211		(34)
Change in unrealized gain on AFS debt securities		(258)		86		8,618		5,759
Change in unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings		61		(24)		(46)		(58)
Total other comprehensive income (loss) before income tax		(95)		57		8,610		5,449
Tax effect		24		(163)		(2,153)		(1,296)
Total other comprehensive income (loss), net of tax		(71)		(106)		6,457		4,153
COMPREHENSIVE INCOME	$	20,318	$	18,302	$	69,347	$	70,084

See accompanying footnotes to consolidated financial statements.

6

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

	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

	Three Months Ended September 30, 2019
	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, 2019	18,740	2,208	$	4,907	$	141,525	$	581,734	$	3,262	$	731,428
Net income	—	—		—		—		18,408		—		18,408
Net change in accumulated other comprehensive income	—	—		—		—		—		(106)		(106)
Dividends declared on Common Stock:
Class A Shares ($0.264 per share)	—	—		—		—		(4,961)		—		(4,961)
Class B Shares ($0.240 per share)	—	—		—		—		(530)		—		(530)
Stock options exercised, net of shares withheld	3	—		1		(73)		—		—		(72)
Repurchase of Class A Common Stock	(4)	—		(1)		(28)		(172)		—		(201)
Net change in notes receivable on Class A Common Stock	—	—		—		(46)		—		—		(46)
Deferred compensation - Class A Common Stock:
Directors	—	—		—		49		—		—		49
Designated key employees	—	—		—		76		—		—		76
Employee stock purchase plan - Class A Common Stock	3	—		—		137		—		—		137
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		—		—		—		—
Restricted stock	2	—		1		184		—		—		185
Stock options	—	—		—		80		—		—		80
Balance, September 30, 2019	18,744	2,208	$	4,908	$	141,904	$	594,479	$	3,156	$	744,447

7

	Nine 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, January 1, 2020	18,737	2,206	$	4,907	$	142,068	$	614,171	$	3,098	$	764,244
Adjustment for adoption of ASU 2016-13	—	—		—		—		(4,291)		—		(4,291)
Net income	—	—		—		—		62,890		—		62,890
Net change in accumulated other comprehensive income	—	—		—		—		—		6,457		6,457
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)
Stock options exercised, net of shares withheld	20	—		9		242		—		—		251
Conversion of Class B to Class A Common Shares	6	(6)		—		—		—		—		—
Repurchase of Class A Common Stock	(86)	—		(20)		(582)		(2,250)		—		(2,852)
Net change in notes receivable on Class A Common Stock	—	—		—		(87)		—		—		(87)
Deferred compensation - Class A Common Stock:
Directors	4	—		—		222		—		—		222
Designated key employees	—	—		—		418		—		—		418
Employee stock purchase plan - Class A Common Stock	15	—		3		458		—		—		461
Stock-based awards - Class A Common Stock:
Performance stock units	18	—		—		(200)		—		—		(200)
Restricted stock	1	—		1		316		—		—		317
Stock options	—	—		—		328		—		—		328
Balance, September 30, 2020	18,715	2,200	$	4,900	$	143,183	$	652,724	$	9,555	$	810,362

	Nine Months Ended September 30, 2019
	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity
Balance, January 1, 2019	18,675	2,213	$	4,900	$	141,018	$	545,013	$	(997)	$	689,934
Adjustment for adoption of ASU 2016-02	—	—		—		—		126		—		126
Net income	—	—		—		—		65,931		—		65,931
Net change in accumulated other comprehensive income	—	—		—		—		—		4,153		4,153
Dividends declared on Common Stock:
Class A Shares ($0.792 per share)	—	—		—		—		(14,826)		—		(14,826)
Class B Shares ($0.720 per share)	—	—		—		—		(1,591)		—		(1,591)
Stock options exercised, net of shares withheld	37	—		9		(183)		—		—		(174)
Repurchase of Class A Common Stock	(12)	—		(2)		(404)		(174)		—		(580)
Conversion of Class B to Class A Common Shares	5	(5)		—		—		—		—		—
Net change in notes receivable on Class A Common Stock	—	—		—		(238)		—		—		(238)
Deferred compensation - Class A Common Stock:
Directors	5	—		—		155		—		—		155
Designated key employees	—	—		—		302		—		—		302
Employee stock purchase plan - Class A Common Stock	8	—		—		372		—		—		372
Stock-based awards - Class A Common Stock:
Performance stock units	23	—		—		(57)		—		—		(57)
Restricted stock	3	—		1		659		—		—		660
Stock options	—	—		—		280		—		—		280
Balance, September 30, 2019	18,744	2,208	$	4,908	$	141,904	$	594,479	$	3,156	$	744,447

See accompanying footnotes to consolidated financial statements.

8

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Nine Months Ended
	September 30,
	2020		2019
OPERATING ACTIVITIES:
Net income	$	62,890	$	65,931
Adjustments to reconcile net income to net cash provided by operating activities:
Net (accretion) amortization on investment securities		1,154		(95)
Net accretion on loans and amortization of core deposit intangible and operating lease components		(3,261)		(2,622)
Unrealized (gains) losses on equity securities with readily determinable fair value		118		(561)
Depreciation of premises and equipment		7,420		6,989
Amortization of mortgage servicing rights		2,701		1,275
Impairment of mortgage servicing rights		500		—
Provision for on-balance sheet exposures		30,794		24,844
Provision for off-balance sheet exposures		467		—
Net gain on sale of mortgage loans held for sale		(25,030)		(6,452)
Origination of mortgage loans held for sale		(547,556)		(247,071)
Proceeds from sale of mortgage loans held for sale		546,950		229,755
Net gain on sale of consumer loans held for sale		(3,751)		(3,869)
Origination of consumer loans held for sale		(391,688)		(534,268)
Proceeds from sale of consumer loans held for sale		395,791		532,471
Net gain realized on sale of other real estate owned		(43)		(487)
Writedowns of other real estate owned		53		—
Impairment of premises held for sale		—		198
Deferred compensation expense - Class A Common Stock		640		457
Stock-based awards expense- Class A Common Stock		445		883
Net gain on sale of bank premises and equipment		(353)		—
Increase in cash surrender value of bank owned life insurance		(1,184)		(1,154)
Net change in other assets and liabilities:
Accrued interest receivable		810		269
Accrued interest payable		(2,074)		1,278
Other assets		(13,126)		(6,011)
Other liabilities		(623)		(1,836)
Net cash provided by operating activities		62,044		59,924
INVESTING ACTIVITIES:
Purchases of available-for-sale debt securities		(278,878)		(350,036)
Proceeds from calls, maturities and paydowns of available-for-sale debt securities		207,397		259,569
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities		7,952		1,897
Net change in outstanding warehouse lines of credit		(311,217)		(504,893)
Net change in other loans		(268,053)		(163,133)
Proceeds from redemption of Federal Home Loan Bank stock		20,197		2,102
Purchase of Federal Home Loan Bank stock		(9,000)		(2,277)
Proceeds from sales of other real estate owned		156		1,892
Proceeds from sale of bank premises and equipment		894		—
Net purchases of premises and equipment		(2,711)		(9,102)
Net cash used in investing activities		(633,263)		(763,981)
FINANCING ACTIVITIES:
Net change in deposits		1,206,321		420,991
Net change in securities sold under agreements to repurchase and other short-term borrowings		(41,445)		(15,041)
Payments of Federal Home Loan Bank advances		(1,067,500)		(590,000)
Proceeds from Federal Home Loan Bank advances		450,000		950,000
Repurchase of Class A Common Stock		(2,852)		(580)
Net proceeds from Class A Common Stock purchased through employee stock purchase plan		461		372
Net proceeds from Class A Common Stock options exercised and PSUs awarded		251		(174)
Cash dividends paid		(17,292)		(15,913)
Net cash provided by financing activities		527,944		749,655
NET CHANGE IN CASH AND CASH EQUIVALENTS		(43,275)		45,598
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		385,303		351,474
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	342,028	$	397,072
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	19,167	$	33,348
Income taxes		16,204		11,506
SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers from loans to real estate acquired in settlement of loans	$	2,109	$	1,414
Transfers from loans held for investment to held for sale		—		130,770
Unfunded commitments in low-income-housing investments		10,000		—
Right-of-use assets recorded		14,144		41,726
Allowance for credit losses recorded upon adoption of ASC 326		7,241		—

See accompanying footnotes to consolidated financial statements.

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –SEPTEMBER 30, 2020 and 2019 AND DECEMBER 31, 2019 (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.

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

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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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, 2019.

As of September 30, 2020, 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. MemoryBank®, the Company’s national branchless banking platform, is part of the Traditional Banking segment.

The Company’s financial condition at September 30, 2020 and results of operation for the three and nine months ended September 30, 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 2 “Investment Securities”

● Footnote 4 “Loans and Allowance for Credit Losses”

● Footnote 9 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

10

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, 2020, Republic had 42 full-service banking centers and 2 LPOs 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 — 8*

● Metropolitan Cincinnati, Ohio — 2

● Metropolitan Nashville, Tennessee — 3*

*Includes 1 LPO

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, occupancy and equipment expenses, communication and transportation costs, data processing, interchange related expenses, marketing and development expenses, FDIC insurance expense, franchise tax expense, and various other general and administrative costs. Traditional Banking results of operations are significantly impacted by general economic and competitive conditions, particularly changes in market interest rates, government laws and policies, and actions of regulatory agencies.

Warehouse Lending segment — The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the U.S. 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.

11

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

Republic Processing Group

Tax Refund Solutions segment — Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). 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 0 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 2020 and 2019:

● 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, check, or Walmart Direct2Cash^®, 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:

o there is no recourse to the taxpayer, 

o no negative credit reporting on the taxpayer, and

o no collection efforts against the taxpayer.

The Company reports fees paid for the EA product as interest income on loans. EAs are generally repaid within three weeks after the taxpayer’s tax return is submitted to the applicable taxing authority. EAs do not have a contractual due date but the Company considers an EA delinquent if it remains unpaid three weeks after the taxpayer’s tax return is submitted to the applicable taxing authority. Provision on EAs are estimated when advances are made, with Provision for all expected EA losses made in the first quarter of each year. Unpaid EAs are charged off by June 30^th 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.

12

Republic Payment Solutions — RPS is managed and operated within the TRS segment. The RPS division is an issuing bank offering general-purpose reloadable prepaid cards through third-party 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. 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 and 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 product – The Bank originates a line-of-credit product to generally subprime borrowers in multiple states. Elevate Credit, Inc., a third-party service provider subject to the Bank’s oversight and supervision, provides the Bank with certain marketing, servicing, technology, and support services for the RCS line-of-credit program, while a separate third-party also provides customer support, servicing, and other services for the RCS line-of-credit product on the Bank’s behalf. The Bank is the lender for the RCS line-of-credit 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 RCS line-of-credit product. 

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

● RCS installment loan products – From the first quarter of 2016 through the first quarter of 2018, the Bank piloted a consumer installment loan product across the U.S. using a third-party service provider. As part of the program, the Bank sold 100% of the balances generated through the program back to its third-party service provider approximately 21 days after origination. During the second quarter of 2018, the Bank and its third-party service provider suspended the origination of new loans and the sale of unsold loans through this program. Since program suspension in 2018, the Bank has carried all unsold loans under this program as “held for investment” on its balance sheet and has continued to wind down those balances. Additionally, loans under this program are carried at fair value under a fair value option on the Bank’s balance sheet with the portfolio marked to market monthly. Approximately $588,000 of balances remained held for investment under this program as of September 30, 2020.

Through a new program launched in December 2019, the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. A third-party service provider subject to the Bank’s oversight and supervision 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. Further, 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 its 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 receivables within one month of origination. Loan balances held for sale through this program are carried at the lower of cost or fair value.

13

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.”

Recently Adopted Accounting Standards

Effective January 1, 2020, the Company adopted ASC 326 Financial Instruments – Credit Losses, which replaces the pre-January 1, 2020 “probable-incurred” method for calculating the Company’s ACL with the CECL method. CECL is applicable to financial assets measured at amortized cost, including loan and lease receivables and HTM securities. CECL also applies to certain off-balance sheet credit exposures. In addition to CECL, ASC 326 made changes to the accounting for AFS debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on AFS debt securities that the Company does not intend or will likely not be compelled to sell.

The Company adopted ASC 326 primarily using the modified retrospective method for its financial instruments and off-balance sheet credit exposures. Results for periods beginning after December 31, 2019 will be presented under CECL while prior-period amounts will continue to be reported under previously applicable GAAP.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which OTTI had been recognized prior to January 1, 2020. As a result, the amortized cost basis will remain the same before and after the effective date of CECL. The effective interest rate on these debt securities was not changed. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2020 will be recorded in earnings when received.

The Company adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as PCI assets under ASC 310-30. As allowed by ASC 326, the Company did not reassess whether PCI assets met the PCD criteria as of the date of adoption. On January 1, 2020, the amortized cost basis of PCD assets was adjusted to reflect the addition of $1.4 million of ACLL formerly classified under previous GAAP as a non-accretable credit discount within gross loans. The remaining noncredit discount on PCD assets will be accreted into interest income at the effective interest rate as of January 1, 2020.

The Company elected the fair value option for its RCS installment loan product in 2016. This product will continue to be accounted for at fair value under CECL.

When measuring an ACL, CECL primarily differs from the probable-incurred method by: a) incorporating a lower “expected” threshold for loss recognition versus a higher “probable” threshold; b) requiring life-of-loan considerations; and c) requiring reasonable and supportable forecasts.

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

14

The following table illustrates the impact of ASC 326 adoption:

	Allowance for Credit Losses as of January 1, 2020
	As Reported				Impact
	Under		Pre-ASC 326		of ASC 326
(in thousands)	ASC 326		Adoption		Adoption
Assets:
Allowance for credit losses on debt securities:
AFS debt securities - Corporate bonds	$	—	$	—	$	—
HTM debt securities - Corporate bond		51		—		51
Allowance for credit losses on debt securities	$	51	$	—	$	51
Allowance for credit losses on loans:
Traditional Banking:
Residential real estate:
Owner occupied	$	8,928	$	4,729	$	4,199
Nonowner occupied		1,885		1,737		148
Commercial real estate		10,759		10,486		273
Construction & land development		3,599		2,152		1,447
Commercial & industrial		1,564		2,882		(1,318)
Lease financing receivables		147		147		—
Aircraft		176		176		—
Home equity		4,373		2,721		1,652
Consumer:
Credit cards		1,053		1,020		33
Overdrafts		1,169		1,169		—
Automobile loans		605		612		(7)
Other consumer		681		374		307
Total Traditional Banking		34,939		28,205		6,734
Warehouse lines of credit		1,794		1,794		—
Total Core Banking		36,733		29,999		6,734
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—
Other TRS loans		234		234		—
Republic Credit Solutions		13,118		13,118		—
Total Republic Processing Group		13,352		13,352		—
Allowance for credit losses on loans	$	50,085	$	43,351	$	6,734
Liabilities:
Allowance for credit losses on OBS credit exposures	$	456	$	—	$	456

The following ASUs were also adopted by the Company during the nine months ended September 30, 2020:

ASU. No.	Topic	Nature of Update	Date Adopted	Method of Adoption	Financial Statement Impact
2017-04	Intangibles - Goodwill and Other (Topic 350)	This ASU simplifies goodwill impairment testing by eliminating Step 2 from the goodwill impairment test. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.	January 1, 2020	Prospectively	Immaterial
2020-04	Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help during the global market-wide reference rate transition period; therefore, it will be in effect for a limited time through December 31, 2022.	March 12, 2020	Prospectively	This ASU is expected to assist in the Company's transition away from LIBOR as a reference rate.

15

Accounting Standards Update

The following ASU was issued prior to September 30, 2020 and is considered relevant to the Company’s financial statements. Generally, if an issued-but-not-yet-effective ASU with an expected immaterial impact to the Company has been disclosed in prior Company financial statements, it will not be included below.

ASU. No.	Topic	Nature of Update	Date Adoption Required	Permitted Adoption Methods	Expected Financial Statement Impact
2020-08	Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs	This ASU clarifies that an entity should re-evaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period.	January 1, 2021	Prospectively	Immaterial

Debt Securities —Debt securities are classified as AFS when they might be sold before maturity. AFS debt securities are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Debt securities are classified as HTM and carried at amortized cost when management has the positive intent and ability to hold them to maturity.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable securities are amortized to the earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.

Allowance for Credit Losses on Available-for-Sale Securities — For the Company’s AFS corporate bond, the Company uses third-party PD and LGD data to estimate an ACLS, which is limited by the amount that the bond’s fair value is less than its amortized cost basis.

For all other AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written-down to fair value through income. For other AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACLS is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACLS is recognized in other comprehensive income.

Changes in ACLS are recorded as a charge or credit to the Provision. Losses are charged against the ACLS when management believes the lack of collectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest on AFS debt securities totaled $1 million at September 30, 2020 and is excluded from the ACLS. Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet.

Allowance for Credit Losses on Held-to-Maturity Securities — The Company measures expected credit losses on HTM debt securities on a collective basis by major security type. Accrued interest receivable on HTM debt securities totaled $114,000 at September 30, 2020 and is excluded from the ACLS. Accrued interest on HTM debt securities is presented as a component of other assets on the Company’s balance sheet.

The estimate of ACLS on HTM debt securities considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

16

The Company classifies its HTM portfolio into the following major security types: MBS, corporate bonds, and municipal bonds. MBS securities include CMOs. Nearly all of the MBS portfolio is issued by U.S. government entities or government sponsored entities. These securities are highly rated by major rating agencies and have a long history of no credit losses. The MBS portfolio also carries ratings no lower than investment grade. The Company uses PD and LGD estimates provided by a third-party to estimate an ACLS for its corporate and municipal bond portfolios. These PD and LGD estimates are updated at least quarterly by the Company, with these estimates incorporating the most recent market expectations and forecasted information.

Loans — The Bank’s financing receivables consist primarily of loans and lease financing receivables (together referred to as “loans”). Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost net of the ACLL. Amortized cost is the principal balance outstanding, net of premiums and discounts, and deferred loan fees and costs. Accrued interest on loans, which is excluded from the ACLL, totaled $11 million at September 30, 2020 and was reported as a component of other assets on the Company’s balance sheet.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method. Premiums on loans held for investment are amortized into interest income on the level-yield method over the expected life of the loan.

Lease financing receivables, all of which are direct financing leases, are reported at their principal balance outstanding net of any unearned income, deferred loan fees and costs, and applicable ACLL. Leasing income is recognized on a basis that achieves a constant periodic rate of return on the outstanding lease financing balances over the lease terms.

Interest income on mortgage and commercial loans is typically discontinued at the time the loan is 80 days delinquent unless the loan is well secured and in process of collection. Past due status is based on the contractual terms of the loan, which may define past due status by the number of days or the number of payments past due. In most cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 80 days still on accrual include smaller balance, homogeneous loans that are evaluated collectively or individually for loss.

Interest accrued but not received for all classes of loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured, typically a minimum of 6 consecutive months of performance. Consumer and credit card loans are not placed on nonaccrual status but are reviewed periodically and charged-off when the loan is deemed uncollectible, generally no more than 120 days.

Purchased Credit Deteriorated Loans — The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. The Company will generally classify a loan acquired in a business acquisition as PCD if it meets any of the following criteria:

● Non-accretable discount assigned by the Bank

● Classified by either the acquired bank or the Bank as Special Mention or Substandard

● Nonaccrual status when purchased

● Past due 30 days or more when purchased

● Loans that have been at least one time over 30 days past due

● Past maturity date when purchased

● Select loans that are cross collateralized with any loans identified above

PCD loans are recorded at the amount paid. An ACLL is determined using the same methodology as other loans held for investment. The initial ACLL determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and ACLL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the ACLL are recorded through the Provision.

Allowance for Credit Losses on Loans — The ACLL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the ACLL when management believes the lack of collectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

17

The ACLL is measured on a collective or pooled basis when similar risk characteristics exist. The first table of Footnote 4 illustrates the Company’s loan portfolio by ACLL risk pool. This pooling method is primarily based on the pool’s collateral type or the pool’s purpose and generally follows the Bank’s loan segmentation for regulatory reporting. For each of its loan pools, the Company uses a “static-pool” method, which analyzes historical closed pools of similar loans over their expected lives to attain a loss rate. This loss rate is then adjusted for current conditions and reasonable and supportable forecasts prior to being applied to the current balance of the analyzed pools. Adjustments to the historical loss rate for current conditions include differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, such as changes in property values or other relevant factors. A one-year forecast adjustment to the historical loss rate is based on a forecast of the U.S. national unemployment rate, which has shown a relatively strong historical correlation to the Bank’s loan losses. For the CRE loan pool, a one-year forecast of CRE vacancy rates within the Company’s footprint was introduced into the Company’s CECL model during the third quarter of 2020 due to pandemic-driven changes in culture, including increased and prolonged work-from-home practices. This additional CRE-specific forecast factor drove a $2 million increase in the Company’s ACLL. Subsequent to one-year forecasts, loss rates are assumed to immediately revert back to long-term historical averages.

Loans that do not share risk characteristics are evaluated on an individual basis, with the Company choosing to individually evaluate all TDRs. Loans evaluated individually are not also included in the pooled evaluation. When management determines 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.

Determining Expected Loan Lives: Expected credit losses are estimated over the contractual loan term, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower, or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

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. The Company measures the ACLL for TDRs individually using either a discounted cash flow method or the collateral method, if the TDR is collateral dependent. TDRs whose ACLL is measured using a discounted cash flow method use the original pre-modification interest rate on the loan for discounting.

Performing loans receiving a COVID-19 accommodation are not classified as TDRs.

● For additional discussion regarding loans accommodated due to COVID-19, see Footnote 4 “Loans and Allowance for Credit Losses” in this section of the filing.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures — The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The likelihood that funding will occur is based on the historical usage rate of such commitments. A listing of off-balance sheet credit exposures the Company generally considers for an ACLC is illustrated in Footnote 9 in this section of the filing.

The ACLC is recorded as a component of other liabilities on the Company’s balance sheet. Any provision for the ACLC is recorded on the Company’s income statement as a component of other noninterest expense.

18

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
	Amortized		Unrealized		Unrealized		for		Fair
September 30, 2020 (in thousands)	Cost		Gains		Losses		Credit Losses		Value
U.S. Treasury securities and U.S. Government agencies	$	235,216	$	1,897	$	(47)	$	—	$	237,066
Private label mortgage backed security		1,765		1,239		—		—		3,004
Mortgage backed securities - residential		234,025		8,646		(1)		—		242,670
Collateralized mortgage obligations		52,841		938		(19)		—		53,760
Corporate bonds		10,000		—		(30)		(52)		9,918
Trust preferred security		3,618		182		—		—		3,800
Total available-for-sale debt securities	$	537,465	$	12,902	$	(97)	$	(52)	$	550,218

			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
December 31, 2019 (in thousands)	Cost		Gains		Losses		Credit Losses		Value
U.S. Treasury securities and U.S. Government agencies	$	134,765	$	59	$	(184)		NA	$	134,640
Private label mortgage backed security		2,210		1,285		—		NA		3,495
Mortgage backed securities - residential		253,288		2,916		(357)		NA		255,847
Collateralized mortgage obligations		63,284		258		(171)		NA		63,371
Corporate bonds		10,000		2		—		NA		10,002
Trust preferred security		3,575		425		—		NA		4,000
Total available-for-sale debt securities	$	467,122	$	4,945	$	(712)		NA	$	471,355

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
	Carrying		Unrecognized		Unrecognized		Fair		for
September 30, 2020 (in thousands)	Value		Gains		Losses		Value		Credit Losses
Mortgage backed securities - residential	$	100	$	5	$	—	$	105	$	—
Collateralized mortgage obligations		14,118		183		—		14,301		—
Corporate bonds		39,989		403		—		40,392		(295)
Obligations of state and political subdivisions		356		9		—		365		—
Total held-to-maturity debt securities	$	54,563	$	600	$	—	$	55,163	$	(295)

			Gross		Gross				Allowance
	Carrying		Unrecognized		Unrecognized		Fair		for
December 31, 2019 (in thousands)	Value		Gains		Losses		Value		Credit Losses
Mortgage backed securities - residential	$	104	$	6	$	—	$	110		NA
Collateralized mortgage obligations		16,970		94		(21)		17,043		NA
Corporate bonds		44,995		544		—		45,539		NA
Obligations of state and political subdivisions		462		2		—		464		NA
Total held-to-maturity debt securities	$	62,531	$	646	$	(21)	$	63,156		NA

Sales of Available-for-Sale Debt Securities

During the three and nine months ended September 30, 2020 and 2019, there were 0 gains or losses on sales or calls of AFS debt securities.

19

Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity at September 30, 2020 follow. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.

	Available-for-Sale				Held-to-Maturity
	Debt Securities				Debt Securities
	Amortized		Fair		Carrying		Fair
September 30, 2020 (in thousands)	Cost		Value		Value		Value
Due in one year or less	$	9,941	$	10,040	$	110	$	112
Due from one year to five years		235,275		236,944		35,281		35,660
Due from five years to ten years		—		—		4,954		4,985
Due beyond ten years		3,618		3,800		—		—
Private label mortgage backed security		1,765		3,004		—		—
Mortgage backed securities - residential		234,025		242,670		100		105
Collateralized mortgage obligations		52,841		53,760		14,118		14,301
Total debt securities	$	537,465	$	550,218	$	54,563	$	55,163

Unrealized-Loss Analysis on Debt Securities

The following table summarizes AFS debt securities in an unrealized loss position for which an ACLS had not been recorded at September 30, 2020, aggregated by investment category and length of time in a continuous unrealized loss position:

	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
September 30, 2020 (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	$	39,951	$	(47)	$	—	$	—	$	39,951	$	(47)
Mortgage backed securities - residential		447		(1)		—		—		447	$	(1)
Collateralized mortgage obligations		8,282		(19)		—		—		8,282		(19)
Total available-for-sale debt securities	$	48,680	$	(67)	$	—	$	—	$	48,680	$	(67)

Debt securities with unrealized losses at December 31, 2019, aggregated by investment category and length of time in a continuous unrealized loss position, were as follows:

	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2019 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	40,165	$	(176)	$	14,992	$	(8)	$	55,157	$	(184)
Mortgage backed securities - residential		65,630		(269)		16,633		(88)		82,263		(357)
Collateralized mortgage obligations		12,444		(36)		10,738		(135)		23,182		(171)
Total available-for-sale debt securities	$	118,239	$	(481)	$	42,363	$	(231)	$	160,602	$	(712)

	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2019 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Held-to-maturity debt securities:
Collateralized mortgage obligations	$	4	$	(2)	$	4,827	$	(19)	$	4,831	$	(21)
Total held-to-maturity debt securities:	$	4	$	(2)	$	4,827	$	(19)	$	4,831	$	(21)

At September 30, 2020, the Bank’s security portfolio consisted of 175 securities, 15 of which were in an unrealized loss position.

At December 31, 2019, the Bank’s security portfolio consisted of 173 securities, 34 of which were in an unrealized loss position.

At September 30, 2020 and December 31, 2019, 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.

20

Mortgage Backed Securities and Collateralized Mortgage Obligations

At September 30, 2020, with the exception of the $3.0 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. At September 30, 2020 and December 31, 2019, there were gross unrealized losses of $20,000 and $528,000 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 $3.0 million as of September 30, 2020. 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 tables below present a rollforward for the three and nine months ended September 30, 2020 of the ACLS on AFS and HTM debt securities:

	ACLS Rollforward
	Three Months Ended September 30, 2020
	Beginning		ASC 326				Charge-				Ending
(in thousands)	Balance		Adoption		Provision		offs		Recoveries		Balance
Available-for-Sale Securities:
Corporate Bonds	$	126	$	—	$	(74)	$	—	$	—	$	52
Held-to-Maturity Securities:
Corporate Bonds		147		—		148		—		—		295
Total	$	273	$	—	$	74	$	—	$	—	$	347

The Company decreased the ACLS on its AFS bond during the three months ended September 30, 2020 due to an increase in the bond’s fair value during the period. The Company increased the ACLS on its HTM corporate bonds during the three months ended September 30, 2020 due to increasing PD and LGD estimates for these bonds resulting from economic concerns from the COVID-19 pandemic.

21

	ACLS Rollforward
	Nine Months Ended September 30, 2020
	Beginning		ASC 326				Charge-				Ending
(in thousands)	Balance		Adoption		Provision		offs		Recoveries		Balance
Available-for-Sale Securities:
Corporate Bonds	$	—	$	—	$	52	$	—	$	—	$	52
Held-to-Maturity Securities:
Corporate Bonds		—		51		244		—		—		295
Total	$	—	$	51	$	296	$	—	$	—	$	347

The Company increased the ACLS on its AFS and HTM corporate bonds during the nine months ended September 30, 2020 based on increasing PD and LGD estimates on these bonds resulting from economic concerns from the COVID-19 pandemic.

There were 0 HTM debt securities on nonaccrual or past due over 89 days as of September 30, 2020. All of the Company’s HTM corporate bonds were rated investment grade as of September 30, 2020.

There were 0 HTM debt securities considered collateral dependent as of September 30, 2020.

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 are as follows:

(in thousands)	September 30, 2020		December 31, 2019
Carrying amount	$	229,683	$	229,700
Fair value		229,762		229,706

Equity Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2020 (in thousands)	Cost		Gains		Losses		Value
Freddie Mac preferred stock	$	—	$	536	$	—	$	536
Community Reinvestment Act mutual fund		2,500		34		—		2,534
Total equity securities with readily determinable fair values	$	2,500	$	570	$	—	$	3,070

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2019 (in thousands)	Cost		Gains		Losses		Value
Freddie Mac preferred stock	$	—	$	714	$	—	$	714
Community Reinvestment Act mutual fund		2,500		—		(26)		2,474
Total equity securities with readily determinable fair values	$	2,500	$	714	$	(26)	$	3,188

22

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, 2020						Three Months Ended September 30, 2019
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total
Freddie Mac preferred stock	$	—	$	50	$	50	$	—	$	95	$	95
Community Reinvestment Act mutual fund		—		4		4		—		19		19
Total equity securities with readily determinable fair value	$	—	$	54	$	54	$	—	$	114	$	114

	Gains (Losses) Recognized on Equity Securities
	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total
Freddie Mac preferred stock	$	—	$	(178)	$	(178)	$	—	$	472	$	472
Community Reinvestment Act mutual fund		—		60		60		—		89		89
Total equity securities with readily determinable fair value	$	—	$	(118)	$	(118)	$	—	$	561	$	561

23

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
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Balance, beginning of period	$	164	$	—	$	598	$	—
Origination of consumer loans held for sale		1,559		—		49,300		—
Proceeds from the sale of consumer loans held for sale		(1,321)		—		(50,872)		—
Net gain on sale of consumer loans held for sale		47		—		1,423		—
Balance, end of period	$	449	$	—	$	449	$	—

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

RCS originates for sale 90% of the balances from its line-of-credit product and a portion of its healthcare receivables product. Ordinary gains or losses on the sale of these RCS products are reported as a component of “Program fees.”

Activity for consumer loans held for sale and carried at the lower of cost or market value was as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Balance, beginning of period	$	12,801	$	37,609	$	11,646	$	12,838
Origination of consumer loans held for sale		107,518		187,856		342,388		534,268
Proceeds from the sale of consumer loans held for sale		(109,669)		(208,211)		(344,919)		(532,471)
Net gain on sale of consumer loans held for sale		793		1,250		2,328		3,869
Balance, end of period	$	11,443	$	18,504	$	11,443	$	18,504

24

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:

(in thousands)	September 30, 2020		December 31, 2019
Traditional Banking:
Residential real estate:
Owner occupied	$	885,011	$	949,568
Nonowner occupied		256,319		258,803
Commercial real estate		1,308,867		1,303,000
Construction & land development		142,465		159,702
Commercial & industrial		337,925		468,209
Paycheck Protection Program		514,550		—
Lease financing receivables		11,204		14,040
Aircraft		87,555		58,941
Home equity		252,839		293,186
Consumer:
Credit cards		14,373		17,836
Overdrafts		705		1,522
Automobile loans		35,683		52,923
Other consumer		9,008		18,201
Total Traditional Banking		3,856,504		3,595,931
Warehouse lines of credit*		1,028,675		717,458
Total Core Banking		4,885,179		4,313,389
Republic Processing Group*:
Tax Refund Solutions:
Easy Advances		—		—
Other TRS loans		233		14,365
Republic Credit Solutions		108,962		105,397
Total Republic Processing Group		109,195		119,762
Total loans**		4,994,374		4,433,151
Allowance for credit losses		(59,891)		(43,351)
Total loans, net	$	4,934,483	$	4,389,800

*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, 2020		December 31, 2019
Contractually receivable	$	5,006,351	$	4,432,351
Unearned income		(805)		(1,139)
Unamortized premiums		249		366
Unaccreted discounts		(1,040)		(2,534)
PPP net unamortized deferred origination fees and costs		(13,386)		—
Other net unamortized deferred origination fees and costs		3,005		4,107
Carrying value of loans	$	4,994,374	$	4,433,151

Paycheck Protection Program

The CARES Act was enacted in March 2020 and provided for the SBA’s PPP, which allowed the Bank to lend to its qualifying small business clients to assist them in their efforts to meet their cash-flow needs during the COVID-19 pandemic. 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, 2020, the Bank had a recorded investment in PPP loans of $515 million, which includes $528 million of originated balances less $13 million of unaccreted net deferred origination fees. 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, 2020, the Bank had 0 outstanding borrowings from the FRB under the PPPLF.

25

Credit Quality Indicators

The Company’s loan segments as of September 30, 2020 remain unchanged from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The following tables include loans by segment and risk category. Risk categories, which are based on the Bank’s internal analyses, are defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. As of September 30, 2020, for non-revolving loans originated after 2016, loans are also classified by origination year. Loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a TDR. Loan extensions and renewals classified as TDRs generally receive no change in origination date upon extension or renewal.

											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year										Amortized		Converted
As of September 30, 2020	2020		2019		2018		2017		Prior		Cost Basis		to Term		Total
Residential real estate owner occupied:
Risk Rating
Pass or not rated	$	167,130	$	151,524	$	93,344	$	75,143	$	369,495	$	—	$	—	$	856,636
Special Mention		—		—		44		1,619		9,310		—		—		10,973
Substandard		394		1,405		813		673		14,117		—		—		17,402
Doubtful		—		—		—		—		—		—		—		—
Total	$	167,524	$	152,929	$	94,201	$	77,435	$	392,922	$	—	$	���	$	885,011
Residential real estate nonowner occupied:
Risk Rating
Pass or not rated	$	41,458	$	68,635	$	50,298	$	48,808	$	46,364	$	—	$	—	$	255,563
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		756		—		—		756
Doubtful		—		—		—		—		—		—		—		—
Total	$	41,458	$	68,635	$	50,298	$	48,808	$	47,120	$	—	$	—	$	256,319
Commercial real estate:
Risk Rating
Pass or not rated	$	200,958	$	305,221	$	194,215	$	197,348	$	358,958	$	—	$	34,162	$	1,290,862
Special Mention		—		1,988		120		1,250		2,830		—		—		6,188
Substandard		2,964		423		—		1,197		4,413		—		2,820		11,817
Doubtful		—		—		—		—		—		—		—		—
Total	$	203,922	$	307,632	$	194,335	$	199,795	$	366,201	$	—	$	36,982	$	1,308,867
Construction and land development:
Risk Rating
Pass or not rated	$	50,950	$	44,658	$	18,195	$	5,563	$	20,508	$	—	$	—	$	139,874
Special Mention		—		2,409		—		—		—		—		—		2,409
Substandard		134		48		—		—		—		—		—		182
Doubtful		—		—		—		—		—		—		—		—
Total	$	51,084	$	47,115	$	18,195	$	5,563	$	20,508	$	—	$	—	$	142,465
Commercial and industrial:
Risk Rating
Pass or not rated	$	101,782	$	106,292	$	40,773	$	36,229	$	50,249	$	—	$	—	$	335,325
Special Mention		627		—		—		—		20		—		—		647
Substandard		1,477		476		—		—		—		—		—		1,953
Doubtful		—		—		—		—		—		—		—		—
Total	$	103,886	$	106,768	$	40,773	$	36,229	$	50,269	$	—	$	—	$	337,925
Paycheck Protection Program:
Risk Rating
Pass or not rated	$	514,550	$	—	$	—	$	—	$	—	$	—	$	—	$	514,550
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	514,550	$	—	$	—	$	—	$	—	$	—	$	—	$	514,550
Lease financing receivables:
Risk Rating
Pass or not rated	$	876	$	4,541	$	1,949	$	3,088	$	750	$	—	$	—	$	11,204
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	876	$	4,541	$	1,949	$	3,088	$	750	$	—	$	—	$	11,204
Aircraft:
Risk Rating
Pass or not rated	$	31,658	$	36,155	$	18,316	$	1,426	$	—	$	—	$	—	$	87,555
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	31,658	$	36,155	$	18,316	$	1,426	$	—	$	—	$	—	$	87,555
Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	249,791	$	—	$	249,791
Special Mention		—		—		—		—		—		126		—		126
Substandard		—		—		—		—		—		2,922		—		2,922
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	252,839	$	—	$	252,839

26

											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted
As of September 30, 2020	2020		2019		2018		2017		Prior		Cost Basis		to Term		Total
Consumer:
Risk Rating
Pass or not rated	$	363	$	14,893	$	10,425	$	8,489	$	10,555	$	14,512	$	—	$	59,237
Special Mention		—		—		—		—		7		—		—		7
Substandard		—		35		53		191		246		—		—		525
Doubtful		—		—		—		—		—		—		—		—
Total	$	363	$	14,928	$	10,478	$	8,680	$	10,808	$	14,512	$	—	$	59,769
Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	1,028,675	$	—	$	1,028,675
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	1,028,675	$	—	$	1,028,675
TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	93	$	—	$	93
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		140		—		140
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	233	$	—	$	233
RCS:
Risk Rating
Pass or not rated	$	22,138	$	7,159	$	3,050	$	1,454	$	1,546	$	73,302	$	—	$	108,649
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		313		—		313
Doubtful		—		—		—		—		—		—		—		—
Total	$	22,138	$	7,159	$	3,050	$	1,454	$	1,546	$	73,615	$	—	$	108,962
Grand Total:
Risk Rating
Pass or not rated	$	1,131,863	$	739,078	$	430,565	$	377,548	$	858,425	$	1,366,373	$	34,162	$	4,938,014
Special Mention		627		4,397		164		2,869		12,167		126		—		20,350
Substandard		4,969		2,387		866		2,061		19,532		3,375		2,820		36,010
Doubtful		—		—		—		—		—		—		—		—
Grand Total	$	1,137,459	$	745,862	$	431,595	$	382,478	$	890,124	$	1,369,874	$	36,982	$	4,994,374

December 31, 2019			Special				Doubtful /		PCI Loans -		PCI Loans -		Total Rated
(in thousands)	Pass		Mention		Substandard		Loss		Group 1		Substandard		Loans*
Traditional Banking:
Residential real estate:
Owner occupied	$	—	$	12,153	$	14,441	$	—	$	140	$	1,281	$	28,015
Nonowner occupied		—		487		1,285		—		—		—		1,772
Commercial real estate		1,286,623		4,623		11,123		—		631		—		1,303,000
Construction & land development		157,165		2,339		198		—		—		—		159,702
Commercial & industrial		464,067		2,152		1,968		—		22		—		468,209
Lease financing receivables		14,040		—		—		—		—		—		14,040
Aircraft		9,027		—		—		—		—		—		9,027
Home equity		—		—		3,276		—		4		6		3,286
Consumer:
Credit cards		—		—		—		—		—		—		—
Overdrafts		—		—		—		—		—		—		—
Automobile loans		—		—		247		—		—		—		247
Other consumer		—		—		351		—		—		2		353
Total Traditional Banking		1,930,922		21,754		32,889		—		797		1,289		1,987,651
Warehouse lines of credit		717,458		—		—		—		—		—		717,458
Total Core Banking		2,648,380		21,754		32,889		—		797		1,289		2,705,109
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—		—		—		—
Other TRS loans		—		—		53		—		—		—		53
Republic Credit Solutions		—		—		355		—		—		—		355
Total Republic Processing Group		—		—		408		—		—		—		408
Total rated loans	$	2,648,380	$	21,754	$	33,297	$	—	$	797	$	1,289	$	2,705,517

*The above table excludes all non-classified residential real estate, home equity and consumer loans.

27

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,
	2020										2019
	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	$	9,303	$	330	$	(13)	$	21	$	9,641	$	5,213	$	(314)	$	(17)	$	121	$	5,003
Nonowner occupied		2,274		96		—		7		2,377		1,775		40		—		5		1,820
Commercial real estate		16,300		4,663		—		—		20,963		10,566		1,390		(1,407)		—		10,549
Construction & land development		4,940		(341)		—		—		4,599		2,910		(93)		—		—		2,817
Commercial & industrial		2,405		654		(255)		80		2,884		4,221		155		—		1		4,377
Paycheck Protection Program		—		—		—		—		—		—		—		—		—		—
Lease financing receivables		125		(8)		—		—		117		181		(25)		—		—		156
Aircraft		208		11		—		—		219		125		22		—		—		147
Home equity		5,124		(7)		(14)		21		5,124		3,124		(102)		—		23		3,045
Consumer:
Credit cards		928		36		(29)		7		942		1,028		54		(77)		18		1,023
Overdrafts		488		324		(157)		50		705		894		491		(363)		53		1,075
Automobile loans		473		(67)		—		—		406		708		(32)		(23)		—		653
Other consumer		609		92		(41)		20		680		424		(31)		(84)		79		388
Total Traditional Banking		43,177		5,783		(509)		206		48,657		31,169		1,555		(1,971)		300		31,053
Warehouse lines of credit		2,575		(3)		—		—		2,572		1,814		620		—		—		2,434
Total Core Banking		45,752		5,780		(509)		206		51,229		32,983		2,175		(1,971)		300		33,487
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		(4,294)		—		4,294		—		—		(2,098)		—		2,098		—
Other TRS loans		211		(48)		(22)		—		141		232		90		(90)		2		234
Republic Credit Solutions		9,134		(12)		(684)		83		8,521		12,768		2,986		(2,799)		256		13,211
Total Republic Processing Group		9,345		(4,354)		(706)		4,377		8,662		13,000		978		(2,889)		2,356		13,445
Total	$	55,097	$	1,426	$	(1,215)	$	4,583	$	59,891	$	45,983	$	3,153	$	(4,860)	$	2,656	$	46,932

28

	ACLL Rollforward
	Nine Months Ended September 30,
	2020												2019
	Beginning		ASC 326				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Adoption		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance
Traditional Banking:
Residential real estate:
Owner occupied	$	4,729	$	4,199	$	648	$	(40)	$	105	$	9,641	$	6,035	$	(1,011)	$	(401)	$	380	$	5,003
Nonowner occupied		1,737		148		481		—		11		2,377		1,662		218		(73)		13		1,820
Commercial real estate		10,486		273		10,002		(270)		472		20,963		10,030		1,922		(1,407)		4		10,549
Construction & land development		2,152		1,447		1,000		—		—		4,599		2,555		262		—		—		2,817
Commercial & industrial		2,882		(1,318)		1,643		(447)		124		2,884		2,873		1,498		—		6		4,377
Paycheck Protection Program		—		—		—		—		—		—		—		—		—		—
Lease financing receivables		147		—		(30)		—		—		117		158		(2)		—		—		156
Aircraft		176		—		43		—		—		219		91		56		—		—		147
Home equity		2,721		1,652		657		(14)		108		5,124		3,477		(480)		(13)		61		3,045
Consumer:
Credit cards		1,020		33		74		(206)		21		942		1,140		133		(303)		53		1,023
Overdrafts		1,169		—		13		(660)		183		705		1,102		760		(956)		169		1,075
Automobile loans		612		(7)		(220)		(8)		29		406		724		(55)		(23)		7		653
Other consumer		374		307		(81)		(86)		166		680		500		(130)		(198)		216		388
Total Traditional Banking		28,205		6,734		14,230		(1,731)		1,219		48,657		30,347		3,171		(3,374)		909		31,053
Warehouse lines of credit		1,794		—		778		—		—		2,572		1,172		1,262		—		—		2,434
Total Core Banking		29,999		6,734		15,008		(1,731)		1,219		51,229		31,519		4,433		(3,374)		909		33,487
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		15,239		(19,575)		4,336		—		—		11,322		(13,425)		2,103		—
Other TRS loans		234		—		—		(94)		1		141		107		496		(371)		2		234
Republic Credit Solutions		13,118		—		251		(5,401)		553		8,521		13,049		8,593		(9,306)		875		13,211
Total Republic Processing Group		13,352		—		15,490		(25,070)		4,890		8,662		13,156		20,411		(23,102)		2,980		13,445
Total	$	43,351	$	6,734	$	30,498	$	(26,801)	$	6,109	$	59,891	$	44,675	$	24,844	$	(26,476)	$	3,889	$	46,932

The cumulative loss rate used as the basis for the estimate of ACLL at September 30, 2020 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 2019, adjusted for current and forecasted conditions that consider the economic impact of the COVID-19 pandemic and the public’s response to it.

The Company’s primary forecasting tool throughout 2020 has been the U.S. national employment rate. At March 31, 2020 and June 30, 2020, the Company forecasted national unemployment in the one-year horizon above 8%, which was either at or above the levels of unemployment experienced within the Company’s historical periods or considered within its current-conditions qualitative factors. These forecasted unemployment levels from March and June of 2020 led the Company to increase its ACLL through June 30, 2020. In contrast, the U.S. unemployment rate fell from 11.1% in June 2020 to 7.9% in September 2020 and was forecasted to stay at this lower range between 5% and 8% in the one-year horizon. As losses consistent with unemployment above 8% have yet to materialize since they were first forecasted back in March 2020, the Company believes its loan losses in the current environment are lagging historical correlations by as much as one year due to economic relief granted by the Company and the U.S. government thus far. As such, the Company did not relieve any forecast-based ACLL previously established prior to the third quarter of 2020 but reclassified this ACLL from a forecast-based ACLL to a current-conditions based ACLL, as the Company still expects its loan losses to rise to levels consistent with a U.S. unemployment rate above 8%. After this expected rise, the Company assumes that its loan losses will immediately revert back to long-term historical averages.

Along with its forecasted unemployment considerations, the Company made the following pandemic-related considerations within its ACLL during 2020:

● The Company accommodated deferral and forbearance requests for approximately 20% of its Traditional Bank loan portfolio due to COVID-19 hardship and increased its ACLL for the higher risk of loss on this accommodated portfolio.

● The Company increased its ACLL for the higher risk of loss for industries more directly impacted by the pandemic, such as the hospitality industry.

● For its CRE loan pool, the Company used forecasted vacancy rates on CRE within its market footprint. Vacancy rates as of September 2020 were forecasted to increase in the one-year horizon partially due to a rise in “work-from-home” culture.

29

Nonperforming Loans and Nonperforming Assets

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

(dollars in thousands)	September 30, 2020			December 31, 2019
Loans on nonaccrual status*	$	20,910		$	23,332
Loans past due 90-days-or-more and still on accrual**		175			157
Total nonperforming loans		21,085			23,489
Other real estate owned		2,056			113
Total nonperforming assets	$	23,141		$	23,602
Credit Quality Ratios - Total Company:
Nonperforming loans to total loans		0.42	%		0.53	%
Nonperforming assets to total loans (including OREO)		0.46			0.53
Nonperforming assets to total assets		0.37			0.42
Credit Quality Ratios - Core Bank:
Nonperforming loans to total loans		0.43	%		0.54	%
Nonperforming assets to total loans (including OREO)		0.47			0.54
Nonperforming assets to total assets		0.39			0.43

* Loans on nonaccrual status include collateral-dependent loans.

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

30

The following tables present the recorded investment in nonaccrual loans and loans past due 90-days-or-more and still on accrual by class of loans:

					Past Due 90-Days-or-More
	Nonaccrual				and Still Accruing Interest*
(in thousands)	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Traditional Banking:
Residential real estate:
Owner occupied	$	14,682	$	12,220	$	—	$	—
Nonowner occupied		116		623		—		—
Commercial real estate		3,206		6,865		—		—
Construction & land development		—		143		—		—
Commercial & industrial		522		1,424		—		—
Paycheck Protection Program		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—		—		—		—
Home equity		2,210		1,865		—		—
Consumer:
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Automobile loans		161		179		—		—
Other consumer		13		13		—		—
Total Traditional Banking		20,910		23,332		—		—
Warehouse lines of credit		—		—		—		—
Total Core Banking		20,910		23,332		—		—
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—
Other TRS loans		—		—		140		53
Republic Credit Solutions		—		—		35		104
Total Republic Processing Group		—		—		175		157
Total	$	20,910	$	23,332	$	175	$	157

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

							Three Months Ended		Nine Months Ended
	As of September 30, 2020						September 30, 2020		September 30, 2020
	Nonaccrual		Nonaccrual		Total		Interest Income		Interest Income
	Loans with		Loans without		Nonaccrual		Recognized		Recognized
(in thousands)	ACLL		ACLL		Loans		on Nonaccrual Loans*		on Nonaccrual Loans*
Residential real estate:
Owner occupied	$	2,670	$	12,012	$	14,682	$	252	$	649
Nonowner occupied		—		116		116		2		6
Commercial real estate		328		2,878		3,206		17		854
Construction & land development		—		—		—		7		7
Commercial & industrial		—		522		522		7		16
Paycheck Protection Program		—		—		—		—		—
Lease financing receivables		—		—		—		—		—
Aircraft		—		—		—		—		—
Home equity		147		2,063		2,210		29		81
Consumer		94		80		174		3		9
Total	$	3,239	$	17,671	$	20,910	$	317	$	1,622

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

31

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
September 30, 2020	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total
Traditional Banking:
Residential real estate:
Owner occupied	$	621		$	497		$	2,376		$	3,494		$	881,517	$	885,011
Nonowner occupied		—			—			—			—			256,319		256,319
Commercial real estate		2,739			—			2,878			5,617			1,303,250		1,308,867
Construction & land development		—			—			—			—			142,465		142,465
Commercial & industrial		—			—			488			488			337,437		337,925
Paycheck Protection Program		—			—			—			—			514,550		514,550
Lease financing receivables		—			—			—			—			11,204		11,204
Aircraft		—			—			—			—			87,555		87,555
Home equity		270			—			826			1,096			251,743		252,839
Consumer:
Credit cards		62			63			—			125			14,248		14,373
Overdrafts		141			—			—			141			564		705
Automobile loans		68			—			26			94			35,589		35,683
Other consumer		8			6			—			14			8,994		9,008
Total Traditional Banking		3,909			566			6,594			11,069			3,845,435		3,856,504
Warehouse lines of credit		—			—			—			—			1,028,675		1,028,675
Total Core Banking		3,909			566			6,594			11,069			4,874,110		4,885,179
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—			—			—			—		—
Other TRS loans		—			—			140			140			93		233
Republic Credit Solutions		4,459			1,350			35			5,844			103,118		108,962
Total Republic Processing Group		4,459			1,350			175			5,984			103,211		109,195
Total	$	8,368		$	1,916		$	6,769		$	17,053		$	4,977,321	$	4,994,374
Delinquency ratio***		0.17	%		0.04	%		0.14	%		0.34	%

*       All loans past due 90-days-or-more, excluding small balance consumer loans, were on nonaccrual status.

**     Delinquent status may be determined by either the number of days past due or number of payments past due.

***   Represents total loans 30-days-or-more past due by aging category divided by total loans.

32

	30 - 59			60 - 89			90 or More
December 31, 2019	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total
Traditional Banking:
Residential real estate:
Owner occupied	$	1,460		$	1,153		$	1,821		$	4,434		$	945,134	$	949,568
Nonowner occupied		—			—			539			539			258,264		258,803
Commercial real estate		155			—			3,145			3,300			1,299,700		1,303,000
Construction & land development		—			—			—			—			159,702		159,702
Commercial & industrial		200			128			1,027			1,355			466,854		468,209
Lease financing receivables		—			—			—			—			14,040		14,040
Aircraft		—			—			—			—			58,941		58,941
Home equity		1,810			166			942			2,918			290,268		293,186
Consumer:
Credit cards		80			75			—			155			17,681		17,836
Overdrafts		278			4			1			283			1,239		1,522
Automobile loans		16			15			18			49			52,874		52,923
Other consumer		2			6			1			9			18,192		18,201
Total Traditional Banking		4,001			1,547			7,494			13,042			3,582,889		3,595,931
Warehouse lines of credit		—			—			—			—			717,458		717,458
Total Core Banking		4,001			1,547			7,494			13,042			4,300,347		4,313,389
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—			—			—			—		—
Other TRS loans		35			31			53			119			14,246		14,365
Republic Credit Solutions		6,054			1,485			104			7,643			97,754		105,397
Total Republic Processing Group		6,089			1,516			157			7,762			112,000		119,762
Total	$	10,090		$	3,063		$	7,651		$	20,804		$	4,412,347	$	4,433,151
Delinquency ratio***		0.23	%		0.07	%		0.17	%		0.47	%

*       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.

33

Collateral-Dependent Loans

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2020:

	Secured		Secured
September 30, 2020	by Real		by Personal
(dollars in thousands)	Estate		Property
Traditional Banking:
Residential real estate:
Owner occupied	$	17,628	$	—
Nonowner occupied		756		—
Commercial real estate		10,884		—
Construction & land development		134		—
Commercial & industrial		—		1,906
Paycheck Protection Program		—		—
Lease financing receivables		—		—
Aircraft		—		—
Home equity		2,945		—
Consumer		—		532
Total Traditional Banking	$	32,347	$	2,438

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

Impaired Loans

Information regarding the Bank’s impaired loans follows:

(in thousands)	December 31, 2019
Loans with no allocated ACLL	$	33,061
Loans with allocated ACLL		17,289
Total recorded investment in impaired loans	$	50,350
Amount of ACLL allocated	$	2,512

34

The following table presents the balance in the ACLL and the recorded investment in loans by portfolio class based on impairment method as of December 31, 2019:

	Allowance for Credit Losses on Loans								Loans
	Individually				PCI with				Individually				PCI with		PCI without
December 31, 2019	Evaluated		Collectively		Post-Acquisition		Total		Evaluated		Collectively		Post-Acquisition		Post-Acquisition		Total		Allowance to
(dollars in thousands)	Excluding PCI		Evaluated		Impairment		Allowance		Excluding PCI		Evaluated		Impairment		Impairment		Loans		Total Loans
Traditional Banking:
Residential real estate:
Owner occupied	$	1,207	$	3,337	$	185	$	4,729	$	25,384	$	922,764	$	1,420	$	—	$	949,568		0.50	%
Nonowner occupied		—		1,737		—		1,737		1,448		257,355		—		—		258,803		0.67
Commercial real estate		426		10,054		6		10,486		15,144		1,287,225		631		—		1,303,000		0.80
Construction & land development		—		2,152		—		2,152		198		159,504		—		—		159,702		1.35
Commercial & industrial		22		2,860		—		2,882		1,989		466,198		—		22		468,209		0.62
Lease financing receivables		—		147		—		147		—		14,040		—		—		14,040		1.05
Aircraft		—		176		—		176		—		58,941		—		—		58,941		0.30
Home equity		174		2,547		—		2,721		3,276		289,900		10		—		293,186		0.93
Consumer:
Credit cards		—		1,020		—		1,020		—		17,836		—		—		17,836		5.72
Overdrafts		—		1,169		—		1,169		—		1,522		—		—		1,522		76.81
Automobile loans		43		569		—		612		247		52,676		—		—		52,923		1.16
Other consumer		333		41		—		374		350		17,848		2		1		18,201		2.05
Total Traditional Banking		2,205		25,809		191		28,205		48,036		3,545,809		2,063		23		3,595,931		0.78
Warehouse lines of credit		—		1,794		—		1,794		—		717,458		—		—		717,458		0.25
Total Core Banking		2,205		27,603		191		29,999		48,036		4,263,267		2,063		23		4,313,389		0.70
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—		—		—		—		—		—		—
Other TRS loans		—		234		—		234		—		14,365		—		—		14,365		1.63
Republic Credit Solutions		116		13,002		—		13,118		251		105,146		—		—		105,397		12.45
Total Republic Processing Group		116		13,236		—		13,352		251		119,511		—		—		119,762		11.15
Total	$	2,321	$	40,839	$	191	$	43,351	$	48,287	$	4,382,778	$	2,063	$	23	$	4,433,151		0.98	%

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2019 and for the three and nine months ended September 30, 2019. The difference between the “Unpaid Principal Balance” and “Recorded Investment” columns represents life-to-date partial write downs/charge offs taken on individual impaired credits.

	As of						Three Months Ended						Nine Months Ended
	December 31, 2019						September 30, 2019						September 30, 2019
											Cash Basis						Cash Basis
	Unpaid						Average		Interest		Interest		Average		Interest		Interest
	Principal		Recorded		Allocated		Recorded		Income		Income		Recorded		Income		Income
(in thousands)	Balance		Investment		ACLL		Investment		Recognized		Recognized		Investment		Recognized		Recognized
Impaired loans with no allocated ACLL:
Residential real estate:
Owner occupied	$	14,768	$	13,893	$	—	$	13,244	$	60	$	—	$	11,952	$	169	$	—
Nonowner occupied		1,515		1,448		—		1,226		28		—		1,651		72		—
Commercial real estate		15,028		12,547		—		7,078		98		—		5,529		221		—
Construction & land development		198		198		—		30		—		—		15		—		—
Commercial & industrial		3,308		1,792		—		614		2		—		616		3		—
Lease financing receivables		—		—		—		—		—		—		—		—		—
Aircraft		—		—		—		—		—		—		—		—		—
Home equity		3,107		3,023		—		2,127		17		—		1,603		46		—
Consumer		206		160		—		59		1		—		45		3		—
Impaired loans with allocated ACLL:
Residential real estate:
Owner occupied		12,954		12,911		1,392		12,795		136		—		14,547		401		—
Nonowner occupied		—		—		—		216		—		—		122		—		—
Commercial real estate		3,228		3,228		432		3,484		38		—		3,921		116		—
Construction & land development		—		—		—		29		1		—		47		2		—
Commercial & industrial		197		197		22		3,773		3		—		2,108		7		—
Lease financing receivables		—		—		—		—		—		—		—		—		—
Aircraft		—		—		—		—		—		—		—		—		—
Home equity		263		263		174		448		2		—		494		6		—
Consumer		701		690		492		472		4		—		508		13		—
Total impaired loans	$	55,473	$	50,350	$	2,512	$	45,595	$	390	$	—	$	43,158	$	1,059	$	—

35

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. At September 30, 2020 and December 31, 2019, $6 million and $10 million of TDRs were on nonaccrual status.

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

	Troubled Debt			Troubled Debt			Total
	Restructurings on			Restructurings on			Troubled Debt
	Nonaccrual Status			Accrual Status			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
September 30, 2020 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate	65	$	5,231	125	$	12,151	190	$	17,382
Commercial real estate	2		271	5		5,859	7		6,130
Construction & land development	—		—	1		47	1		47
Commercial & industrial	—		—	2		21	2		21
Consumer	1		15	2,087		573	2,088		588
Total troubled debt restructurings	68	$	5,517	2,220	$	18,651	2,288	$	24,168

	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, 2019 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate	53	$	4,402	141	$	15,368	194	$	19,770
Commercial real estate	4		4,040	9		4,885	13		8,925
Construction & land development	—		—	1		54	1		54
Commercial & industrial	4		1,424	3		22	7		1,446
Consumer	—		—	1,613		586	1,613		586
Total troubled debt restructurings	61	$	9,866	1,767	$	20,915	1,828	$	30,781

36

The Bank considers a TDR to be performing to its modified terms if the loan is in accrual status and not past due 30-days-or-more as of the reporting date. A summary of the categories of TDR loan modifications outstanding and respective performance under modified terms at September 30, 2020 and December 31, 2019 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, 2020 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Interest only payments	1	$	841	—	$	—	1	$	841
Rate reduction	110		11,253	3		259	113		11,512
Principal deferral	9		869	2		166	11		1,035
Legal modification	57		3,387	8		607	65		3,994
Total residential TDRs	177		16,350	13		1,032	190		17,382
Commercial related and construction/land development loans:
Interest only payments	1		502	—		—	1		502
Rate reduction	2		1,055	1		45	3		1,100
Principal deferral	4		1,631	2		2,965	6		4,596
Legal modification	—		—	—		—	—		—
Total commercial TDRs	7		3,188	3		3,010	10		6,198
Consumer loans:
Principal deferral	2,086		565	—		—	2,086		565
Legal modification	2		23	—		—	2		23
Total consumer TDRs	2,088		588	—		—	2,088		588
Total troubled debt restructurings	2,272	$	20,126	16	$	4,042	2,288	$	24,168

	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, 2019 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Interest only payments	1	$	904	—	$	—	1	$	904
Rate reduction	118		13,847	5		352	123		14,199
Principal deferral	8		845	2		179	10		1,024
Legal modification	54		3,200	6		443	60		3,643
Total residential TDRs	181		18,796	13		974	194		19,770
Commercial related and construction/land development loans:
Interest only payments	3		1,568	—		—	3		1,568
Rate reduction	3		1,207	1		45	4		1,252
Principal deferral	11		5,981	1		597	12		6,578
Legal modification	—		—	2		1,027	2		1,027
Total commercial TDRs	17		8,756	4		1,669	21		10,425
Consumer loans:
Principal deferral	1,612		577	—		—	1,612		577
Legal modification	1		9	—		—	1		9
Total consumer TDRs	1,613		586	—		—	1,613		586
Total troubled debt restructurings	1,811	$	28,138	17	$	2,643	1,828	$	30,781

As of September 30, 2020 and December 31, 2019, 83% and 91% 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 September 30, 2020 and December 31, 2019. The Bank had 0 commitments to lend any additional material amounts to its existing TDR relationships at September 30, 2020 or December 31, 2019.

37

A summary of the categories of TDR loan modifications by respective performance as of September 30, 2020 and 2019 that were modified during the three months ended September 30, 2020 and 2019 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, 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

	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, 2019 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Principal deferral	—	$	—	—	$	—	—	$	—
Legal modification	5	$	677	4	$	315	9	$	992
Total residential TDRs	5		677	4		315	9		992
Consumer loans:
Legal modification	1		10	1		2	2		12
Total consumer TDRs	1		10	1		2	2		12
Total troubled debt restructurings	6	$	687	5	$	317	11	$	1,004

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, 2020 and 2019, 91% and 68% of the Bank’s TDR balances that occurred during the third quarters of 2020 and 2019 were performing according to their modified terms. The Bank provided approximately $29,000 and $980,000 in specific reserve allocations to clients whose loan terms were modified in TDRs during the third quarters of 2020 and 2019.

There was 0 significant change between the pre and post modification loan balances for the three months ending September 30, 2020 and 2019.

38

A summary of the categories of TDR loan modifications by respective performance as of September 30, 2020 and 2019 that were modified during the nine months ended September 30, 2020 and 2019 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, 2020 (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
Legal modification	11		429	2		128	13	$	557
Total residential TDRs	13		483	3		132	16		615
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
Legal modification	1		15	—		—	1		15
Total consumer TDRs	1,493		198	—		—	1,493		198
Total troubled debt restructurings	1,507	$	702	3	$	132	1,510	$	834

	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, 2019 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Rate reduction	1	$	371	—	$	—	1	$	371
Principal deferral	1		4	—		—	1		4
Legal modification	24		2,055	9		701	33		2,756
Total residential TDRs	26		2,430	9		701	35		3,131
Commercial related and construction/land development loans:
Interest only payments	1		553	—		—	1		553
Principal deferral	2		25	—		—	2		25
Legal modification	—		—	2		2,572	2		2,572
Total commercial TDRs	3		578	2		2,572	5		3,150
Consumer loans:
Principal deferral	1		10	1		2	2		12
Legal modification	—		—	—		—	—		—
Total consumer TDRs	1		10	1		2	2		12
Total troubled debt restructurings	30	$	3,018	12	$	3,275	42	$	6,293

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, 2020 and 2019, 84% and 48% of the Bank’s TDR balances that occurred during the first nine months of 2020 and 2019 were performing according to their modified terms. The Bank provided approximately $121,000 and $1.5 million in specific ACLL allocations to clients whose loan terms were modified in TDRs during the first nine months of 2020 and 2019.

There was 0 significant change between the pre and post modification loan balances for the nine months ending September 30, 2020 and 2019.

39

The following table presents loans by class modified as troubled debt restructurings within the previous 12 months of September 30, 2020 and 2019 and for which there was a payment default during the three and/or nine months ended September 30, 2020 and 2019.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
		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	3	$	163	1	$	46	5	$	269	4	$	249
Commercial real estate	2		2,964	—		—	2		2,964	1		553
Commercial & industrial	—		—	—		—	—		—	2		2,572
Home equity	1		20	2		143	2		33	3		147
Consumer	—		—	—		—	—		—	—		—
Total	6	$	3,147	3	$	189	9	$	3,266	10	$	3,521

COVID-19 Loan Accommodations

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

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

	Jun. 30, 2020		Three Months Ended Sep. 30, 2020						Sep. 30, 2020 COVID-19 Accommodations
	COVID-19		Additional		(Payments) Draws Made				Out of Accommodation				Still under Accommodation
(in thousands)	Accm.*		Accm.		Net (Pay)/Draw		(Payoffs)		Current		Past Due**		Single Accm.		Multiple Accm.
Traditional Banking:
Residential real estate:
Owner occupied	$	51,570	$	6,780	$	(525)	$	(3,751)	$	45,761	$	51	$	1,804	$	6,458
Nonowner occupied		58,754		—		(667)		(536)		57,551		—		—		—
Commercial real estate		491,314		3,567		(5,840)		(15,939)		467,447		2,739		457		2,459
Commercial & industrial		141,720		—		(7,438)		(3,842)		118,784		12		—		11,644
Construction & land development		28,927		—		486		(9,214)		20,199		—		—		—
Lease financing receivables		2,443		—		409		—		2,852		—		—		—
Aircraft		3,215		—		—		(171)		3,044		—		—		—
Home equity		13,776		627		(173)		(2,835)		11,173		—		187		35
Consumer		1,463		58		(134)		(58)		1,239		—		41		49
Total Traditional Banking	$	793,182	$	11,032	$	(13,882)	$	(36,346)	$	728,050	$	2,802	$	2,489	$	20,645

*Accm.= Accommodation(s)

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

40

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, 2020		December 31, 2019
Residential real estate	$	2,056	$	113
Total other real estate owned	$	2,056	$	113

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

(in thousands)	September 30, 2020		December 31, 2019
Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure	$	2,851	$	2,201

Easy Advances

The Company’s TRS segment offered its EA product during the first two months of 2020 and 2019. 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’s tax refund payment patterns subsequent to the first quarter. Each year, all unpaid EAs are charged off by June 30^th, 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				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	2020		2019		2020			2019
Easy Advances originated	$	—	$	—	$	387,762		$	388,970
Net (credit) charge to the Provision for Easy Advances		(4,294)		(2,098)		15,239			11,322
Provision to total Easy Advances originated		NA		NA		3.93	%		2.91	%
Easy Advances net charge-offs (recoveries)	$	(4,294)	$	(2,098)	$	15,239		$	11,322
Easy Advances net charge-offs to total Easy Advances originated		NA		NA		3.93	%		2.91	%

41

5. DEPOSITS

The composition of the deposit portfolio follows:

(in thousands)	September 30, 2020		December 31, 2019
Core Bank:
Demand	$	1,148,683	$	922,972
Money market accounts		723,798		793,950
Savings		220,106		175,588
Individual retirement accounts (1)		50,348		51,548
Time deposits, $250 and over (1)		99,972		104,412
Other certificates of deposit (1)		231,586		248,161
Reciprocal money market and time deposits (1)		291,077		189,774
Brokered deposits (1)		345,533		200,072
Total Core Bank interest-bearing deposits		3,111,103		2,686,477
Total Core Bank noninterest-bearing deposits		1,496,111		981,164
Total Core Bank deposits		4,607,214		3,667,641
Republic Processing Group:
Money market accounts		4,808		66,152
Total RPG interest-bearing deposits		4,808		66,152
Brokered prepaid card deposits		237,514		9,128
Other noninterest-bearing deposits		142,793		43,087
Total RPG noninterest-bearing deposits		380,307		52,215
Total RPG deposits		385,115		118,367
Total deposits	$	4,992,329	$	3,786,008

(1) Includes time deposits.

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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.

At September 30, 2020 and December 31, 2019, 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, 2020			December 31, 2019
Outstanding balance at end of period	$	126,172		$	167,617
Weighted average interest rate at end of period		0.04	%		0.32	%
Fair value of securities pledged:
U.S. Treasury securities and U.S. Government agencies	$	15,116		$	70,015
Mortgage backed securities - residential		105,228			134,265
Collateralized mortgage obligations		39,340			17,030
Total securities pledged	$	159,684		$	221,310

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2020			2019			2020			2019
Average outstanding balance during the period	$	213,010		$	246,889		$	199,556		$	232,949
Average interest rate during the period		0.04	%		0.48	%		0.11	%		0.60	%
Maximum outstanding at any month end during the period	$	195,229		$	219,812		$	195,229		$	226,002

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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.

At September 30, 2020, the Company was under 49 separate and distinct operating lease contracts to lease the land and/or buildings for 38 of its offices, with 15 such operating leases contracted with a related party of the Company. As of September 30, 2020, payments on 26 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 4 new operating leases during 2020 with a total right-of-use asset value of approximately $14 million. The largest of these 4 leases was a related-party lease for the Company’s Corporate Center location, which had a right-of-use asset value of approximately $12 million upon lease commencement.

The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the category “Occupancy and equipment, net” for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Operating lease expense:
Related Party:
Variable lease expense	$	1,235	$	1,164	$	3,706	$	3,478
Fixed lease expense		23		10		69		28
Third Party:
Variable lease expense		180		210		541		644
Fixed lease expense		371		392		1,109		1,137
Short-term lease expense		3		14		7		40
Total operating lease expense	$	1,812	$	1,790	$	5,432	$	5,327
Other information concerning operating leases:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,817	$	1,795	$	5,448		5,372
Short-term lease payments not included in the measurement of lease liabilities		3		14		7		40

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, 2020 and December 31, 2019:

	September 30, 2020			December 31, 2019
Weighted average remaining term in years		8.58			8.02
Weighted average discount rate		3.12	%		3.46	%

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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, 2020:

Year (in thousands)	Related Party		Third Party		Total
2020	$	1,159	$	650	$	1,809
2021		4,638		2,442		7,080
2022		4,639		2,120		6,759
2023		4,639		1,600		6,239
2024		4,512		1,173		5,685
Thereafter		20,144		3,376		23,520
Total undiscounted cash flows	$	39,731	$	11,361	$	51,092
Discount applied to cash flows		(5,034)		(1,348)		(6,382)
Total discounted cash flows reported as operating lease liabilities	$	34,697	$	10,013	$	44,710

8. FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:

(in thousands)	September 30, 2020		December 31, 2019
Overnight advances	$	25,000	$	200,000
Variable interest rate advance indexed to 3-Month LIBOR plus 0.14%		10,000		10,000
Fixed interest rate advances		97,500		540,000
Total FHLB advances	$	132,500	$	750,000

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. At September 30, 2020 and December 31, 2019, Republic had available borrowing capacity of $692 million and $259 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million and $125 million available through various other financial institutions as of September 30, 2020 and December 31, 2019.

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
2020 (Overnight)	$	25,000	0.17	%
2020 (Term)		37,500	1.37
2021		30,000	1.93
2022		20,000	2.12
2023		20,000	2.56
2024		—	—
Thereafter		—	—
Total	$	132,500	1.56	%

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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
	September 30,						September 30,
(dollars in thousands)	2020			2019			2020			2019
Average outstanding balance during the period	$	272		$	357,685		$	29,106		$	340,502
Average interest rate during the period		0.17	%		2.34	%		0.92	%		2.45	%
Maximum outstanding at any month end during the period	$	25,000		$	785,000		$	250,000		$	785,000

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

(in thousands)	September 30, 2020		December 31, 2019
First lien, single family residential real estate	$	1,034,137	$	1,099,941
Home equity lines of credit		237,389		274,990

46

9. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

COVID-19 Pandemic

COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. Since March 2020, to slow the spread of COVID-19, jurisdictions within the U.S. have imposed economic and social restrictions on the population in general and non-essential businesses in particular. These restrictions in combination with the public’s response to them effectively suspended or curtailed economic activity for many industries across the U.S., with industries in the Company’s market footprint impacted.

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

Commitments to Extend Credit

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

The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the 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, 2020		December 31, 2019
Unused warehouse lines of credit	$	310,125	$	436,541
Unused home equity lines of credit		358,380		363,195
Unused loan commitments - other		751,502		757,657
Standby letters of credit		11,515		11,252
FHLB letter of credit		643		2,485
Total commitments	$	1,432,165	$	1,571,130

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.

47

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

	ACLC Rollforward
	Three Months Ended September 30, 2020
	Beginning		ASC 326				Charge-				Ending
(in thousands)	Balance		Adoption		Provision		offs		Recoveries		Balance
Loan Commitments
Unused warehouse lines of credit	$	58	$	—	$	(6)	$	—	$	—	$	52
Unused home equity lines of credit		124		—		22		—		—		146
Unused loan commitments - other		454		—		271		—		—		725
Total	$	636	$	—	$	287	$	—	$	—	$	923

The Company increased its ACLC during the three months ended September 30, 2020 based on higher estimated usage rates on its unused lines and higher loss expectations on that usage. Current and forecasted economic concerns driven by the COVID-19 pandemic drove the Company’s higher loss expectations.

	ACLC Rollforward
	Nine Months Ended September 30, 2020
	Beginning		ASC 326				Charge-				Ending
(in thousands)	Balance		Adoption		Provision		offs		Recoveries		Balance
Loan Commitments
Unused warehouse lines of credit	$	—	$	55	$	(3)	$	—	$	—	$	52
Unused home equity lines of credit		—		89		57		—		—		146
Unused loan commitments - other		—		312		413		—		—		725
Total	$	—	$	456	$	467	$	—	$	—	$	923

The Company increased its ACLC during the nine months ended September 30, 2020 based on higher estimated usage rates on its unused lines and higher loss expectations on that usage. Current and forecasted economic concerns driven by the COVID-19 pandemic drove the Company’s higher loss expectations.

48

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 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 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.

The Company acquired its TRUP investment in 2015 and considered the most recent bid price for the same instrument to approximate market value at September 30, 2020. 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 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.

49

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.

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).

50

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, 2020 is presented net of any applicable ACL.

	Fair Value Measurements at
	September 30, 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
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	—	$	237,066	$	—	$	237,066
Private label mortgage backed security		—		—		3,004		3,004
Mortgage backed securities - residential		—		242,670		—		242,670
Collateralized mortgage obligations		—		53,760		—		53,760
Corporate bonds		—		9,918		—		9,918
Trust preferred security		—		—		3,800		3,800
Total available-for-sale debt securities	$	—	$	543,414	$	6,804	$	550,218
Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	536	$	—	$	536
Community Reinvestment Act mutual fund		2,534		—		—		2,534
Total equity securities with readily determinable fair value	$	2,534	$	536	$	—	$	3,070
Mortgage loans held for sale	$	—	$	44,860	$	—	$	44,860
Consumer loans held for sale		—		—		449		449
Consumer loans held for investment		—		—		588		588
Rate lock loan commitments		—		6,630		—		6,630
Interest rate swap agreements		—		14,494		—		14,494
Financial liabilities:
Mandatory forward contracts	$	—	$	603	$	—	$	603
Interest rate swap agreements		—		14,560		—		14,560

51

	Fair Value Measurements at
	December 31, 2019 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	$	—	$	134,640	$	—	$	134,640
Private label mortgage backed security		—		—		3,495		3,495
Mortgage backed securities - residential		—		255,847		—		255,847
Collateralized mortgage obligations		—		63,371		—		63,371
Corporate bonds		—		10,002		—		10,002
Trust preferred security		—		—		4,000		4,000
Total available-for-sale debt securities	$	—	$	463,860	$	7,495	$	471,355
Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	714	$	—	$	714
Community Reinvestment Act mutual fund		2,474		—		—		2,474
Total equity securities with readily determinable fair value	$	2,474	$	714	$	—	$	3,188
Mortgage loans held for sale	$	—	$	19,224	$	—	$	19,224
Consumer loans held for sale				—		598		598
Consumer loans held for investment		—		—		998		998
Rate lock loan commitments		—		789		—		789
Interest rate swap agreements		—		5,062		—		5,062
Financial liabilities:
Mandatory forward contracts	$	—	$	131	$	—	$	131
Interest rate swap agreements		—		5,166		—		5,166

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, 2020 and 2019.

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
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Balance, beginning of period	$	3,023	$	3,615	$	3,495	$	3,712
Total gains or losses included in earnings:
Net change in unrealized gain		60		(24)		(46)		(58)
Recovery of actual losses previously recorded		—		38		—		113
Principal paydowns		(79)		(34)		(445)		(172)
Balance, end of period	$	3,004	$	3,595	$	3,004	$	3,595

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

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

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

	Fair		Valuation
September 30, 2020 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range
Private label mortgage backed security	$	3,004	Discounted cash flow	(1) Constant prepayment rate	1.2% - 4.5%
				(2) Probability of default	1.8% - 7.2%
				(3) Loss severity	50% - 75%

	Fair		Valuation
December 31, 2019 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range
Private label mortgage backed security	$	3,495	Discounted cash flow	(1) Constant prepayment rate	2.3% - 5.0%
				(2) Probability of default	1.8% - 6.3%
				(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				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Balance, beginning of period	$	3,500	$	4,000	$	4,000	$	4,075
Total gains or losses included in earnings:
Discount accretion		21		10		43		31
Net change in unrealized gain		279		(10)		(243)		(106)
Balance, end of period	$	3,800	$	4,000	$	3,800	$	4,000

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

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Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with Bank policy for such instruments. NaN of these loans were past due 90-days-or-more or on nonaccrual as of September 30, 2020 and December 31, 2019.

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

(in thousands)	September 30, 2020		December 31, 2019
Aggregate fair value	$	44,860	$	19,224
Contractual balance		42,944		18,690
Unrealized gain		1,916		534

The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2020 and 2019 for mortgage loans held for sale are presented in the following table:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Interest income	$	300	$	212	$	932	$	484
Change in fair value		126		155		1,382		201
Total included in earnings	$	426	$	367	$	2,314	$	685

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, 2020 and December 31, 2019.

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
September 30, 2020 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate
Consumer loans held for sale	$	449	Contract Terms	(1) Net Premium	1.4%
				(2) Discounted Sales	5.00%

	Fair		Valuation
December 31, 2019 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate
Consumer loans held for sale	$	598	Contract Terms	(1) Net Premium	1.4%
				(2) Discounted Sales	5.00%

54

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

(in thousands)	September 30, 2020		December 31, 2019
Aggregate fair value	$	449	$	598
Contractual balance		446		593
Unrealized gain		3		5

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
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Interest income	$	42	$	—	$	1,563	$	—
Change in fair value		2		—		(2)		—
Total included in earnings	$	44	$	—	$	1,561	$	—

55

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

	Fair Value Measurements at
	September 30, 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	$	—	$	—	$	3,614	$	3,614
Commercial real estate		—		—		81		81
Commercial & industrial		—		—		100		100
Home equity		—		—		405		405
Total collateral-dependent loans*	$	—	$	—	$	4,200	$	4,200
Other real estate owned:
Commercial real estate	$	—	$	—	$	2,056	$	2,056
Total other real estate owned	$	—	$	—	$	2,056	$	2,056
Mortgage servicing rights	$	—	$	4,062	$	—	$	4,062

	Fair Value Measurements at
	December 31, 2019 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Impaired loans:
Residential real estate:
Owner occupied	$	—	$	—	$	3,598	$	3,598
Nonowner occupied		—		—		14		14
Commercial real estate		—		—		3,276		3,276
Commercial & industrial		—		—		1,562		1,562
Home equity		—		—		470		470
Total impaired loans*	$	—	$	—	$	8,920	$	8,920

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

56

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis:

					Range
	Fair		Valuation	Unobservable	(Weighted
September 30, 2020 (dollars in thousands)	Value		Technique	Inputs	Average)
Collateral-dependent loans - residential real estate owner occupied	$	3,614	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 51% (10%)
Collateral-dependent loans - commercial real estate	$	81	Sales comparison approach	Adjustments determined for differences between comparable sales	7% (7%)
Collateral-dependent loans - commercial & industrial	$	100	Sales comparison approach	Adjustments determined for differences between comparable sales	54% (54%)
Collateral-dependent loans - home equity	$	405	Sales comparison approach	Adjustments determined for differences between comparable sales	2%-6% (5%)
Other real estate owned - commercial real estate	$	2,056	Sales comparison approach	Adjustments determined for differences between comparable sales	24% (24%)

					Range
	Fair		Valuation	Unobservable	(Weighted
December 31, 2019 (dollars in thousands)	Value		Technique	Inputs	Average)
Impaired loans - residential real estate owner occupied	$	3,598	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 58% (12%)
Impaired loans - residential real estate nonowner occupied	$	14	Sales comparison approach	Adjustments determined for differences between comparable sales	5% (5%)
Impaired loans - commercial real estate	$	3,276	Sales comparison approach	Adjustments determined for differences between comparable sales	1% - 10% (4%)
Impaired loans - commercial & industrial	$	1,562	Income approach	Adjustments for differences between net operating income expectations	3% - 50% (37%)
Impaired loans - home equity	$	470	Sales comparison approach	Adjustments determined for differences between comparable sales	2% (2%)

57

Collateral Dependent/Impaired Loans

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

Collateral-dependent/impaired loans are as follows:

(in thousands)	September 30, 2020		December 31, 2019
Carrying amount of loans measured at fair value	$	3,452	$	7,729
Estimated selling costs considered in carrying amount		796		1,193
Valuation allowance		(48)		(2)
Total fair value	$	4,200	$	8,920

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Provision on collateral-dependent, impaired loans	$	430	$	1,419	$	(71)	$	1,442

58

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

			Fair Value Measurements at
			September 30, 2020:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value
Assets:
Cash and cash equivalents	$	342,028	$	342,028	$	—	$	—	$	342,028
Available-for-sale debt securities		550,218		—		543,414		6,804		550,218
Held-to-maturity debt securities		54,268		—		55,163		—		55,163
Equity securities with readily determinable fair values		3,070		2,534		536		—		3,070
Mortgage loans held for sale, at fair value		44,860		—		44,860		—		44,860
Consumer loans held for sale, at fair value		449		—		—		449		449
Consumer loans held for sale, at the lower of cost or fair value		11,443		—		—		11,443		11,443
Loans, net		4,934,483		—		—		4,904,668		4,904,668
Federal Home Loan Bank stock		19,634		—		—		—		NA
Accrued interest receivable		12,101		—		12,101		—		12,101
Rate lock loan commitments		6,630		—		6,630		—		6,630
Interest rate swap agreements		14,494		—		14,494		—		14,494
Liabilities:
Noninterest-bearing deposits	$	1,876,418		—	$	1,876,418		—	$	1,876,418
Transaction deposits		2,317,965		—		2,317,965		—		2,317,965
Time deposits		797,946		—		805,988		—		805,988
Securities sold under agreements to repurchase and other short-term borrowings		126,172		—		126,172		—		126,172
Federal Home Loan Bank advances		132,500		—		134,478		—		134,478
Subordinated note		41,240		—		30,832		—		30,832
Accrued interest payable		728		—		728		—		728
Mandatory forward contracts		603		—		603		—		603
Interest rate swap agreements		14,560		—		14,560		—		14,560

59

			Fair Value Measurements at
			December 31, 2019:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value
Assets:
Cash and cash equivalents	$	385,303	$	385,303	$	—	$	—	$	385,303
Available-for-sale debt securities		471,355		—		463,860		7,495		471,355
Held-to-maturity debt securities		62,531		—		63,156		—		63,156
Equity securities with readily determinable fair values		3,188		2,474		714		—		3,188
Mortgage loans held for sale, at fair value		19,224		—		19,224		—		19,224
Consumer loans held for sale, at fair value		598		—		—		598		598
Consumer loans held for sale, at the lower of cost or fair value		11,646		—		—		11,646		11,646
Loans, net		4,389,800		—		—		4,381,396		4,381,396
Federal Home Loan Bank stock		30,831		—		—		—		NA
Accrued interest receivable		12,937		—		12,937		—		12,937
Rate lock loan commitments		789		—		789		—		789
Interest rate swap agreements		5,062		—		5,062		—		5,062
Liabilities:
Noninterest-bearing deposits	$	1,033,379		—	$	1,033,379		—	$	1,033,379
Transaction deposits		2,018,687		—		2,018,687		—		2,018,687
Time deposits		733,942		—		737,733		—		737,733
Securities sold under agreements to repurchase and other short-term borrowings		167,617		—		167,617		—		167,617
Federal Home Loan Bank advances		750,000		—		749,667		—		749,667
Subordinated note		41,240		—		32,587		—		32,587
Accrued interest payable		2,802		—		2,802		—		2,802
Mandatory forward contracts		131		—		131		—		131
Interest rate swap agreements		5,166		—		5,166		—		5,166

60

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
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Balance, beginning of period	$	40,028	$	13,883	$	19,224	$	8,971
Origination of mortgage loans held for sale		203,615		124,375		547,556		247,071
Proceeds from the sale of mortgage loans held for sale		(210,309)		(108,493)		(546,950)		(229,755)
Net gain on sale of mortgage loans held for sale		11,526		2,974		25,030		6,452
Balance, end of period	$	44,860	$	32,739	$	44,860	$	32,739

The following table presents the components of Mortgage Banking income:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Net gain realized on sale of mortgage loans held for sale	$	9,151	$	2,170	$	18,279	$	4,941
Net change in fair value recognized on loans held for sale		126		155		1,382		201
Net change in fair value recognized on rate lock loan commitments		2,194		(29)		5,841		837
Net change in fair value recognized on forward contracts		55		678		(472)		473
Net gain recognized		11,526		2,974		25,030		6,452
Loan servicing income		757		632		2,139		1,842
Amortization of mortgage servicing rights		(1,108)		(542)		(2,701)		(1,275)
Change in mortgage servicing rights valuation allowance		(400)		—		(500)		—
Net servicing income recognized		(751)		90		(1,062)		567
Total Mortgage Banking income	$	10,775	$	3,064	$	23,968	$	7,019

Activity for capitalized mortgage servicing rights was as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Balance, beginning of period	$	6,711	$	5,158	$	5,888	$	4,919
Additions		1,471		867		3,987		1,839
Amortized to expense		(1,108)		(542)		(2,701)		(1,275)
Change in valuation allowance		(400)		—		(500)		—
Balance, end of period	$	6,674	$	5,483	$	6,674	$	5,483

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Beginning valuation allowance	$	100	$	—	$	0	$	—
Charge during the period		400		—		500		—
Ending valuation allowance	$	500	$	—	$	500	$	—

61

Other information relating to mortgage servicing rights follows:

(in thousands)	September 30, 2020			December 31, 2019
Fair value of mortgage servicing rights portfolio	$	7,522		$	9,068
Monthly weighted average prepayment rate of unpaid principal balance*		308	%		202	%
Discount rate		10.00	%		10.00	%
Weighted average foreclosure rate		0.44	%		0.14	%
Weighted average life in years		4.40			5.76

* 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, 2020				December 31, 2019
	Notional				Notional
(in thousands)	Amount		Fair Value		Amount		Fair Value
Included in Mortgage loans held for sale:
Mortgage loans held for sale, at fair value	$	42,944	$	44,860	$	18,690	$	19,224
Included in other assets:
Rate lock loan commitments	$	160,480	$	6,630	$	32,776	$	789
Included in other liabilities:
Mandatory forward contracts	$	171,935	$	603	$	44,919	$	131

62

12. INTEREST RATE SWAPS

Interest rate swap derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a cash flow hedging relationship. For a derivative designated as a cash flow hedge, the effective portion of the derivative’s unrealized gain or loss is recorded as a component of OCI. For derivatives not designated as hedges, the gain or loss is recognized in current period earnings.

Interest Rate Swaps Used as Cash Flow Hedges

The Bank entered into 2 interest rate swap agreements (“swaps”) during 2013 as part of its interest rate risk management strategy. The Bank designated the swaps as cash flow hedges intended to reduce the variability in cash flows attributable to either FHLB advances tied to the 3-month LIBOR or the overall changes in cash flows on certain money market deposit accounts tied to 1-month LIBOR. The counterparty for both swaps met the Bank’s credit standards and the Bank believes that the credit risk inherent in the swap contracts is not significant.

The swaps were determined to be fully effective during all periods presented; therefore, no amount of ineffectiveness was included in net income. The aggregate fair value of the swaps is recorded in other liabilities with changes in fair value recorded in OCI. The amount included in AOCI would be reclassified to current earnings should the hedge no longer be considered effective. The Bank expects the hedges to remain fully effective during the remaining term of the swaps.

The following table reflects information about swaps designated as cash flow hedges:

								September 30, 2020				December 31, 2019
										Unrealized				Unrealized
	Notional		Pay		Receive			Assets /		Gain (Loss)		Assets /		Gain (Loss)
(dollars in thousands)	Amount		Rate		Rate		Term	(Liabilities)		in AOCI		(Liabilities)		in AOCI
Interest rate swap on money market deposits	$	10,000	2.17	%		1M LIBOR	12/2013 - 12/2020	$	(18)	$	(13)	$	(46)	$	(34)
Interest rate swap on FHLB advance		10,000	2.33	%		3M LIBOR	12/2013 - 12/2020		(48)		(36)		(58)		(43)
Total	$	20,000						$	(66)	$	(49)	$	(104)	$	(77)

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)	2020		2019		2020		2019
Interest rate swap on money market deposits	$	52	$	(2)	$	107	$	(18)
Interest rate swap on FHLB advance		51		—		104		(16)
Total interest (benefit) expense on swap transactions	$	103	$	(2)	$	211	$	(34)

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)	2020		2019		2020		2019
Gains (losses) recognized in OCI on derivative (effective portion)	$	(1)	$	(3)	$	(173)	$	(218)
Gains (losses) reclassified from OCI on derivative (effective portion)		(103)		2		(211)		34
Gains (losses) recognized in income on derivative (ineffective portion)		0		0		0		0

The estimated net amount of the existing losses reported in AOCI at September 30, 2020 expected to be reclassified into earnings within the next 12 months is considered immaterial.

63

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, 2020				December 31, 2019
		Notional				Notional
(in thousands)	Bank Position	Amount		Fair Value		Amount		Fair Value
Interest rate swaps with Bank clients - Assets	Pay variable/receive fixed	$	139,722	$	14,494	$	95,411	$	5,062
Interest rate swaps with Bank clients - Liabilities	Pay variable/receive fixed		—		—		6,640		(55)
Interest rate swaps with Bank clients - Total	Pay variable/receive fixed	$	139,722	$	14,494	$	102,051	$	5,007
Offsetting interest rate swaps with institutional swap dealer	Pay fixed/receive variable		139,722		(14,494)		102,051		(5,007)
Total		$	279,444	$	—	$	204,102	$	—

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 $15.1 million and $7.5 million at September 30, 2020 and December 31, 2019.

64

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
	September 30,				September 30,
(in thousands, except per share data)	2020		2019		2020		2019
Net income	$	20,389	$	18,408	$	62,890	$	65,931
Dividends declared on Common Stock:
Class A Shares		(5,375)		(4,961)		(16,080)		(14,826)
Class B Shares		(572)		(530)		(1,716)		(1,591)
Undistributed net income for basic earnings per share		14,442		12,917		45,094		49,514
Weighted average potential dividends on Class A shares upon exercise of dilutive options		(7)		(27)		(24)		(93)
Undistributed net income for diluted earnings per share	$	14,435	$	12,890	$	45,070	$	49,421
Weighted average shares outstanding:
Class A Shares		18,826		18,828		18,830		18,803
Class B Shares		2,200		2,208		2,201		2,211
Effect of dilutive securities on Class A Shares outstanding		20		101		37		118
Weighted average shares outstanding including dilutive securities		21,046		21,137		21,068		21,132
Basic earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.29	$	0.26	$	0.86	$	0.79
Undistributed earnings per share*		0.69		0.62		2.16		2.38
Total basic earnings per share - Class A Common Stock	$	0.98	$	0.88	$	3.02	$	3.17
Class B Common Stock:
Per share dividends distributed	$	0.26	$	0.24	$	0.78	$	0.72
Undistributed earnings per share*		0.63		0.56		1.97		2.16
Total basic earnings per share - Class B Common Stock	$	0.89	$	0.80	$	2.75	$	2.88
Diluted earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.29	$	0.26	$	0.86	$	0.79
Undistributed earnings per share*		0.69		0.62		2.16		2.36
Total diluted earnings per share - Class A Common Stock	$	0.98	$	0.88	$	3.02	$	3.15
Class B Common Stock:
Per share dividends distributed	$	0.26	$	0.24	$	0.78	$	0.72
Undistributed earnings per share*		0.63		0.56		1.96		2.15
Total diluted earnings per share - Class B Common Stock	$	0.89	$	0.80	$	2.74	$	2.87

*To arrive at undistributed earnings per share, undistributed net income is first prorated between Class A and Class B Common Shares, with Class A Common Shares receiving a 10% premium. The resulting pro-rated, undistributed net income for each class is then divided by the weighted average shares for each class.

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2020	2019	2020	2019
Antidilutive stock options	431,000	158,000	244,000	160,000
Average antidilutive stock options	367,000	157,000	193,000	156,000

65

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)	2020		2019		2020		2019
Available-for-Sale Debt Securities:
Change in unrealized gain on AFS debt securities	$	(258)	$	86	$	8,618	$	5,759
Change in unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings		61		(24)		(46)		(58)
Net unrealized (losses) gains		(197)		62		8,572		5,701
Tax effect		49		(172)		(2,144)		(1,358)
Net of tax		(148)		(110)		6,428		4,343
Cash Flow Hedges:
Change in fair value of derivatives used for cash flow hedges		(1)		(3)		(173)		(218)
Reclassification amount for net derivative losses (gains) realized in income		103		(2)		211		(34)
Net unrealized (losses) gains		102		(5)		38		(252)
Tax effect		(25)		9		(9)		62
Net of tax		77		4		29		(190)
Total other comprehensive (loss) income components, net of tax	$	(71)	$	(106)	$	6,457	$	4,153

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
	in the Consolidated	September 30,				September 30,
(in thousands)	Statements of Income	2020		2019		2020			2019
Cash Flow Hedges:
Interest rate swap on money market deposits	Interest benefit (expense) on deposits	$	(52)	$	2	$	(107)		$	18
Interest rate swap on FHLB advance	Interest benefit (expense) on FHLB advances		(51)		—		(104)			16
Total derivative gains (losses) on cash flow hedges	Total interest benefit (expense)		(103)		2		(211)			34
Tax effect	Income tax (benefit) expense		26		(1)		53			(9)
Net of tax	Net income	$	(77)	$	1	$	(158)	���	$	25

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

			2020
(in thousands)	December 31, 2019		Change		September 30, 2020
Unrealized gain on AFS debt securities	$	2,211	$	6,464	$	8,675
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		964		(35)		929
Unrealized gain (loss) on cash flow hedges		(77)		28		(49)
Total unrealized gain	$	3,098	$	6,457	$	9,555

			2019
(in thousands)	December 31, 2018		Change		September 30, 2019
Unrealized gain (loss) on AFS debt securities	$	(2,165)	$	4,390	$	2,225
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings		1,078		(45)		1,033
Unrealized gain (loss) on cash flow hedges		90		(192)		(102)
Total unrealized gain (loss)	$	(997)	$	4,153	$	3,156

66

15. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

	Three 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)	$	38,753		$	7,345		$	300		$	46,398		$	878		$	4,976		$	5,854		$	52,252
Noninterest income:
Service charges on deposit accounts		3,000			18			—			3,018			(1)			—			(1)			3,017
Net refund transfer fees		—			—			—			—			1,152			—			1,152			1,152
Mortgage banking income(1)		—			—			10,775			10,775			—			—			—			10,775
Interchange fee income		2,873			—			—			2,873			38			—			38			2,911
Program fees(1)		—			—			—			—			643			844			1,487			1,487
Increase in cash surrender value of BOLI(1)		400			—			—			400			—			—			—			400
Net gains (losses) on OREO		(14)			—			—			(14)			—			—			—			(14)
Other		879			(39)			21			861			8			—			8			869
Total noninterest income		7,138			(21)			10,796			17,913			1,840			844			2,684			20,597
Total net revenue	$	45,891		$	7,324		$	11,096		$	64,311		$	2,718		$	5,820		$	8,538		$	72,849
Net-revenue concentration(2)		63	%		10	%		15	%		88	%		4	%		8	%		12	%		100	%

	Three Months Ended September 30, 2019
	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)	$	42,879		$	4,329		$	212		$	47,420		$	295		$	7,771		$	8,066		$	55,486
Noninterest income:
Service charges on deposit accounts		3,738			11			—			3,749			—			—			—			3,749
Net refund transfer fees		—			—			—			—			317			—			317			317
Mortgage banking income(1)		—			—			3,064			3,064			—			—			—			3,064
Interchange fee income		3,008			—			—			3,008			23			—			23			3,031
Program fees(1)		—			—			—			—			122			1,195			1,317			1,317
Increase in cash surrender value of BOLI(1)		394			—			—			394			—			—			—			394
Net gains (losses) on OREO		267			—			—			267			—			—			—			267
Net loss on branch divestiture(1)		(119)			—			—			(119)			—			—			—			(119)
Other		814			(90)			66			790			1			—			1			791
Total noninterest income		8,102			(79)			3,130			11,153			463			1,195			1,658			12,811
Total net revenue	$	50,981		$	4,250		$	3,342		$	58,573		$	758		$	8,966		$	9,724		$	68,297
Net-revenue concentration(2)		75	%		6	%		5	%		86	%		1	%		13	%		14	%		100	%

(1) This revenue is not subject to ASC 606.

(2) Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.

67

	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		$	22,484		$	17,655		$	40,139		$	177,195
Noninterest income:
Service charges on deposit accounts		8,576			46			—			8,622			(18)			—			(18)			8,604
Net refund transfer fees		—			—			—			—			19,888			—			19,888			19,888
Mortgage banking income(1)		—			—			23,968			23,968			—			—			—			23,968
Interchange fee income		8,090			—			—			8,090			181			—			181			8,271
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			90			—			90			2,763
Total noninterest income		20,499			7			24,021			44,527			21,714			3,676			25,390			69,917
Total net revenue	$	138,908		$	17,722		$	24,953		$	181,583		$	44,198		$	21,331		$	65,529		$	247,112
Net-revenue concentration(2)		56	%		7	%		10	%		73	%		18	%		9	%		27	%		100	%

	Nine Months Ended September 30, 2019
	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)	$	126,103		$	11,181		$	484		$	137,768		$	21,443		$	22,520		$	43,963		$	181,731
Noninterest income:
Service charges on deposit accounts		10,616			34			—			10,650			—			—			—			10,650
Net refund transfer fees		—			—			—			—			21,046			—			21,046			21,046
Mortgage banking income(1)		—			—			7,019			7,019			—			—			—			7,019
Interchange fee income		8,802			—			—			8,802			243			—			243			9,045
Program fees(1)		—			—			—			—			318			3,110			3,428			3,428
Increase in cash surrender value of BOLI(1)		1,154			—			—			1,154			—			—			—			1,154
Net gains (losses) on OREO		487			—			—			487			—			—			—			487
Net loss on branch divestiture(1)		(119)			—			—			(119)			—			—			—			(119)
Other		1,911			(90)			162			1,983			1			659			660			2,643
Total noninterest income		22,851			(56)			7,181			29,976			21,608			3,769			25,377			55,353
Total net revenue	$	148,954		$	11,125		$	7,665		$	167,744		$	43,051		$	26,289		$	69,340		$	237,084
Net-revenue concentration(2)		63	%		5	%		3	%		71	%		18	%		11	%		29	%		100	%

(1) This revenue is not subject to ASC 606.

(2) Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.

68

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

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

Net refund transfer fees – An RT is a fee-based product offered by the Bank through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”), with the Bank acting as an independent contractor of the Tax Providers. An RT allows a taxpayer to pay any applicable tax preparation and filing related fees directly from his federal or state government tax refund, with the remainder of the tax refund disbursed directly to the taxpayer. RT fees and all applicable tax preparation, transmitter, audit, and any other taxpayer authorized amounts are deducted from the tax refund by either the Bank or the Bank’s service provider and automatically forwarded to the appropriate party as authorized by the taxpayer. RT fees generally receive first priority when applying fees against the taxpayer’s refund, with the Bank’s share of RT fees generally superior to the claims of other third-party service providers, including the Tax Providers. The remainder of the refund is disbursed to the taxpayer by a Bank check printed at a tax office, direct deposited to the taxpayer’s personal bank account, loaded to a Prepaid Card or Walmart Direct2Cash^®.

The Company executes contracts with individual Tax Providers to offer RTs to their taxpayers. RT revenue is recognized by the Bank immediately after the taxpayer’s refund is disbursed in accordance with the RT contract with the taxpayer. 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.

69

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, 2020, 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. MemoryBank®, the Company’s national branchless banking platform, is part of the Traditional Banking segment.

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

Reportable Segment:	Nature of Operations:	Primary Drivers of Net Revenue:
Core Banking:
Traditional Banking	Provides traditional banking products to clients in its market footprint primarily via its network of banking centers and to clients outside of its market footprint primarily via its digital delivery channels.	Loans, investments, and deposits.
Warehouse Lending	Provides short-term, revolving credit facilities to mortgage bankers across the United States.	Mortgage warehouse lines of credit.
Mortgage Banking	Primarily originates, sells and services long-term, single-family, first-lien residential real estate loans primarily to clients in the Bank's market footprint.	Loan sales and servicing.
Republic Processing Group:
Tax Refund Solutions	TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax refunds through Refund Transfer products. The RPS division of TRS offers general-purpose reloadable cards. TRS and RPS products are primarily provided to clients outside of the Bank’s market footprint.	Loans, refund transfers, and prepaid cards.
Republic Credit Solutions	Offers consumer credit products. RCS products are primarily provided to clients outside of the Bank’s market footprint, with a substantial portion of RCS clients considered subprime or near-prime borrowers.	Unsecured, consumer loans.

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 2019 Annual Report on Form 10-K. The Company did update its accounting policies during the first quarter of 2020 upon adoption of the CECL standard. 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.

70

Segment information follows:

	Three 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	$	38,753		$	7,345		$	300		$	46,398		$	878		$	4,976		$	5,854		$	52,252
Provision for expected credit loss expense		5,857			(3)			—			5,854			(4,342)			(12)			(4,354)			1,500
Net refund transfer fees		—			—			—			—			1,152			—			1,152			1,152
Mortgage banking income		—			—			10,775			10,775			—			—			—			10,775
Program fees		—			—			—			—			643			844			1,487			1,487
Other noninterest income		7,138			(21)			21			7,138			45			—			45			7,183
Total noninterest income		7,138			(21)			10,796			17,913			1,840			844			2,684			20,597
Total noninterest expense		36,415			1,875			2,832			41,122			3,226			1,175			4,401			45,523
Income before income tax expense		3,619			5,452			8,264			17,335			3,834			4,657			8,491			25,826
Income tax expense		558			1,226			1,736			3,520			843			1,074			1,917			5,437
Net income	$	3,061		$	4,226		$	6,528		$	13,815		$	2,991		$	3,583		$	6,574		$	20,389
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		3.22	%		3.41	%		NM			3.25	%		NM			NM			NM			3.59	%
Net-revenue concentration*		63	%		10	%		15	%		88	%		4	%		8	%		12	%		100	%

	Three Months Ended September 30, 2019
	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	$	42,879		$	4,329		$	212		$	47,420		$	295		$	7,771		$	8,066		$	55,486
Provision for expected credit loss expense		1,555			620			—			2,175			(2,008)			2,986			978			3,153
Net refund transfer fees		—			—			—			—			317			—			317			317
Mortgage banking income		—			—			3,064			3,064			—			—			—			3,064	��
Program fees		—			—			—			—			122			1,195			1,317			1,317
Net loss on branch divestiture		(119)			—			—			(119)			—			—			—			(119)
Other noninterest income		8,221			(79)			66			8,208			24			—			24			8,232
Total noninterest income		8,102			(79)			3,130			11,153			463			1,195			1,658			12,811
Total noninterest expense		35,882			886			1,637			38,405			3,047			959			4,006			42,411
Income (loss) before income tax expense		13,544			2,744			1,705			17,993			(281)			5,021			4,740			22,733
Income tax expense (benefit)		2,244			617			358			3,219			(67)			1,173			1,106			4,325
Net income (loss)	$	11,300		$	2,127		$	1,347		$	14,774		$	(214)		$	3,848		$	3,634		$	18,408
Period-end assets	$	4,960,737		$	973,716		$	40,209		$	5,974,662		$	24,296		$	104,689		$	128,985		$	6,103,647
Net interest margin		3.76	%		2.30	%		NM			3.56	%		NM			NM			NM			4.07	%
Net-revenue concentration*		75	%		6	%		5	%		86	%		1	%		13	%		14	%		100	%

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

71

	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		$	22,484		$	17,655		$	40,139		$	177,195
Provision for expected credit loss expense		14,526			778			—			15,304			15,239			251			15,490			30,794
Net refund transfer fees		—			—			—			—			19,888			—			19,888			19,888
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			253			—			253			20,812
Total noninterest income		20,499			7			24,021			44,527			21,714			3,676			25,390			69,917
Total noninterest expense		109,750			3,489			7,517			120,756			13,589			2,972			16,561			137,317
Income before income tax expense		14,632			13,455			17,436			45,523			15,370			18,108			33,478			79,001
Income tax expense		1,747			3,027			3,662			8,436			3,487			4,188			7,675			16,111
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		3.41	%		3.07	%		NM			3.37	%		NM			NM			NM			4.21	%
Net-revenue concentration*		56	%		7	%		10	%		73	%		18	%		9	%		27	%		100	%

	Nine Months Ended September 30, 2019
	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	$	126,103		$	11,181		$	484		$	137,768		$	21,443		$	22,520		$	43,963		$	181,731
																				���
Provision for expected credit loss expense		3,171			1,262			—			4,433			11,818			8,593			20,411			24,844
Net refund transfer fees		—			—			—			—			21,046			—			21,046			21,046
Mortgage banking income		—			—			7,019			7,019			—			—			—			7,019
Program fees		—			—			—			—			318			3,110			3,428			3,428
Net loss on branch divestiture		(119)			—			—			(119)			—			—			—			(119)
Other noninterest income		22,970			(56)			162			23,076			244			659			903			23,979
Total noninterest income		22,851			(56)			7,181			29,976			21,608			3,769			25,377			55,353
Total noninterest expense		109,196			2,436			4,311			115,943			13,010			2,395			15,405			131,348
Income before income tax expense		36,587			7,427			3,354			47,368			18,223			15,301			33,524			80,892
Income tax expense		4,753			1,671			704			7,128			4,251			3,582			7,833			14,961
Net income	$	31,834		$	5,756		$	2,650		$	40,240		$	13,972		$	11,719		$	25,691		$	65,931
Period-end assets	$	4,960,737		$	973,716		$	40,209		$	5,974,662		$	24,296		$	104,689		$	128,985		$	6,103,647
Net interest margin		3.75	%		2.49	%		NM			3.63	%		NM			NM			NM			4.60	%
Net-revenue concentration*		63	%		5	%		3	%		71	%		18	%		11	%		29	%		100	%

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

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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.

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

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-19 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; and

● descriptions of assumptions underlying or relating to any of the foregoing.

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

● the impact of the COVID-19 pandemic on Company operations and credit losses;

● the ability of borrowers who received COVID-19 loan accommodations to resume repaying their loans upon maturity of such accommodations;

● natural disasters impacting Company operations;

● changes in political and economic conditions;

● the magnitude and frequency of changes to the FFTR implemented by the FOMC of the FRB;

● long-term and short-term interest rate fluctuations as well as the overall steepness of the U.S. Treasury yield curve;

● competitive product and pricing pressures in each of the Company’s five reportable segments;

● equity and fixed income market fluctuations;

● client bankruptcies and loan defaults;

● inflation;

● recession;

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● future acquisitions;

● integrations of acquired businesses;

● changes in technology;

● changes in applicable laws and regulations or the interpretation and enforcement thereof;

● changes in fiscal, monetary, regulatory and tax policies;

● changes in accounting standards;

● monetary fluctuations;

● changes to the Company’s overall internal control environment;

● success in gaining regulatory approvals when required;

● the Company’s ability to qualify for future R&D federal tax credits;

● information security breaches or cyber security attacks involving either the Company or one of the Company’s third-party service providers; and

● other risks and uncertainties reported from time to time in the Company’s filings with the SEC, including Part 1 Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 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, 2019.

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

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

Republic believes its critical accounting policies and estimates relate to the following:

● ACLL and Provision

● Goodwill and Other Intangible Assets

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ACLL and Provision — At September 30, 2020, 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 replaces the pre-January 1, 2020 “probable-incurred” method for calculating the Company’s ACL with the CECL method. CECL is applicable to financial assets measured at amortized cost, including loan and lease receivables and held-to-maturity debt securities. CECL also applies to certain off-balance sheet credit exposures.

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

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

Prospectively, the impact of utilizing the CECL approach to calculate the ACLL will be significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast 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 “Basis of Presentation and Summary of Significant Accounting Policies” and Footnote 4 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”

Goodwill and Other Intangible Assets — The excess purchase price over the fair value of net assets from acquisitions, or goodwill, is evaluated for impairment at least annually and on an interim basis if an event or circumstance indicates that it is likely goodwill impairment has occurred. The Company first assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is likely that goodwill impairment has occurred. If, after assessing the totality of events or circumstances, the Company determines it is likely that goodwill impairment has not occurred, then performing a quantitative impairment test is unnecessary. If the Company concludes otherwise, then it is required to perform an impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit.

The Company typically performs its impairment test annually as of September 30. Under its qualitative analysis, management concluded there was insufficient evidence of impairment of the Company’s $16 million of goodwill at September 30, 2020.

All goodwill is attributable to the Company’s Traditional Banking segment and is not expected to be deductible for tax purposes.

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BUSINESS SEGMENT COMPOSITION

As of September 30, 2020, 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. MemoryBank®, the Company’s national branchless banking platform, is part of the Traditional Banking segment.

(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, 2020, Republic had 42 full-service banking centers and two LPOs 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 — 8*

● Metropolitan Cincinnati, Ohio — 2

● Metropolitan Nashville, Tennessee — 3*

*Includes one LPO

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

As of September 30, 2020 and through the date of this filing, generally all Traditional Banking products and services, except for a selection of deposit products offered through the Bank’s separately branded national branchless banking platform, MemoryBank, were offered through the Company’s traditional RB&T brand.

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

Retail Mortgage Lending — Through its retail banking centers and its Consumer Direct channel, the Bank originates single family, residential real estate loans. In addition, the Bank originates HEALs and HELOCs through its retail banking centers. Such loans are generally collateralized by owner occupied property.

Consumer Direct Lending — Through its Consumer Direct channel, formerly named its Internet Lending channel, the Bank accepts online loan applications for its RB&T branded products through its website at www.republicbank.com. Historically, the majority of loans originated through its Consumer Direct channel have been within the Bank’s traditional markets of Kentucky, Florida, Indiana, and Tennessee. Other states where loans are marketed include Alabama, Arizona, California, Colorado, Connecticut, Georgia, Illinois, Louisiana, Michigan, Minnesota, Mississippi, Missouri, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Utah, Virginia, Washington, and Wisconsin, as well as the District of Columbia.

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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 near by the market footprint.

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

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

Aircraft Lending — In October 2017, the Bank created an Aircraft Lending division. The initial loan size offered was up to $500,000. In 2019, the Bank increased the opportunity to finance up to $1.0 million and in mid-2020 the Bank raised its opportunity to finance, once again, up to $2.0 million. Aircraft loans are typically made to purchase or refinance personal aircrafts, along with engine overhauls and avionic upgrades. Loans range between $55,000 and $2,000,000 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:

MemoryBank — MemoryBank, a national branchless banking platform, is a separately branded division of the Bank, which, from a marketing perspective, focuses on technologically savvy clients that prefer to carry larger balances in highly liquid interest-bearing bank accounts. MemoryBank products are offered through its website, www.mymemorybank.com.

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.

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.”

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(II)  Warehouse Lending segment

The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the U.S. 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.”

(III)  Mortgage Banking segment

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

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 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.”

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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 2020 and 2019:

● 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, check, or Walmart Direct2Cash^®, 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:

o there is no recourse to the taxpayer, 

o no negative credit reporting on the taxpayer, and

o no collection efforts against the taxpayer.

The Company reports fees paid for the EA product as interest income on loans. EAs are generally repaid within three weeks after the taxpayer’s tax return is submitted to the applicable taxing authority. EAs do not have a contractual due date but the Company considers an EA delinquent if it remains unpaid three weeks after the taxpayer’s tax return is submitted to the applicable taxing authority. Provision on EAs are estimated when advances are made, with Provision for all expected EA losses made in the first quarter of each year. Unpaid EAs are charged-off by June 30^th 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.

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

Republic Payment Solutions division — RPS is managed and operated within the TRS segment. The RPS division is an issuing bank offering general-purpose reloadable prepaid cards through third-party 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. The RPS division will not be considered a separate reportable segment until such time, if any, that it meets quantitative reporting thresholds.

(V) Republic Credit Solutions segment

Through the RCS segment, the Bank offers consumer credit products. In general, the credit products are unsecured, small dollar consumer loans and 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 product – The Bank originates a line-of-credit product to generally subprime borrowers in multiple states. Elevate Credit, Inc., a third-party service provider subject to the Bank’s oversight and supervision, provides the Bank with certain marketing, servicing, technology, and support services for the RCS line-of-credit program, while a separate third party also provides customer support, servicing, and other services for the RCS line-of-credit product on the Bank’s behalf. The Bank is the lender for the RCS line-of-credit product and is marketed as such. Further, the Bank controls the loan

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terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of the RCS line-of-credit product. 

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

● RCS installment loan products – From the first quarter of 2016 through the first quarter of 2018, the Bank piloted a consumer installment loan product across the U.S. using a third-party service provider. As part of the program, the Bank sold 100% of the balances generated through the program back to its third-party service provider approximately 21 days after origination. During the second quarter of 2018, the Bank and its third-party service provider suspended the origination of new loans and the sale of unsold loans through this program. Since program suspension in 2018, the Bank has carried all unsold loans under this program as “held for investment” on its balance sheet and has continued to wind down those balances. Additionally, loans under this program are carried at fair value under a fair value option on the Bank’s balance sheet with the portfolio marked to market monthly. Approximately $588,000 of balances remained held for investment under this program as of September 30, 2020.

Through a new program launched in December 2019, the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. A third-party service provider subject to the Bank’s oversight and supervision 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. Further, 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 its 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.”

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OVERVIEW (Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019)

Total Company net income for the third quarter of 2020 was $20.4 million, a $2.0 million, or 11%, increase from the same period in 2019. Diluted EPS increased to $0.98 for the three months ended September 30, 2020 compared to $0.88 for the same period in 2019.

The following are general highlights by reportable segment:

Traditional Banking segment

● Net income decreased $8.2 million, or 73%, for the third quarter of 2020 compared to the same period in 2019.

● Driven by continued net interest margin compression, net interest income decreased $4.1 million, or 10%, for the third quarter of 2020 compared to the same period in 2019.

● Driven primarily by COVID-19 related concerns, Provision increased $4.3 million to $5.9 million for the third quarter of 2020 compared to $1.6 million for the same period in 2019.

● Driven primarily by a change in client savings and spending patterns during the pandemic, total noninterest income decreased $964,000, or 12%, for the third quarter of 2020 compared to the same period in 2019.

● Driven primarily by additional investments in technology, total noninterest expense increased $533,000, or 1%, for the third quarter of 2020 compared to same period in 2019.

Warehouse Lending segment

● Net income increased $2.1 million, or 99%, for the third quarter of 2020 compared to the same period in 2019.

● Net interest income increased $3.0 million, or 70%, for the third quarter of 2020 compared to the same period in 2019.

● The Warehouse Provision was a net credit of $3,000 for the third quarter of 2020 compared to a net charge of $620,000 for the same period in 2019.

● Average committed Warehouse lines were $1.3 billion during the third quarter of 2020 compared to $1.1 billion during the third quarter of 2019.

● Average line usage was 68% during both the third quarter of 2020 and 2019.

Mortgage Banking segment

● Within the Mortgage Banking segment, mortgage banking income increased $7.7 million, or 252%, during the third quarter of 2020 compared to the same period in 2019.

● Overall, Republic’s originations of secondary market loans totaled $204 million during the third quarter of 2020 compared to $124 million during the same period in 2019, with the Company’s cash gain recognized as a percent of total sales increasing approximately 250 basis points from period to period.

Tax Refund Solutions segment

● Net income increased $3.2 million for the third quarter of 2020 compared to the same period in 2019.

● Net interest income increased $583,000 for the third quarter of 2020 compared to the same period in 2019.

● Overall, TRS recorded a net credit to the Provision of $4.3 million during the third quarter of 2020 compared to a net credit of $2.0 million for the same period in 2019.

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● Noninterest income increased $1.4 million, or 297%, for the third quarter of 2020 compared to the same period in 2019.

● Net RT revenue increased $835,000 for the third quarter of 2020 compared to the same period in 2019.

● Noninterest expense was $3.2 million for the third quarter of 2020 compared to $3.0 million for the same period in 2019.

Republic Credit Solutions segment

● Net income decreased $265,000, or 7%, for the third quarter of 2020 compared to the same period in 2019.

● Net interest income decreased $2.8 million, or 36%, for the third quarter of 2020 compared to the same period in 2019.

● Overall, RCS recorded a net credit to the Provision of $12,000 during the third quarter of 2020 compared to a net charge of $3.0 million for the same period in 2019.

● Noninterest income decreased $351,000, or 29%, from the third quarter of 2019 to the third quarter of 2020.

● Noninterest expense was $1.2 million for the third quarter of 2020 compared to $959,000 for the same period in 2019.

RESULTS OF OPERATIONS (Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019)

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.

Total Company net interest income decreased 6% during the third quarter of 2020 compared to the same period in 2019. Total Company net interest margin decreased to 3.59% during the third quarter of 2020 compared to 4.07% for the same period in 2019.

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 higher from December 2015 through December 2018 but began trending lower again during 2019 as the FOMC reduced the FFTR by 75 basis points during the year. The FOMC further lowered the FFTR 100 basis points during the first quarter of 2020 following market reactions to the COVID-19 pandemic. Consistent with decreases in market rates in the previous 12 months, the Total Company’s net interest spread and net interest margin both compressed 27 basis points and 48 basis points, respectively, from the third quarter of 2019 to the same period in 2020. The Company’s net interest spread, the difference between the weighted average rate earned on its interest-earning assets less the weighted average cost paid on its interest-bearing liabilities, compressed primarily because the Company’s interest-bearing liabilities had less room to reprice downward than its interest-earning assets. The Company’s net interest margin compressed 21 basis points more than its net interest spread due to the reduction in benefit the Bank receives from its noninterest-bearing funding in a falling rate environment. Management believes the Company’s net interest margin, as well as the net interest margin of its various operating segments will likely continue to decline in the near term as its earning asset yields continue to reprice lower.

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

Traditional Banking segment

The Traditional Banking’s net interest income decreased $4.1 million, or 10%, for the third quarter of 2020 compared to the same period in 2019. Traditional Banking’s net interest margin was 3.22% for the third quarter of 2020, a decrease of 54 basis points from the same period in 2019.

The decrease in the Traditional Bank’s net interest income and net interest margin during the third quarter of 2020 was primarily attributable to the following factors:

● The Traditional Bank’s net interest spread, the weighted average rate earned on its interest-earning assets less the weighted average cost paid on its interest-bearing liabilities, compressed 54 basis points primarily because the Core Bank’s liabilities had less room to reprice downward than its interest earning asset counterparts. The Traditional Bank’s net interest margin also compressed 54 basis points primarily due to an 80 basis point decrease in its loan yield. This margin compression was partially offset due to robust growth of $781 million in the Traditional Bank’s average noninterest-bearing deposits, which the Bank was able to utilize to reduce interest-bearing liabilities and their associated costs.

● Partially offsetting the decline in net interest income driven by the decrease in the Traditional Bank’s net interest spread and net interest margin, net interest income increased partially due to a rise in third quarter 2020 average loans of $196 million, or 5%, over the third quarter of 2019. The Traditional Bank originated $528 million in PPP loans during the second quarter of 2020 following the passage of the CARES Act on March 27, 2020. The PPP portfolio contributed $513 million in average Traditional Bank loans, net of unearned fees, for the third quarter of 2020. The rise in averages from the PPP Loans was partially offset by a $317 million decrease in non-PPP portfolios, including the impact of the sale of $128 million of the Traditional Bank’s loans in November 2019 as part of the Company’s branch divestiture.

Warehouse Lending segment

Warehouse net interest income increased $3.0 million, or 70%, for the third quarter of 2020 compared to the same period in 2019.

Falling mortgage rates during 2020 drove a surge in consumer refinance volume for Warehouse clients resulting in a 14% increase in average Warehouse loans for the third quarter of 2020 over the same period in 2019. Overall usage rates on Warehouse lines of credit were 68% for both the third quarter of 2020 and 2019. In addition, the Warehouse net interest margin increased to 3.41% for the third quarter of 2020 compared to 2.30% for the third quarter of 2019, as many of the Bank’s Warehouse clients reached contractual interest rate floors on their lines-of-credit during the second quarter of 2020 preventing further declines in the segment’s loan yields, while the segment’s cost of funds continued to decline.

Republic Credit Solutions segment

RCS’s net interest income decreased $2.8 million, or 36%, from the third quarter of 2019 to the third quarter of 2020. The decrease was driven primarily by a decline in fee income from RCS’s line-of-credit product. Loan fees on RCS’s line-of-credit product, recorded as interest income on loans, decreased to $4.0 million during the third quarter of 2020 compared to $6.5 million during the same period in 2019 and accounted for 76% and 77% of all RCS interest income on loans during the periods. The decrease in loan fees was the direct result of a decline in outstanding line-of-credit balances, as the Company reduced marketing for the product in response to the COVID-19 pandemic. RCS began incrementally increasing its marketing for its line-of-credit product during the third quarter of 2020.

Future loan fee income from RCS’s higher-yielding line-of-credit product will likely continue to be negatively impacted by the on-going COVID-19 pandemic. As of September 30, 2020 the current on-balance-sheet Board-approved risk limit was $40 million for the Company. As of September 30, 2020, the total outstanding on-balance-sheet amount, including loans held for sale, related to this product was $18 million.

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Table 1 — Total Company Average Balance Sheets and Interest Rates

$53,33
	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	Average				Average		Average				Average
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate
ASSETS
Interest-earning assets:
Federal funds sold and other interest-earning deposits	$	313,281	$	94	0.12	%	$	302,156	$	1,666	2.21	%
Investment securities, including FHLB stock (1)		600,943		2,362	1.57			547,281		3,497	2.56
Other RPG loans (2) (6)		114,224		5,268	18.45			126,619		8,417	26.59
Outstanding Warehouse lines of credit (3) (6)		860,420		7,966	3.70			752,089		8,834	4.70
Paycheck Protection Program loans (4) (6)		513,201		3,497	2.73			—		—	—
All other Core Bank loans (5) (6)		3,419,261		36,851	4.31			3,727,431		45,645	4.90
Total interest-earning assets		5,821,330		56,038	3.85			5,455,576		68,059	4.99
Allowance for credit loss		(55,423)						(47,379)
Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		95,570						63,655
Premises and equipment, net		42,167						45,960
Bank owned life insurance		67,447						65,878
Other assets (1)		180,952						127,946
Total assets	$	6,152,043					$	5,711,636
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Transaction accounts	$	1,366,830	$	178	0.05	%	$	1,160,529	$	1,549	0.53	%
Money market accounts		734,203		235	0.13			790,852		2,071	1.05
Time deposits		409,088		2,025	1.98			426,453		2,217	2.08
Reciprocal money market and time deposits		292,948		378	0.52			214,321		768	1.43
Brokered deposits		135,994		60	0.18			241,477		1,437	2.38
Total interest-bearing deposits		2,939,063		2,876	0.39			2,833,632		8,042	1.14
Securities sold under agreements to repurchase and other short-term borrowings		213,010		22	0.04			246,889		298	0.48
Federal Reserve Paycheck Protection Program Liquidity Facility		53,338		48	0.36			—		—	—
Federal Home Loan Bank advances		126,250		658	2.08			690,457		3,839	2.22
Subordinated note		41,240		182	1.77			41,240		394	3.82
Total interest-bearing liabilities		3,372,901		3,786	0.45			3,812,218		12,573	1.32
Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		1,846,552						1,065,904
Other liabilities		121,239						91,338
Stockholders’ equity		811,351						742,176
Total liabilities and stockholders’ equity	$	6,152,043					$	5,711,636
Net interest income			$	52,252					$	55,486
Net interest spread					3.40	%					3.67	%
Net interest margin					3.59	%					4.07	%

(1) For the purpose of this calculation, the fair market value adjustment on debt securities is included as a component of other assets.

(2) Interest income includes loan fees of $4.0 million and $6.5 million for the three months ended September 30, 2020 and 2019.

(3) Interest income includes loan fees of $942,000 and $853,000 for the three months ended September 30, 2020 and 2019.

(4) Interest income includes loan fees of $2.1 million for the three months ended September 30, 2020.

(5) Interest income includes loan fees of $680,000 and $1.6 million for the three months ended September 30, 2020 and 2019.

(6) Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs.

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Table 2 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 2 — Total Company Volume/Rate Variance Analysis

		Three Months Ended September 30, 2020
		Compared to
		Three Months Ended September 30, 2019
	Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate
Interest income:
Federal funds sold and other interest-earning deposits	$	(1,572)	$	59	$	(1,631)
Investment securities, including FHLB stock		(1,135)		316		(1,451)
Other RPG loans		(3,149)		(763)		(2,386)
Outstanding Warehouse lines of credit		(868)		1,164		(2,032)
Paycheck Protection Program loans		3,497		3,497		—
All other Core Bank loans		(8,794)		(3,589)		(5,205)
Net change in interest income		(12,021)		684		(12,705)
Interest expense:
Transaction accounts		(1,371)		234		(1,605)
Money market accounts		(1,836)		(138)		(1,698)
Time deposits		(192)		(88)		(104)
Reciprocal money market and time deposits		(390)		216		(606)
Brokered deposits		(1,377)		(441)		(936)
Securities sold under agreements to repurchase and other short-term borrowings		(276)		(36)		(240)
Federal Reserve Paycheck Protection Program Liquidity Facility		48		48		—
Federal Home Loan Bank advances		(3,181)		(2,954)		(227)
Subordinated note		(212)		—		(212)
Net change in interest expense		(8,787)		(3,159)		(5,628)
Net change in net interest income	$	(3,234)	$	3,843	$	(7,077)

Provision

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

See additional detail regarding the Company’s adoption of ASC 326 and the CECL method under Footnote 1 “Basis of Presentation and Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements.”

Total Company Provision was $1.5 million for the third quarter of 2020 compared to $3.2 million for the same period in 2019.

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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 2020 was $5.9 million, compared to $1.6 million for the third quarter of 2019. An analysis of the Provision for the third quarter of 2020 compared to the same period in 2019 follows:

● Related to the Bank’s pass-rated and non-rated loans, the Bank recorded net charges of $5.6 million and $4,000 to the Provision for the third quarters of 2020 and 2019. For the third quarter of 2020, the Traditional Bank recorded $6.8 million of additional Provision due to further analysis of the expected economic impact of the COVID-19 pandemic along with rising vacancy rates on CRE within the Traditional Bank’s market footprint. Offsetting the increase in Provision due to the impact of the COVID-19 pandemic was a reduction in Provision of $1.2 million driven by a $83 million decrease in non-PPP Traditional Bank period-end balances during the third quarter of 2020.

● The Bank recorded net charges to the Provision of $204,000 and $1.6 million for the third quarters of 2020 and 2019 related to loans rated Substandard, Special Mention, and PCD loans.  The charge during the third quarter of 2019 included a $1.4 million Provision for one commercial-related loan that defaulted during the quarter.

As a percentage of total loans, the Traditional Banking ACLL was 1.26% at September 30, 2020 compared to 0.78% at December 31, 2019 and 0.86% at September 30, 2019. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses at September 30, 2020.

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.

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

● Part I Item 1 “Financial Statements”

o Footnote 2 “Investment Securities”

o Footnote 4 “Loans and Allowance for Credit Losses”

o Footnote 9 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

● Part II Item 1A “Risk Factors”

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Warehouse Lending segment

Warehouse recorded a net credit to the Provision of $3,000 for the third quarter of 2020 compared to a net charge of $620,000 for the same period in 2019. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $1 million during the third quarter of 2020 compared to an increase of $248 million during the third quarter of 2019.

As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% at September 30, 2020, December 31, 2019 and September 30, 2019. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses at September 30, 2020.

Tax Refund Solutions segment

The TRS Provision incurred a positive change from a net credit of $2.0 million during the third quarter of 2019 to a net credit of $4.3 million during the third quarter of 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 2019, it also experienced a higher rate of EA recoveries during the third quarter of 2020 than the comparable quarter of 2019. 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 related to the impact of the current 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 3.93% at September 30, 2020. This compares to 2.91% at September 30, 2019, a difference of 102 basis points. By comparison, the unpaid EA percentage was 5.05% at June 30, 2020, compared to 3.45% at June 30, 2019, representing a difference of 160 basis points. With all unpaid EAs having been charged off as of June 30, 2020, any EA payments received during the fourth quarter of 2020 will continue to represent recovery credits directly to income.

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 3 below, RCS recorded a credit to the Provision of $12,000 during the third quarter of 2020 compared to a charge to the Provision of $3.0 million for the same period in 2019. The decrease in the Provision was driven by a reduction in both net charge-offs and outstanding balances for RCS’s line-of-credit product, as the Company reduced marketing for RCS’s line-of-credit product in response to the COVID-19 pandemic.  RCS began incrementally increasing its marketing for its line-of-credit product during the third quarter of 2020.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 7.82% at September 30, 2020, 12.45% at December 31, 2019 and 13.32% at September 30, 2019. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses at September 30, 2020.

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

Table 3 — RCS Provision by Product

	Three Months Ended Sep. 30,
(in thousands)	2020		2019		$ Change		% Change
Product:
Line of credit	$	(40)	$	2,981	$	(3,021)	(101)	%
Hospital receivables		28		5		23	460
Total	$	(12)	$	2,986	$	(2,998)	(100)	%

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Table 4 — Summary of Loan and Lease Loss Experience

	Three Months Ended
	September 30,
(dollars in thousands)	2020			2019
ACLL at beginning of period	$	55,097		$	45,983
Charge-offs:
Traditional Banking:
Residential real estate		(13)			(17)
Commercial real estate		—			(1,407)
Commercial & industrial		(255)			—
Home equity		(14)			—
Consumer		(227)			(547)
Total Traditional Banking		(509)			(1,971)
Warehouse lines of credit		—			—
Total Core Banking		(509)			(1,971)
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—
Other TRS loans		(22)			(90)
Republic Credit Solutions		(684)			(2,799)
Total Republic Processing Group		(706)			(2,889)
Total charge-offs		(1,215)			(4,860)
Recoveries:
Traditional Banking:
Residential real estate		28			126
Commercial real estate		—			—
Commercial & industrial		80			1
Home equity		21			23
Consumer		77			150
Total Traditional Banking		206			300
Warehouse lines of credit		—			—
Total Core Banking		206			300
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		4,294			2,098
Other TRS loans		—			2
Republic Credit Solutions		83			256
Total Republic Processing Group		4,377			2,356
Total recoveries		4,583			2,656
Net loan recoveries (charge-offs)		3,368			(2,204)
Provision - Core Banking		5,780			2,175
Provision - RPG		(4,354)			978
Total Provision		1,426			3,153
ACLL at end of period	$	59,891		$	46,932
Credit Quality Ratios - Total Company:
ACLL to total loans		1.20	%		1.01	%
ACLL to nonperforming loans		284			226
Net loan charge-offs (recoveries) to average loans		(0.27)			0.19
	��
Credit Quality Ratios - Core Banking:
ACLL to total loans		1.05	%		0.73	%
ACLL to nonperforming loans		245			163
Net loan charge-offs to average loans		0.03			0.15

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Noninterest Income

Total Company noninterest income increased $7.8 million, or 61%, during the third quarter of 2020 compared to the same period in 2019. The following were the most significant components comprising the total Company’s noninterest income by reportable segment:

Traditional Banking segment

Traditional Banking’s noninterest income decreased $964,000 for the third quarter of 2020 compared to the same period in 2019. Service charges on deposit accounts decreased $738,000 and interchange income decreased $135,000 from the third quarter of 2019 to the same period in 2020. Both decreases largely reflect a change in client savings and spending patterns during the pandemic-driven economic restrictions. In general, during the third quarter of 2020, client spending decreased meaningfully from the third quarter of 2019, while client deposit balances increased, thus producing less overdraft activity and less interchange revenue for the Bank. Client spending patterns did appear to increase between the second and third quarters of 2020, however, management is uncertain at this time if this pattern will continue in the near term.

The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the three months ended September 30, 2020 and 2019 were $1.3 million and $2.3 million. The total daily overdraft charges, net of refunds, included in interest income for the three months ended September 30, 2020 and 2019 were $99,000 and $612,000. The Bank suspended its daily overdraft charges during the first quarter of 2020 to cushion the economic blow 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

Within the Mortgage Banking segment, mortgage banking income increased $7.7 million, or 252%, during the third quarter of 2020 compared to the same period in 2019. Falling mortgage rates during 2020 drove strong growth in the Company’s consumer refinance activity, particularly within the Company’s relatively new Consumer Direct channel. Overall, the Company originated $204 million of secondary market mortgage loans during the third quarter of 2020 compared to $124 million for the third quarter of 2019.

In addition to the strong mortgage banking origination volume during the third quarter of 2020, the Company’s cash gain recognized as a percent of total sales increased by approximately 250 basis points from period to period. The stronger gain percentages resulted from favorable market conditions on pricing during the quarter. If and when consumer refinance volume begins to slow down in the future, management believes market conditions for pricing will become more competitive and return to a range of 2.0%-3.0%, which is more in-line with historical averages for gains-as-a-percentage-of-loans-sold.

Tax Refund Solutions segment

TRS’s noninterest income increased $1.4 million during the third quarter of 2020 compared to the same period in 2019 resulting from an $835,000 increase in net RT revenue and a $521,000 increase in prepaid card program fees as a result of the Company’s May 1, 2020 acquisition of $250 million in prepaid card balances. Management believes the RTs processed for the third quarter of 2020 increased over the third quarter of 2019 due to delays in 2020 associated with the COVID-19 pandemic.

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Republic Credit Solutions segment

RCS’s noninterest income decreased $351,000, or 29%, during the third quarter of 2020 compared to the same period in 2019. As illustrated in Table 5 below, RCS program fees decreased $351,000 resulting primarily from a decline in outstanding line-of-credit balances as the Company reduced marketing for its installment loan product and its line-of-credit product in response to the COVID-19 pandemic. RCS began incrementally increasing its marketing for its line-of-credit product during the third quarter of 2020.

The following table presents RCS program fees by product:

Table 5 — RCS Program Fees by Product

	Three Months Ended Sep. 30,
(in thousands)	2020		2019		$ Change		% Change
Product:
Line of credit	$	752	$	1,172	$	(420)	(36)	%
Hospital receivables		45		79		(34)	(43)
Installment loans*		47		(56)		103	NM
Total	$	844	$	1,195	$	(351)	(29)	%

* 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 increased $3.1 million, or 7%, during the third quarter of 2020 compared to the same period in 2019. The following were the most significant components comprising the increase in noninterest expense by reportable segment:

Traditional Banking segment

Driven by the Company’s increased investment in technology since September 30, 2019, Traditional Banking noninterest expense increased $533,000, or 1%, for the third quarter of 2020 compared to the same period in 2019. A substantial portion of the technological increase was driven by the Company’s investment in loan systems used to facilitate processing for its PPP clients.

Warehouse Lending segment

Noninterest expense at the Warehouse segment increased $989,000 during the third quarter of 2020 compared to the same period in 2019, primarily due to higher incentive compensation expense recorded during 2020.

Mortgage Banking segment

Noninterest expense at the Mortgage Banking segment increased $1.2 million or 73%, during the third quarter of 2020 compared to the same period in 2019, primarily due to higher mortgage commissions recorded during 2020.

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OVERVIEW (Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019)

Total Company net income for the first nine months of 2020 was $62.9 million, a $3.0 million, or 5%, decrease from the same period in 2019. Diluted EPS decreased to $3.02 for the nine months ended September 30, 2020 compared to $3.15 for the same period in 2019. Net income was down from the first nine months of 2019, as it was significantly impacted by the increase in the Company’s estimated ACL in response to the potential impact of the COVID-19 pandemic.

The following are general highlights by reportable segment:

Traditional Banking segment

● Net income decreased $18.9 million, or 60%, for the first nine months of 2020 compared to the same period in 2019.

● Driven primarily by net interest margin compression, net interest income decreased $7.7 million, or 6%, for the first nine months of 2020 compared to the same period in 2019.

● Driven by COVID-19 related concerns in combination with the new allowance methodology as required by the adoption of ASC 326, Provision increased $11.4 million to $14.5 million for the first nine months of 2020 compared to $3.2 million for the same period in 2019.

● Driven primarily by a change in client savings and spending patterns during the pandemic, noninterest income decreased $2.4 million, or 10%, for the first nine months of 2020 compared to the same period in 2019.

● Total noninterest expense increased $554,000 for the first nine months of 2020 compared to same period in 2019.

● Total nonperforming loans to total loans for the Traditional Banking segment was 0.54% at September 30, 2020 compared to 0.65% at December 31, 2019.

● Delinquent loans to total loans for the Traditional Banking segment was 0.29% at September 30, 2020 compared to 0.36% at December 31, 2019.

● At September 30, 2020, $754 million, or 20%, of the Traditional Bank’s loan portfolio had been granted COVID-19 loan accommodations earlier in 2020, with $21 million of those previously accommodated balances requiring additional accommodation after the expiration of the initial accommodation period.

Warehouse Lending segment

● Net income increased $4.7 million, or 81%, for the first nine months of 2020 compared to the same period in 2019.

● Net interest income increased $6.5 million, or 58%, for the first nine months of 2020 compared to the same period in 2019.

● The Warehouse Provision was a net charge of $778,000 for the first nine months of 2020 compared to a net charge of $1.3 million for the same period in 2019.

● Average committed Warehouse lines increased to $1.2 billion during the first nine months of 2020 from $1.1 billion during the same period in 2019.

● Average line usage was 65% during the first nine months of 2020 compared to 55% during the same period in 2019.

Mortgage Banking segment

● Within the Mortgage Banking segment, mortgage banking income increased $16.9 million, or 241%, during the first nine months of 2020 compared to the same period in 2019.

● Overall, Republic’s originations of secondary market loans totaled $548 million during the first nine months of 2020 compared to $247 million during the same period in 2019, with the Company’s cash gain recognized as a percent of total sales increasing approximately 130 basis points from period to period.

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Tax Refund Solutions segment

● Net income decreased $2.1 million, or 15%, for the first nine months of 2020 compared to the same period in 2019.

● Net interest income increased $1.0 million for the first nine months of 2020 compared to the same period in 2019.

● Total EA originations were $388 million during the first nine months of 2020 compared to $389 million for the first nine months of 2019.

● Overall, TRS recorded a net charge to the Provision of $15.2 million during the first nine months of 2020 compared to a net charge to the Provision of $11.8 million for the same period in 2019.

● Noninterest income increased $106,000 for the first nine months of 2020 compared to the same period in 2019.

● Net RT revenue decreased $1.2 million, or 6%, for the first nine months of 2020 compared to the same period in 2019.

● Noninterest expense was $13.6 million for the first nine months of 2020 compared to $13.0 million for the same period in 2019.

Republic Credit Solutions segment

● Net income increased $2.2 million, or 19%, for the first nine months of 2020 compared to the same period in 2019.

● Net interest income decreased $4.9 million, or 22%, for the first nine months of 2020 compared to the same period in 2019.

● Overall, RCS recorded a net charge to the Provision of $251,000 during the first nine months of 2020 compared to a net charge of $8.6 million for the same period in 2019.

● Noninterest income decreased $93,000, or 2%, from the first nine months of 2019 to the first nine months of 2020.

● Noninterest expense was $3.0 million for the first nine months of 2020 compared to $2.4 million for the same period in 2019.

● Total nonperforming loans to total loans for the RCS segment was 0.03% at September 30, 2020 compared to 0.10% at December 31, 2019.

● Delinquent loans to total loans for the RCS segment was 5.36% at September 30, 2020 compared to 7.25% at December 31, 2019.

RESULTS OF OPERATIONS (Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019)

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.

Total Company net interest income decreased 2% during the first nine months of 2020 compared to the same period in 2019. Total Company net interest margin decreased to 4.21% during the first nine months of 2020 compared to 4.60% for the same period in 2019.

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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 higher from December 2015 through December 2018 but began trending lower again during 2019 as the FOMC reduced the FFTR by 75 basis points during the year. The FOMC further lowered the FFTR 100 basis points during the first quarter of 2020 following market reactions to the COVID-19 pandemic. Consistent with decreases in market rates in the previous 12 months, the Total Company’s net interest spread and net interest margin compressed 24 basis points and 39 basis points, respectively, from the first nine months of 2019 to the same period in 2020. The Company’s net interest spread, the difference between the weighted average rate earned on its interest-earning assets less the weighted average cost paid on its interest-bearing liabilities, compressed primarily because the Company’s interest-bearing liabilities had less room to reprice downward than its interest-earning assets. The Company’s net interest margin compressed 15 basis points more than its net interest spread due to the reduction in benefit the Bank sees from noninterest-bearing funding in a falling rate environment. Management believes the Company’s net interest margin, as well as the net interest margin of its various operating segments will likely continue to decline in the near term as its earning asset yields continue to reprice lower.

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

Traditional Banking segment

The Traditional Banking’s net interest income decreased $7.7 million, or 6%, for the first nine months of 2020 compared to the same period in 2019. Traditional Banking’s net interest margin was 3.41% for the first nine months of 2020, a decrease of 34 basis points from the same period in 2019.

The decrease in the Traditional Bank’s net interest income and net interest margin during the first nine months of 2020 was primarily attributable to the following factors:

● The Traditional Bank’s net interest spread, the weighted average rate earned on its interest-earning assets less the weighted average cost paid on its interest-bearing liabilities, compressed 29 basis points primarily because the Core Bank’s liabilities had less room to reprice downward than its interest-earning asset counterparts.

● The Traditional Bank’s net interest margin compressed 34 basis points, or five basis points more than its net interest spread, due to the decreased value from the Traditional Bank’s noninterest-bearing funding sources. The difference between the Traditional Banking segment’s net interest margin and net interest spread was 14 basis points during the first nine months of 2020 compared to 19 basis points during the first nine months of 2019, with the differential of five basis points representing the decreased value to the net interest margin of noninterest-bearing deposits and stockholders’ equity. The decrease in this value was driven by a 52 basis-point decline in the yield on the Traditional Banking segment’s interest-earning assets from period to period.

● Partially offsetting the decline in net interest income driven by the decrease in the Traditional Bank’s net interest spread and net interest margin, net interest income increased partially due to a rise in YTD 2020 average loans, which increased $129 million, or 4%, over the same period in 2019. The Traditional Bank originated $528 million in PPP loans during the second and third quarters of 2020 following the passage of the CARES Act on March 27, 2020. This PPP portfolio contributed $301 million in average Traditional Bank loans for the first nine months of 2020. The increase in Traditional Bank loans from the PPP program was partially offset by a $172 million decrease in non-PPP portfolios, which included the impact of the sale of $128 million of the Traditional Bank’s loans in November 2019 as part of the Company’s branch divestiture.

Warehouse Lending segment

Net interest income increased $6.5 million, or 58%, for the first nine months of 2020 compared to the same period in 2019.

Falling mortgage rates during 2020 drove a surge in consumer refinance volume for Warehouse clients resulting in a 29% increase in average Warehouse loans for the first nine months of 2020 over the same period in 2019. Overall usage rates on Warehouse lines of credit were 65% for the first nine months of 2020 compared to 55% for the first nine months of 2019. In addition, the Warehouse net interest margin increased to 3.07% for the first nine months of 2020 compared to 2.49% for the first nine months of 2019, as many of the Bank’s Warehouse client reached contractual interest rate floors on their lines-of-credit during the second quarter of 2020 preventing further declines in the segment’s loan yields, while the segment’s cost of funds continued to decline.

93

Tax Refund Solutions segment

TRS’s net interest income increased $1.0 million for the first nine months of 2020 compared to the same period in 2019. TRS’s EA product earned $19.6 million in interest income during the first nine months of 2020, a $504,000 increase resulting primarily from modifications to the product’s pricing tiers. EA pricing includes a direct fee to the taxpayer, with the annual percentage rate to the taxpayer for his or her portion of the total fee being less than 36% for all offering tiers.

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

RCS’s net interest income decreased $4.9 million, or 22%, from the first nine months of 2019 to the first nine months of 2020. The decrease was driven primarily by a decline in fee income from RCS’s line-of-credit product. Loan fees on RCS’s line-of-credit product, recorded as interest income on loans, decreased to $14.7 million during the first nine months of 2020 compared to $19.3 million during the same period in 2019 and accounted for 78% and 79% of all RCS interest income on loans during the periods. The decrease in loan fees was the direct result of a decline in outstanding line-of-credit balances, as the Company reduced marketing for the product in response to the COVID-19 pandemic.

Future loan fee income from RCS’s higher-yielding line-of-credit product will likely continue to be negatively impacted by the on-going COVID-19 pandemic. As of September 30, 2020 the current on-balance-sheet Board-approved risk limit was $40 million for the Company. As of September 30, 2020, the total outstanding on-balance-sheet amount, including loans held for sale, related to this product was $18 million.

94

Table 6 — Total Company Average Balance Sheets and Interest Rates

	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
	Average				Average		Average				Average
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate
ASSETS
Interest-earning assets:
Federal funds sold and other interest-earning deposits	$	273,604	$	818	0.40	%	$	296,474	$	5,143	2.31	%
Investment securities, including FHLB stock (1)		575,575		8,190	1.90			541,739		11,278	2.78
TRS Easy Advance loans (2)		52,004		19,602	50.26			45,406		19,098	56.08
Other RPG loans (3) (7)		124,479		19,587	20.98			122,106		25,301	27.63
Outstanding Warehouse lines of credit(4) (7)		770,454		22,305	3.86			599,302		22,148	4.93
Paycheck Protection Program loans (5) (7)		300,733		6,149	2.73			—		—	—
All other Core Bank loans (6) (7)		3,508,837		117,637	4.47			3,663,704		133,388	4.85
Total interest-earning assets		5,605,686		194,288	4.62			5,268,731		216,356	5.48
Allowance for credit loss		(59,896)						(52,159)
Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		135,755						109,585
Premises and equipment, net		43,836						44,694
Bank owned life insurance		67,061						65,484
Other assets (1)		166,071						120,781
Total assets	$	5,958,513					$	5,557,116
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Transaction accounts	$	1,253,811	$	1,019	0.11	%	$	1,140,171	$	4,652	0.54	%
Money market accounts		741,205		1,725	0.31			764,055		5,873	1.02
Time deposits		417,171		6,370	2.04			408,419		6,108	1.99
Reciprocal money market and time deposits		263,681		1,432	0.72			201,492		2,042	1.35
Brokered deposits		216,098		2,279	1.41			170,688		3,018	2.36
Total interest-bearing deposits		2,891,966		12,825	0.59			2,684,825		21,693	1.08
Securities sold under agreements to repurchase and other short-term borrowings		199,556		158	0.11			232,949		1,049	0.60
Federal Reserve Paycheck Protection Program Liquidity Facility		58,683		153	0.35			—		—	—
Federal Home Loan Bank advances		253,157		3,128	1.65			638,237		10,631	2.22
Subordinated note		41,240		829	2.68			41,240		1,252	4.05
Total interest-bearing liabilities		3,444,602		17,093	0.66			3,597,251		34,625	1.28
Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		1,598,635						1,140,355
Other liabilities		119,393						93,491
Stockholders’ equity		795,883						726,019
Total liabilities and stock-holders’ equity	$	5,958,513					$	5,557,116
Net interest income			$	177,195					$	181,731
Net interest spread					3.96	%					4.20	%
Net interest margin					4.21	%					4.60	%

(1) For the purpose of this calculation, the fair market value adjustment on debt securities is included as a component of other assets.

(2) Interest income for Easy Advances is composed entirely of loan fees.

(3) Interest income includes loan fees of $16.0 million and $20.7 million for the nine months ended September 30, 2020 and 2019.

(4) Interest income includes loan fees of $2.4 million and $2.2 million for the nine months ended September 30, 2020 and 2019.

(5) Interest income includes loan fees of $3.7 million for the nine months ended September 30, 2020.

(6) Interest income includes loan fees of $2.4 million and $4.0 million for the nine months ended September 30, 2020 and 2019.

(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.

95

Table 7 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 7 — Total Company Volume/Rate Variance Analysis

		Nine Months Ended September 30, 2020
		Compared to
		Nine Months Ended September 30, 2019
	Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate
Interest income:
Federal funds sold and other interest-earning deposits	$	(4,325)	$	(369)	$	(3,956)
Investment securities, including FHLB stock		(3,088)		668		(3,756)
TRS Easy Advance loans*		504		(1,934)		2,438
Other RPG loans		(5,714)		483		(6,197)
Outstanding Warehouse lines of credit		157		5,546		(5,389)
Paycheck Protection Program loans		6,149		6,149		—
All other Core Bank loans		(15,751)		(5,483)		(10,268)
Net change in interest income		(22,068)		5,060		(27,128)
Interest expense:
Transaction accounts		(3,633)		422		(4,055)
Money market accounts		(4,148)		(170)		(3,978)
Time deposits		262		132		130
Reciprocal money market and time deposits		(610)		513		(1,123)
Brokered deposits		(739)		674		(1,413)
Securities sold under agreements to repurchase and other short-term borrowings		(891)		(131)		(760)
Federal Reserve Paycheck Protection Program Liquidity Facility		153		153		—
Federal Home Loan Bank advances		(7,503)		(5,255)		(2,248)
Subordinated note		(423)		—		(423)
Net change in interest expense		(17,532)		(3,662)		(13,870)
Net change in net interest income	$	(4,536)	$	8,722	$	(13,258)

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

96

Provision

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

See additional detail regarding the Company’s adoption of ASC 326 and the CECL method under Footnote 1 “Basis of Presentation and Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements.”

Total Company Provision was $30.8 million for the first nine months of 2020 compared to $24.8 million for the same period in 2019.

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 months of 2020 was $14.5 million, compared to $3.2 million for the first nine months of 2019. An analysis of the Provision for the first nine months of 2020 compared to the same period in 2019 follows:

● Related to the Bank’s pass-rated and non-rated loans, the Bank recorded net charges of $14.5 million and $1.2 million to the Provision for the first nine months of 2020 and 2019. For the first nine months of 2020, the Traditional Bank recorded $17.7 million of additional Provision due to the expected economic impact of the COVID-19 pandemic. The Company’s analysis included the following:

o the pandemic’s impact on national unemployment;

o an analysis of  loans to industries more directly harmed by the pandemic, such as the hospitality industry;

o the number and amount in loans receiving pandemic related accommodations from the  Bank; and,

o a forecasted rise in vacancy rates for CRE within the Traditional Bank’s market footprint.

Offsetting the increase in the Provision due to the impact of the COVID-19 pandemic was a reduction in the Provision of $3.2 million driven by a $254 million decrease in Traditional Bank non-PPP period-end balances from December 31, 2019 to September 30, 2020.

● The Bank recorded a net reduction to the Provision of $263,000 for the first nine months of 2020 compared to a net charge to the Provision of $2.0 million during the same period in 2019 related to loans rated Substandard, Special Mention, or PCD. The net reduction during the first nine months of 2020 was driven by a $470,000 recovery recorded upon the payoff of a large CRE relationship that had been partially charged-off in a prior period.  The charge during the first nine months of 2019 includes  $2.6 million of Provision for two commercial relationships that defaulted during the period.

● Related to the Bank’s corporate bonds held within its investment securities portfolio, the Bank recorded $296,000 of Provision during the first nine months of 2020, driven by higher PD and LGD assumptions stemming from COVID-19 economic concerns. The Company began provisioning for credit loss for its investment securities in 2020 as part of its adoption of ASC 326; therefore, no similar Provision was recognized during the first nine months of 2019.

As a percentage of total loans, the Traditional Banking ACLL was 1.26% at September 30, 2020 compared to 0.78% at December 31, 2019 and 0.86% at September 30, 2019. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses at September 30, 2020.

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.

97

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

● Part I Item 1 “Financial Statements”

o Footnote 2 “Investment Securities”

o Footnote 4 “Loans and Allowance for Credit Losses”

o Footnote 9 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

● Part II Item 1A “Risk Factors”

Warehouse Lending segment

Warehouse recorded a net charge to the Provision of $778,000 for the first nine months of 2020 compared to a net charge of $1.3 million for the same period in 2019. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances increased $311 million during the first nine months of 2020 compared to an increase of $505 million during the first nine months of 2019.

As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% at September 30, 2020, December 31, 2019 and September 30, 2019. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses at September 30, 2020.

Tax Refund Solutions segment

TRS recorded a net charge to the Provision of $15.2 million during the first nine months of 2020 compared to a net charge of $11.8 million for the same period in 2019. Substantially all TRS Provision in both periods was related to its EA product.

TRS’s Provision for EA loan losses was $15.2 million, or 3.93% of its $388 million in EAs originated during the first nine months of 2020, compared to a Provision of $11.2 million, or 2.91% of its $389 million of EAs originated during the first nine months of 2019. The higher net charges to the Provision during the first nine months of 2020 resulted from EA repayment rates from the U.S. Treasury that significantly lagged those during the same period in 2019. Management believes the significant decline in repayment rates from the U.S. Treasury during 2020, particularly during the second quarter, was directly related to the impact of the current 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 3.93% at September 30, 2020. This compares to 2.91% at September 30, 2019, a difference of 102 basis points. By comparison, the unpaid EA percentage was 5.05% at June 30, 2020, compared to 3.45% at June 30, 2019, representing a difference of 160 basis points. With all unpaid EAs having been charged off as of June 30, 2020, any EA payments received during the fourth quarter of 2020 will continue to represent recovery credits directly to income.

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 8 below, RCS recorded a charge to the Provision of $251,000 during the first nine months of 2020 compared to a charge to the Provision of $8.6 million for the same period in 2019. The decrease in the Provision was driven by a reduction in both net charge-offs and outstanding balances for RCS’s line-of-credit product, as the Company reduced marketing for RCS’s line-of-credit product in response to the COVID-19 pandemic. RCS began incrementally increasing its marketing for its line-of-credit product during the third quarter of 2020.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 7.82% at September 30, 2020, 12.45% at December 31, 2019 and 13.32% at September 30, 2019. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses at September 30, 2020.

98

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

Table 8 — RCS Provision by Product

	Nine Months Ended Sep. 30,
(in thousands)	2020			2019	$ Change		% Change
Product:
Line of credit	$	214	$	8,554	$	(8,340)	(97)	%
Hospital receivables		37		39		(2)	(5)
Total	$	251	$	8,593	$	(8,342)	(97)	%

99

Table 9 — Summary of Loan and Lease Loss Experience

	Nine Months Ended
	September 30,
(dollars in thousands)	2020			2019
ACLL at beginning of period	$	43,351		$	44,675
Adoption of ASC326		6,734			—
Charge-offs:
Traditional Banking:
Residential real estate		(40)			(474)
Commercial real estate		(270)			(1,407)
Commercial & industrial		(447)			—
Home equity		(14)			(13)
Consumer		(960)			(1,480)
Total Traditional Banking		(1,731)			(3,374)
Warehouse lines of credit		—			—
Total Core Banking		(1,731)			(3,374)
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		(19,575)			(13,425)
Commercial & industrial		(94)			(371)
Republic Credit Solutions		(5,401)			(9,306)
Total Republic Processing Group		(25,070)			(23,102)
Total charge-offs		(26,801)			(26,476)
Recoveries:
Traditional Banking:
Residential real estate		116			393
Commercial real estate		472			4
Commercial & industrial		124			6
Home equity		108			61
Consumer		399			445
Total Traditional Banking		1,219			909
Warehouse lines of credit		—			—
Total Core Banking		1,219			909
Republic Processing Group:
Tax Refund Solutions:
Easy Advances		4,336			2,103
Commercial & industrial		1			2
Republic Credit Solutions		553			875
Total Republic Processing Group		4,890			2,980
Total recoveries		6,109			3,889
Net loan charge-offs		(20,692)			(22,587)
Provision - Core Banking		15,008			4,433
Provision - RPG		15,490			20,411
Total Provision		30,498			24,844
ACLL at end of period	$	59,891		$	46,932
Credit Quality Ratios - Total Company:
ACLL to total loans		1.20	%		1.01	%
ACLL to nonperforming loans		284			226
Net loan charge-offs to average loans		0.58			0.68
Credit Quality Ratios - Core Banking:
ACLL to total loans		1.05	%		0.73	%
ACLL to nonperforming loans		245			163
Net loan charge-offs to average loans		0.01			0.08

100

Noninterest Income

Total Company noninterest income increased $14.6 million, or 26%, during the first nine months of 2020 compared to the same period in 2019. The following were the most significant components comprising the total Company’s noninterest income by reportable segment:

Traditional Banking segment

Traditional Banking’s noninterest income decreased $2.4 million, or 10%, for the first nine months of 2020 compared to the same period in 2019. Service charges on deposit accounts decreased $2.0 million and interchange income decreased $712,000 from the first nine months of 2019 to the same period in 2020. Both decreases largely reflect a change in client savings and spending patterns during the pandemic-driven economic restrictions. In general, during the second quarter of 2020, client spending decreased meaningfully from the same periods in 2019, while client deposit balances increased, thus producing less overdraft activity and less interchange revenue for the Bank. Client spending patterns did begin returning to more normalized levels during the third quarter of 2020, however, management is uncertain at this time if this pattern will continue given the on-going spread of COVID-19 nationally.

The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the nine months ended September 30, 2020 and 2019 were $4.1 million and $6.5 million. The total daily overdraft charges, net of refunds, included in interest income for the nine months ended September 30, 2020 and 2019 were $517,000 and $1.7 million. The Bank suspended its daily overdraft charges during the first quarter of 2020 to cushion the economic blow of the COVID-19 pandemic on its clients. The Bank reinstituted the charging of its daily overdraft fee on September 1, 2020.

The Bank recognized a $353,000 net gain on sale of one of its former banking centers during the first nine months of 2020. The now-sold property is located in Tampa, Florida.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income increased $16.9 million, or 241%, during the first nine months of 2020 compared to the same period in 2019. Falling mortgage rates during 2020 drove strong growth in the Company’s consumer refinance activity, particularly within the Company’s relatively new Consumer Direct channel. Overall, the Company originated $548 million of secondary market mortgage loans during the first nine months of 2020 compared to $247 million for the first nine months of 2019.

In addition to the strong mortgage banking origination volume during the first nine months of 2020, the Company’s gain recognized as a percent of total sales increased by approximately 130 basis points from period to period. The stronger gain percentages resulted from favorable market conditions on pricing during the first nine months of 2020. If and when consumer refinance volume begins to slow down in the future, management believes market conditions for pricing will become more competitive and return to a range of 2.0%-3.0%, which is more in-line with historical averages for gains-as-a-percentage-of-loans-sold.

Tax Refund Solutions segment

TRS’s noninterest income increased $106,000 during the first nine months of 2020 compared to the same period in 2019. This increase reflected a $1.3 million increase in prepaid card program fees as a result of the Company’s May 1, 2020 acquisition of $250 million in prepaid card balances offset by a $1.2 million decrease in net RT fees. RTs processed decreased 8% from 2019 to 2020 partially due to delays in RT processing.

101

Republic Credit Solutions segment

RCS’s noninterest income decreased $93,000, or 2%, during the first nine months of 2020 compared to the same period in 2019 with a $566,000 increase in program fees offset by a $659,000 decrease in other income resulting from a one-time gain recorded on discontinuation of RCS’s credit card product during 2019. As illustrated in Table 10 below, RCS program fees increased primarily from $1.4 million in fees from RCS’s new installment loan product launched in December 2019 partially offset by a $1.0 million reduction in fees for RCS’s line-of-credit product. The Company reduced marketing for RCS’s installment loan and line-of-credit products during 2020 in response to the COVID-19 pandemic. RCS began incrementally increasing its marketing for its line-of-credit product during the third quarter of 2020.

The following table presents RCS program fees by product:

Table 10 — RCS Program Fees by Product

	Nine Months Ended Sep. 30,
(in thousands)	2020		2019		$ Change		% Change
Product:
Line of credit	$	2,199	$	3,219	$	(1,020)	(32)	%
Hospital receivables		53		172		(119)	(69)
Installment loans*		1,424		(281)		1,705	NM
Total	$	3,676	$	3,110	$	566	18	%

* 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 increased $6.0 million, or 5%, during the first nine months of 2020 compared to the same period in 2019. The following were the most significant components comprising the increase in noninterest expense by reportable segment:

Traditional Banking segment

Traditional Banking noninterest expense increased $554,000 for the first nine months of 2020 compared to the same period in 2019. The following primarily drove the change in noninterest expense:

● Salaries and employee benefits expense increased $1.6 million, or 3%, driven primarily by annual merit increases.

● Data Processing expense increased $1.7 million, or 28%, driven by the Company’s increased investment in technology since September 30, 2019, with a substantial part of this investment related to systems to facilitate processing for PPP clients.

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

Warehouse Lending segment

Noninterest expense at the Warehouse segment increased $1.1 million during the first nine months of 2020 compared to the same period in 2019, primarily due to higher incentive compensation expense recorded during 2020.

Mortgage Banking segment

Noninterest expense at the Mortgage Banking segment increased $3.2 million, or 74%, during the first nine months of 2020 compared to the same period in 2019, primarily due to higher mortgage commissions recorded during 2020.

102

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

Table 11 — Loan Portfolio Composition

(in thousands)	September 30, 2020		December 31, 2019		$ Change		% Change
Traditional Banking:
Residential real estate:
Owner occupied	$	885,011	$	949,568	$	(64,557)	(7)	%
Nonowner occupied		256,319		258,803		(2,484)	(1)
Commercial real estate		1,308,867		1,303,000		5,867	0
Construction & land development		142,465		159,702		(17,237)	(11)
Commercial & industrial		337,925		468,209		(130,284)	(28)
Paycheck Protection Program		514,550		—		514,550	NA
Lease financing receivables		11,204		14,040		(2,836)	(20)
Aircraft		87,555		58,941		28,614	49
Home equity		252,839		293,186		(40,347)	(14)
Consumer:
Credit cards		14,373		17,836		(3,463)	(19)
Overdrafts		705		1,522		(817)	(54)
Automobile loans		35,683		52,923		(17,240)	(33)
Other consumer		9,008		18,201		(9,193)	(51)
Total Traditional Banking		3,856,504		3,595,931		260,573	7
Warehouse lines of credit*		1,028,675		717,458		311,217	43
Total Core Banking		4,885,179		4,313,389		571,790	13
Republic Processing Group*:
Tax Refund Solutions:
Easy Advances		—		—		—	NA
Other TRS loans		233		14,365		(14,132)	(98)
Republic Credit Solutions		108,962		105,397		3,565	3
Total Republic Processing Group		109,195		119,762		(10,567)	(9)
Total loans**		4,994,374		4,433,151		561,223	13
Allowance for credit losses		(59,891)		(43,351)		(16,540)	38
Total loans, net	$	4,934,483	$	4,389,800	$	544,683	12	%

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

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

Gross loans increased by $561 million, or 13%, during the first nine months of 2020 to $5.0 billion at September 30, 2020. The most significant components comprising the change in loans by reportable segment follow:

Traditional Banking segment

Period-end balances for Traditional Banking loans increased $261 million, or 7%, from December 31, 2019 to September 30, 2020. The following primarily drove the change in loan balances during the first nine months of 2020:

● The Bank originated $528 million of PPP loans during 2020, which are reported in Table 11 above net of $13 million in unamortized origination fees.

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● The C&I category decreased $130 million during the first nine months of 2020. The Company’s strategic wind down of its auto dealer floor plan program drove approximately $33 million of this decrease. The remaining decrease reflected paydowns and payoffs of C&I loans during the period. C&I loan production to offset these paydowns has been negatively impacted by pandemic driven credit conditions.

● The owner-occupied residential real estate and home equity categories decreased $65 million and $29 million. These decreases largely reflect a sharp drop in long-term market interest rates during the first nine months of 2020 that drove an increase in refinance volume for residential mortgages, with much of the refinance activity going into fixed rate products sold on the secondary market.

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

Republic carried approximately $13 million in unaccreted PPP loan fees as of September 30, 2020, which it expects to accrete into income over the life of the loans. While no guarantee can be made as to the overall life of these loans, management believes the loans are likely to remain on the Company’s balance sheet less than one year, as it expects the substantial majority of its clients to request forgiveness for their loans at the earliest possible time, presuming these clients achieve the required program metrics.

Warehouse Lending segment

Outstanding Warehouse period end balances increased $311 million from December 31, 2019 to September 30, 2020. A sharp decline in long-term fixed mortgage rates during the first nine months of 2020 drove the increase in Warehouse balances. 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 59% during 2019.

Tax Refund Solutions segment

Outstanding TRS loans decreased $14 million from December 31, 2019 to September 30, 2020 primarily reflecting a $14 million reduction in other TRS loans. Other TRS loans at December 31, 2019 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 increased $4 million from December 31, 2019 to September 30, 2020 primarily reflecting a $11 million decrease in outstanding balances for RCS’s line-of-credit product partially offset by a $15 million increase in hospital receivables. As previously mentioned, the decrease in balances for RCS’s line-of-credit product was the direct result of a reduction in marketing for the product in response to the COVID-19 pandemic. RCS began incrementally increasing its marketing for its line-of-credit product during the third quarter of 2020.

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

● Part I Item 1 “Financial Statements”

o Footnote 2 “Investment Securities”

o Footnote 4 “Loans and Allowance for Credit Losses”

o Footnote 9 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

● Part II Item 1A “Risk Factors”

Allowance for Credit Losses

At September 30, 2020, 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

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off-balance sheet credit exposures, respectively. Management evaluates the adequacy of the ACLL monthly, and the adequacy of the ACLS and ACLC quarterly. All ACLs are presented and discussed with the Audit Committee and the Board of Directors quarterly.

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

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

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

See additional detail regarding the Company’s adoption of ASC 326 and the CECL method under Footnote 1 “Basis of Presentation and Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements.”

The Company’s ACLL increased $17 million from $43 million at December 31, 2019 to $60 million at September 30, 2020. As a percent of total loans, the total Company’s ACLL increased to 1.20% at September 30, 2020 compared to 0.98% at December 31, 2019. An analysis of the ACL by reportable segment follows:

Traditional Banking segment

The Traditional Banking ACLL increased $20 million to $49 million at September 30, 2020, driven partially by the Company’s January 1, 2020 CECL adoption entry of approximately $7 million and partially by approximately $18 million of reserves for the expected impact of the COVID-19 pandemic, which primarily included the following considerations:

o the pandemic’s impact on national unemployment;

o an analysis of  loans to industries more directly harmed by the pandemic, such as the hospitality industry;

o the number and amount in loans receiving pandemic related accommodations from the  Bank; and,

o a forecasted rise in vacancy rates for CRE within the Traditional Bank’s market footprint.

Offsetting the increase in the ACLL due to the pandemic was a reduction in the ACLL of approximately $3 million driven by a $254 million decrease in non-PPP Traditional Bank period-end balances from January 1, 2020 to September 30, 2020.  The Traditional Bank ACLL to total Traditional Bank loans increased 48 basis points to 1.26% when comparing September 30, 2020 to December 31, 2019.

Following the Company’s $51,000 ASC 326 adoption entry on January 1, 2020 establishing an ACLS for its debt securities, the Company increased its ACLS $296,000 during the first nine months of 2020 to $347,000 based on higher PD and LGD expectations on its corporate bond portfolios. These higher PD and LGD expectations generally reflect economic concerns from the COVID-19 pandemic.

Following the Company’s ASC 326 adoption entry on January 1, 2020 for an ACLC on its off-balance sheet credit exposures of $456,000, the Company increased its ACLC $467,000 during the first nine months of 2020 to $923,000 at September 30, 2020. The higher ACLC at September 30, 2020 reflects higher assumed usage rates on outstanding lines and higher assumed loss rates on credit converted balances over their expected lives. The ACLC is recorded on the liability side of the balance sheet, with any provision for loss recorded within other noninterest expense.

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Warehouse Lending segment

The Warehouse ACLL increased to approximately $2.6 million, and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparing September 30, 2020 to December 31, 2019. As of September 30, 2020, the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for the first nine months of 2020. Warehouse lines are generally short-term, sound quality facilities secured by marketable collateral; therefore, the Company made no adjustment to the Warehouse ACLL upon adoption of CECL.  Additionally, the Company made no ACLL adjustment for Warehouse lines for COVID-19 concerns at September 30, 2020, as its Warehouse clients are experiencing relatively high demand for refinance transactions as borrowers take advantage of the low interest rate environment. 

Republic Credit Solutions segment

The RCS ACLL decreased $4 million to $9 million at September 30, 2020 from $13 million at December 31, 2019. The decrease in ACLL was driven by a $11 million decrease in outstanding balances for RCS’s line-of-credit product partially offset by a higher estimated loss rate on this product to account for COVID-19 economic concerns. As previously mentioned, the decrease in balances for RCS’s line-of-credit product was the direct result of a reduction in marketing for the product in response to the COVID-19 pandemic.

RCS maintained an ACLL for two distinct credit products offered at September 30, 2020, including its line-of-credit product and its healthcare-receivables product. At September 30, 2020, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables product to as high as 49% for its line-of-credit product. The lower reserve percentage of 0.25% was provided for RCS’s healthcare receivables, as such receivables have recourse back to the third-party providers.

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

● Part I Item 1 “Financial Statements”

o Footnote 2 “Investment Securities”

o Footnote 4 “Loans and Allowance for Credit Losses”

o Footnote 9 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

● Part II Item 1A “Risk Factors”

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Asset Quality

COVID-19 Loan Accommodations

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

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

Table 12 — Rollforward of COVID-19 Loan Accommodations

	Jun. 30, 2020		Three Months Ended Sep. 30, 2020						Sep. 30, 2020 COVID-19 Accommodations
	COVID-19		Additional		(Payments) Draws Made				Out of Accommodation				Still under Accommodation
(in thousands)	Accm.*		Accm.		Net (Pay)/Draw		(Payoffs)		Current		Past Due**		Single Accm.		Multiple Accm.
Traditional Banking:
Residential real estate:
Owner occupied	$	51,570	$	6,780	$	(525)	$	(3,751)	$	45,761	$	51	$	1,804	$	6,458
Nonowner occupied		58,754		—		(667)		(536)		57,551		—		—		—
Commercial real estate		491,314		3,567		(5,840)		(15,939)		467,447		2,739		457		2,459
Commercial & industrial		141,720		—		(7,438)		(3,842)		118,784		12		—		11,644
Construction & land development		28,927		—		486		(9,214)		20,199		—		—		—
Lease financing receivables		2,443		—		409		—		2,852		—		—		—
Aircraft		3,215		—		—		(171)		3,044		—		—		—
Home equity		13,776		627		(173)		(2,835)		11,173		—		187		35
Consumer		1,463		58		(134)		(58)		1,239		—		41		49
Total Traditional Banking	$	793,182	$	11,032	$	(13,882)	$	(36,346)	$	728,050	$	2,802	$	2,489	$	20,645

*Accm.= Accommodation(s)

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

While less than 1% of accommodated balances out of their accommodation period were contractually past due as of September 30, 2020, the ultimate impact of the above accommodated loan balances on the Company’s Classified, Special Mention, nonperforming, and delinquent loans is currently uncertain. When evaluating its borrowers for further accommodation, the Bank considers prudent options based on the borrower’s credit risk; applicable federal and state laws and regulations, including COVID-related accommodations provided by the CARES Act and states and localities; and the Bank’s ability to ease cash flow pressures on the affected borrowers while improving the Bank’s likelihood of collection on its loans. If enough borrowers were unable to meet their loan payment obligations at the end of their accommodation periods and were also unable to further extend their accommodation arrangements with the Bank, the Bank’s Classified, Special Mention, nonperforming, and delinquent loans would substantially increase and negatively impact the Company’s overall operating performance.

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As of September 30, 2020, 80% of the Traditional Banking segment’s loans granted COVID-19 accommodations during 2020 were either within the CRE or C&I categories. Table 13 below presents by industry CRE and C&I loans that received COVID-19 accommodations during 2020, with balances as of September 30, 2020:

Table 13 — Traditional Bank Commercial Real Estate and Commercial & Industrial Loans Granted COVID-19 Accommodations by Industry

September 30, 2020 (dollars in thousands)	Total CRE & C&I		% Concentration
Industry:
Lessors of Nonresidential Buildings (except Miniwarehouses)	$	176,510	29	%
Hotels (except Casino Hotels) and Motels		66,102	11
Lessors of Residential Buildings and Dwellings		53,601	9
Limited-Service Restaurants		42,207	7
Full-Service Restaurants		38,058	6
Offices of Physicians (except Mental Health Specialists)		37,945	6
Fitness and Recreational Sports Centers		28,797	5
Offices of Dentists		13,428	2
Sports Teams and Clubs		11,644	2
Religious Organizations		11,473	2
Car Washes		9,878	2
Golf Courses and Country Clubs		6,498	1
General Freight Trucking, Long-Distance, Truckload		6,116	1
Public Relations Agencies		5,715	1
Child Day Care Services		4,557	1
All other industries		91,013	15
Total CRE and C&I	$	603,542	100	%

Classified and Special Mention Loans

The Bank applies credit quality indicators, or “ratings,” to individual loans based on internal Bank policies. Such internal policies are informed by regulatory standards. Loans rated “Loss,” “Doubtful,” “Substandard,” and PCI/PCD-Substandard are considered “Classified.” Loans rated “Special Mention” or PCI/PCD-Special Mention are considered Special Mention. The Bank’s Classified and Special Mention loans decreased approximately $1 million during the first nine months of 2020. As previously mentioned, the ultimate impact of loans accommodated due to COVID-19 on the Company’s Classified and Special Mention loans is currently uncertain.

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 14 — Classified and Special Mention Loans

(in thousands)	September 30, 2020		December 31, 2019		$ Change		% Change
Loss	$	—	$	—	$	—	—	%
Doubtful		—		—		—	—
Substandard		34,066		33,297		769	2
PCI/PCD* - Substandard		1,944		1,289		655	51
Total Classified Loans		36,010		34,586		1,424	4
Special Mention		19,432		21,754		(2,322)	(11)
PCI/PCD* - Special Mention		918		797		121	15
Total Special Mention Loans		20,350		22,551		(2,201)	(10)
Total Classified and Special Mention Loans	$	56,360	$	57,137	$	(777)	(1)	%

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

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 $10 million at September 30, 2020 and December 31, 2019.

Nonperforming loans to total loans decreased to 0.42% at September 30, 2020 from 0.53% at December 31, 2019, as the total balance of nonperforming loans decreased by $2 million, or 10%, while total loans increased $561 million, or 13%, during the first nine months of 2020. As previously mentioned, the ultimate impact of loans accommodated due to COVID-19 on the Company’s nonperforming loans is currently uncertain.

Table 15 — Nonperforming Loans and Nonperforming Assets Summary

(in thousands)	September 30, 2020			December 31, 2019
Loans on nonaccrual status*	$	20,910		$	23,332
Loans past due 90-days-or-more and still on accrual**		175			157
Total nonperforming loans		21,085			23,489
Other real estate owned		2,056			113
Total nonperforming assets	$	23,141		$	23,602
Credit Quality Ratios - Total Company:
Nonperforming loans to total loans		0.42	%		0.53	%
Nonperforming assets to total loans (including OREO)		0.46			0.53
Nonperforming assets to total assets		0.37			0.42
Credit Quality Ratios - Core Bank:
Nonperforming loans to total loans		0.43	%		0.54	%
Nonperforming assets to total loans (including OREO)		0.47			0.54
Nonperforming assets to total assets		0.39			0.43

* 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.

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Table 16 — Nonperforming Loan Composition

	September 30, 2020					December 31, 2019
				Percent of					Percent of
				Total					Total
(in thousands)	Balance			Loan Class		Balance			Loan Class
Traditional Banking:
Residential real estate:
Owner occupied		$	14,682	1.66	%		$	12,220	1.29	%
Nonowner occupied			116	0.05				623	0.24
Commercial real estate			3,206	0.24				6,865	0.53
Construction & land development			—	—				143	0.09
Commercial & industrial			522	0.15				1,424	0.30
Paycheck Protection Program			—	—				—	—
Lease financing receivables			—	—				—	—
Aircraft			—	—				—	—
Home equity			2,210	0.87				1,865	0.64
Consumer:
Credit cards			—	—				—	—
Overdrafts			—	—				—	—
Automobile loans			161	0.45				179	0.34
Other consumer			13	0.14				13	0.07
Total Traditional Banking			20,910	0.54				23,332	0.65
Warehouse lines of credit			—	—				—	—
Total Core Banking			20,910	0.43				23,332	0.54
Republic Processing Group:
Tax Refund Solutions:
Easy Advances			—	—				—	—
Other TRS loans			140	60.09				53	0.37
Republic Credit Solutions			35	0.03				104	0.10
Total Republic Processing Group			175	0.16				157	0.13
Total nonperforming loans		$	21,085	0.42	%		$	23,489	0.53	%

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Table 17 — Stratification of Nonperforming Loans

	Number of Nonperforming Loans and Recorded Investment
					Balance
September 30, 2020		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance
Traditional Banking:
Residential real estate:
Owner occupied	145	$	5,314	29	$	5,554	4	$	3,814	178	$	14,682
Nonowner occupied	3		116	—		—	—		—	3		116
Commercial real estate	2		45	3		819	1		2,342	6		3,206
Construction & land development	—		—	—		—	—		—	—		—
Commercial & industrial	2		57	1		465	—		—	3		522
Paycheck Protection Program	—		—	—		—	—		—	—		—
Lease financing receivables	—		—	—		—	—		—	—		—
Aircraft	—		—	—		—	—		—	—		—
Home equity	27		919	6		1,291	—		—	33		2,210
Consumer:
Credit cards	—		—	—		—	—		—	—		—
Overdrafts	—		—	—		—	—		—	—		—
Automobile loans	14		161	—		—	—		—	14		161
Other consumer	7		13	—		—	—		—	7		13
Total Traditional Banking	200		6,625	39		8,129	5		6,156	244		20,910
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	200		6,625	39		8,129	5		6,156	244		20,910
Republic Processing Group:
Tax Refund Solutions:
Easy Advances	—		—	—		—	—		—	—		—
Other TRS loans	NM		140	—		—	—		—	NM		140
Republic Credit Solutions	NM		35	—		—	—		—	NM		35
Total Republic Processing Group	NM		175	—		—	—		—	NM		175
Total	200	$	6,800	39	$	8,129	5	$	6,156	244	$	21,085

	Number of Nonperforming Loans and Recorded Investment
					Balance
December 31, 2019		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance
Traditional Banking:
Residential real estate:
Owner occupied	137	$	5,005	24	$	4,525	3	$	2,690	164	$	12,220
Nonowner occupied	3		84	—		—	1		539	4		623
Commercial real estate	2		45	2		609	4		6,211	8		6,865
Construction & land development	—		—	1		143	—		—	1		143
Commercial & industrial	—		—	2		397	1		1,027	3		1,424
Lease financing receivables	—		—	—		—	—		—	—		—
Aircraft	—		—	—		—	—		—	—		—
Home equity	23		795	5		1,070	—		—	28		1,865
Consumer:
Credit cards	—		—	—		—	—		—	—		—
Overdrafts	—		—	—		—	—		—	—		—
Automobile loans	13		179	—		—	—		—	13		179
Other consumer	7		13	—		—	—		—	7		13
Total Traditional Banking	185		6,121	34		6,744	9		10,467	228		23,332
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	185		6,121	34		6,744	9		10,467	228		23,332
Republic Processing Group:
Tax Refund Solutions:
Easy Advances	—		—	—		—	—		—	—		—
Other TRS loans	NM		53	—		—	—		—	NM		53
Republic Credit Solutions	NM		104	—		—	—		—	NM		104
Total Republic Processing Group	NM		157	—		—	—		—	NM		157
Total	185	$	6,278	34	$	6,744	9	$	10,467	228	$	23,489

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Table 18 — Rollforward of Nonperforming Loans

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Nonperforming loans at the beginning of the period	$	20,419	$	19,403	$	23,489	$	16,138
Loans added to nonperforming status during the period that remained nonperforming at the end of the period		3,721		4,441		8,169		9,955
Loans removed from nonperforming status during the period that were nonperforming at the beginning of the period (see table below)		(2,251)		(864)		(5,932)		(4,257)
Principal balance paydowns of loans nonperforming at both period ends		(360)		(2,240)		(4,660)		(1,117)
Net change in principal balance of other loans nonperforming at both period ends*		(444)		9		19		30
Nonperforming loans at the end of the period	$	21,085	$	20,749	$	21,085	$	20,749

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

Table 19 — Detail of Loans Removed from Nonperforming Status

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Loans charged off	$	—	$	(70)	$	(2)	$	(427)
Loans transferred to OREO		—		(18)		(2,109)		(1,230)
Loans refinanced at other institutions		(1,917)		(594)		(2,870)		(2,515)
Loans returned to accrual status		(334)		(182)		(951)		(85)
Total loans removed from nonperforming status during the period that were nonperforming at the beginning of the period	$	(2,251)	$	(864)	$	(5,932)	$	(4,257)

Based on the Bank’s review at September 30, 2020, management believes that its reserves are adequate to absorb expected losses on all nonperforming loans.

Delinquent Loans

Total Company delinquent loans to total loans decreased to 0.35% at September 30, 2020, from 0.47% at December 31, 2019, primarily due to a $4 million, or 18%, decrease in delinquent loans and a $561 million, or 13%, increase in total loans during the first nine months of 2020.

Core Bank delinquent loans to total Core Bank loans decreased to 0.23% at September 30, 2020 from 0.30% at December 31, 2019. With the exception of small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of September 30, 2020 and December 31, 2019 were on nonaccrual status. As previously mentioned, the ultimate impact of loans accommodated due to COVID-19 on the Company’s delinquent loans is currently uncertain.

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Table 20 — Delinquent Loan Composition* 

	September 30, 2020					December 31, 2019
				Percent of					Percent of
				Total					Total
(in thousands)	Balance			Loan Class		Balance			Loan Class
Traditional Banking:
Residential real estate:
Owner occupied		$	3,494	0.39	%		$	4,434	0.47	%
Nonowner occupied			—	—				539	0.21
Commercial real estate			5,617	0.43				3,300	0.25
Construction & land development			—	—				—	—
Commercial & industrial			488	0.14				1,355	0.29
Paycheck Protection Program			—	—				—	—
Lease financing receivables			—	—				—	—
Aircraft			—	—				—	—
Home equity			1,096	0.43				2,918	1.00
Consumer:
Credit cards			125	0.87				155	0.87
Overdrafts			141	20.00				283	18.59
Automobile loans			94	0.26				49	0.09
Other consumer			14	0.16				9	0.05
Total Traditional Banking			11,069	0.29				13,042	0.36
Warehouse lines of credit			—	—				—	—
Total Core Banking			11,069	0.23				13,042	0.30
Republic Processing Group:
Tax Refund Solutions:
Easy Advances			—	—				—	—
Other TRS loans			140	60.09				119	0.83
Republic Credit Solutions			5,844	5.36				7,643	7.25
Total Republic Processing Group			5,984	5.48				7,762	6.48
Total delinquent loans		$	17,053	0.34	%		$	20,804	0.47	%

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

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Table 21 — Rollforward of Delinquent Loans

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Delinquent loans at the beginning of the period	$	14,046	$	19,326	$	20,804	$	15,962
Loans added to delinquency status during the period and remained in delinquency status at the end of the period		6,093		5,608		7,817		10,120
Loans removed from delinquency status during the period that were in delinquency status at the beginning of the period (see table below)		(2,205)		(2,674)		(8,488)		(5,292)
Principal balance paydowns of loans delinquent at both period ends		(788)		(1,930)		(2,977)		(251)
Net change in principal balance of other loans delinquent at both period ends*		(93)		42		(103)		(167)
Delinquent loans at the end of period	$	17,053	$	20,372	$	17,053	$	20,372

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

Table 22 — Detail of Loans Removed from Delinquent Status

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Loans charged off	$	—	$	(89)	$	(3)	$	(429)
Loans transferred to OREO		—		(18)		(2,109)		(1,258)
Loans refinanced at other institutions		(1,189)		(865)		(3,856)		(1,803)
Loans paid current		(1,016)		(1,702)		(2,520)		(1,802)
Total loans removed from delinquency status during the period that were in delinquency status at the beginning of the period	$	(2,205)	$	(2,674)	$	(8,488)	$	(5,292)

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 23 — Collateral-Dependent Loans and Troubled Debt Restructurings

(in thousands)	September 30, 2020		December 31, 2019
Cashflow-dependent TDRs	$	11,873	$	14,348
Collateral-dependent TDRs		12,295		16,433
Total TDRs		24,168		30,781
Collateral dependent loans (which are not TDRs)		22,490		19,569
Total recorded investment in TDRs and collateral-dependent loans	$	46,658	$	50,350

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.

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Deposits

Table 24 — Deposit Composition

(in thousands)	September 30, 2020		December 31, 2019		$ Change		% Change
Core Bank:
Demand	$	1,148,683	$	922,972	$	225,711	24	%
Money market accounts		723,798		793,950		(70,152)	(9)
Savings		220,106		175,588		44,518	25
Individual retirement accounts (1)		50,348		51,548		(1,200)	(2)
Time deposits, $250 and over (1)		99,972		104,412		(4,440)	(4)
Other certificates of deposit (1)		231,586		248,161		(16,575)	(7)
Reciprocal money market and time deposits (1)		291,077		189,774		101,303	53
Brokered deposits (1)		345,533		200,072		145,461	73
Total Core Bank interest-bearing deposits		3,111,103		2,686,477		424,626	16
Total Core Bank noninterest-bearing deposits		1,496,111		981,164		514,947	52
Total Core Bank deposits		4,607,214		3,667,641		939,573	26
Republic Processing Group:
Money market accounts		4,808		66,152		(61,344)	(93)
Total RPG interest-bearing deposits		4,808		66,152		(61,344)	(93)
Brokered prepaid card deposits		237,514		9,128		228,386	2,502
Other noninterest-bearing deposits		142,793		43,087		99,706	231
Total RPG noninterest-bearing deposits		380,307		52,215		328,092	628
Total RPG deposits		385,115		118,367		266,748	225
Total deposits	$	4,992,329	$	3,786,008	$	1,206,321	32	%

(1) Includes time deposits.

Total Company deposits increased $1.2 billion, or 32%, from December 31, 2019 to $5.0 billion at September 30, 2020.

Total Company noninterest-bearing deposits increased $843 million, or 82%, with the following primarily driving growth:

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

● RPG noninterest-bearing deposits increased $328 million during the first nine months of 2020, with growth driven by the Company’s May 1, 2020 assumption of approximately $250 million of prepaid card balances from another financial institution. The prepaid card deposit balances acquired in May 2020, have ranged from a low of $238 million to a high of $266 million since their assumption, with an average of $253 million since May 1, 2020.

Total Company interest-bearing deposits increased approximately $363 million for the first nine months of 2020, with the following primarily driving growth:

● The Traditional Bank had acquired $225 million of additional overnight brokered deposits as of September 30, 2020 as a result of their favorable costs compared to overnight borrowings from the FHLB. The weighted average cost of these deposits at September 30, 2020 was 0.09% compared to 0.17% for an overnight borrowing from the FHLB.

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

● Offsetting the positive drivers above was a $60 million decline in MemoryBank’s online money market accounts to rate-sensitive clients, as the Bank significantly lowered its pricing during the period due to correspond with the overall decline in market interest rates.

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

● RPG interest-bearing deposits decreased $63 million due to the exit of short-term seasonal funding used by the TRS segment during the first quarter of 2020.

Federal Reserve Paycheck Protection Program Lending Facility

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

Federal Home Loan Bank Advances

As the overall increase in deposits outpaced the overall increase in interest-earning assets for the first nine months of 2020, FHLB advances declined by $618 million from December 31, 2019 to September 30, 2020. The Bank held $25 million in overnight advances at a rate of 0.17% at September 30, 2020, compared to $200 million in overnight advances at a rate of 1.63% at December 31, 2019. The usage of overnight FHLB advances is expected to continue to fluctuate based on the overall usage rates for the Bank’s warehouse lines of credit, which are also tied to short-term repricing indices, as well as current favorable deposit gathering trends.

Interest Rate Swaps

Interest Rate Swaps Used as Cash Flow Hedges

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

Non-hedge Interest Rate Swaps

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

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

Liquidity

The Bank had a loan to deposit ratio (excluding brokered deposits) of 107% at September 30, 2020 and 126% at December 31, 2019. At September 30, 2020 and December 31, 2019, the Company had cash and cash equivalents on-hand of $342 million and $385 million. The Bank also had available borrowing capacity of $692 million and $259 million from the FHLB at September 30, 2020 and December 31, 2019. In addition, the Bank’s liquidity resources included unencumbered debt securities of $375 million and $304 million as of September 30, 2020 and December 31, 2019 and unsecured lines of credit of $125 million available through various other financial institutions as of the same period-ends.

The Bank maintains sufficient liquidity to fund routine loan demand and routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets in the form of investment securities. Funding and cash flows can also be realized by the sale of AFS debt securities, principal paydowns on loans and mortgage backed securities and proceeds realized from loans held for sale. The Bank’s liquidity is impacted by its ability to sell certain investment securities, which is limited due to the level of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings, and for other purposes, as required by law. At September 30, 2020 and December 31, 2019, these pledged investment securities had a fair value of $230 million

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and $230 million. Republic’s banking centers and its websites, www.republicbank.com and www.mymemorybank.com, provide access to retail deposit markets. These retail deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were canceled, or if the Bank cannot obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.

At September 30, 2020, the Bank had approximately $1.5 billion in deposits from 222 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded $2 million. The 20 largest non-sweep deposit relationships represented approximately $663 million, or 13%, of the Company’s total deposit balances at September 30, 2020. 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.

Due to its historical success of growing loans and its overall use of non-core funding sources, the Bank has approached and, periodically during each quarter, has fallen short of its Board-approved minimum internal policy limits for liquidity management. Most recently, the Bank has experienced a significant increase in its outstanding Warehouse line-of-credit balances. Because management deems this increase in Warehouse balances to not be long-term in nature and the Bank is asset sensitive for its interest rate risk position, it has elected to utilize overnight sources in order to fund these outstanding balances. While the Bank was in compliance with all Board-approved liquidity policies as of September 30, 2020, it was not always within policy parameters for each day of the quarter. The Bank will likely continue to maintain its liquidity levels near the Bank’s Board-approved minimums for the foreseeable future.

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

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

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

● Part I Item 1 “Financial Statements”

o Footnote 2 “Investment Securities”

o Footnote 4 “Loans and Allowance for Credit Losses”

o Footnote 9 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”

● Part II Item 1A “Risk Factors”

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Capital

Total stockholders’ equity increased from $764 million at December 31, 2019 to $810 million at September 30, 2020. The increase in stockholders’ equity was primarily attributable to net income earned during 2019 reduced by cash dividends declared.

See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” for additional detail regarding stock repurchases and stock buyback programs.

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

Dividend Restrictions — The Parent Company’s principal source of funds for dividend payments are dividends received from RB&T. Banking regulations limit the amount of dividends that may be paid to the Parent Company by the Bank without prior approval of the respective states’ banking regulators. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. At September 30, 2020, RB&T could, without prior approval, declare dividends of approximately $169 million.

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

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

Republic continues to exceed the regulatory requirements for Total Risk Based Capital, Common Equity Tier I Risk Based Capital, Tier I Risk Based Capital and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer. Republic’s average stockholders’ equity to average assets ratio was 13.36% at September 30, 2020 compared to 13.16% at December 31, 2019. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.

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

The subordinated note and related interest expense are included in Republic’s consolidated financial statements. The subordinated note paid a fixed interest rate of 6.015% through September 30, 2015 and adjusted to 3-month LIBOR plus 1.42% on a quarterly basis thereafter. The subordinated note matures on December 31, 2035 and is redeemable at the Company’s option on a quarterly basis. The Company chose not to redeem the subordinated note on July 1, 2020 and is currently carrying the note at a cost of LIBOR plus 1.42%.

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Table 25 — Capital Ratios (1)

	As of September 30, 2020				As of December 31, 2019
(dollars in thousands)	Amount		Ratio		Amount		Ratio
Total capital to risk-weighted assets
Republic Bancorp, Inc.	$	883,336	17.98	%	$	825,987	17.01	%
Republic Bank & Trust Company		780,475	15.91			723,248	14.91
Common equity tier 1 capital to risk-weighted assets
Republic Bancorp, Inc.	$	791,815	16.12	%	$	742,636	15.29	%
Republic Bank & Trust Company		728,954	14.86			679,897	14.01
Tier 1 (core) capital to risk-weighted assets
Republic Bancorp, Inc.	$	831,815	16.94	%	$	782,636	16.11	%
Republic Bank & Trust Company		728,954	14.86			679,897	14.01
Tier 1 leverage capital to average assets
Republic Bancorp, Inc.	$	831,815	13.56	%	$	782,636	13.93	%
Republic Bank & Trust Company		728,954	11.90			679,897	12.11

(1) The Company and the Bank elected to defer the impact of CECL on regulatory capital. The deferral period is five years, with the total estimated CECL impact 100% deferred for the first two years, then phased in over the next three years. If not for this election, the Company’s regulatory capital ratios would have been approximately 14 basis points lower than those presented in the table above as of September 30, 2020.

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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.

As of September 30, 2020, a dynamic simulation model was run for interest rate changes from “Down 100” basis points to “Up 400” basis points. The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning October 1, 2020 and ending September 30, 2021 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 26 — Bank Interest Rate Sensitivity

	Change in Rates
	(100)			+100			+200			+300			+400
	Basis Points			Basis Points			Basis Points			Basis Points			Basis Points
% Change from base net interest income at September 30, 2020		3.0	%		(6.5)	%		(11.1)	%		(12.3)	%		(7.8)	%
% Change from base net interest income at December 31, 2019		(4.3)	%		0.9	%		1.6	%		1.9	%		2.5	%

The Bank’s dynamic simulation model run for September 2020 projected a decrease in the Bank’s net interest income plus secondary market loan fees for all Up-rate scenarios, with an increase in the Down-100 scenario. The projections as of December 2019 reflected a decrease in the Down-100 scenario and an increase in all Up-rate scenarios. As compared to December 2019, the deterioration in the Up-rate scenarios for September 2020 was generally due to the impact of an expected reduction in secondary market loan fees as interest rates rise from their current historic lows. The improvement in the Down-100 scenario is primarily related to the number of loans that have reached or are expected to reach their interest rate floors, and therefore not subject to further rate reductions. Additionally, the improvement in the Down-100 scenario was due to an estimated rise in secondary market loan fees in a falling rate environment.

The Company’s interest rate risk projections generally assume parallel shifts in the yield curve across all points on the yield curve. A flattening or inverting of the yield curve, causing the spread between long-term interest rates and short-term interest rates to decrease or invert, would likely have a further negative impact on the Company’s net interest income and net interest margin. Under any interest rate scenario, however, if the Core Bank is unable to reasonably maintain its deposit balances and the cost of those deposits at acceptable levels, it will likely have a negative impact to the Core Bank’s net interest income and net interest margin.  

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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, 2020 Compared to Three Months Ended September 30, 2019)” and RESULTS OF OPERATIONS (Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019).”

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4.Controls and Procedures.

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

PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

In the ordinary course of operations, Republic and the Bank are defendants in various legal proceedings. There is no proceeding pending or threatened litigation, 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

Except for the additional risk factor information described below, 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, 2019. You should carefully consider the risk factor discussed below and in Republic’s 2019 Form 10-K, which could materially affect its business, financial condition or future results.

The COVID-19 pandemic and the public’s response to this pandemic present unique risks to the Company’s operations and the markets it serves. The Company’s operations and the markets it serves have been and will continue to be significantly impacted by the COVID-19 pandemic and the public’s response to this pandemic. The following are relevant to the Company and its operations:

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

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

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

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

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

o Borrower Accommodations – In response to the pandemic, the Bank had suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions. The Bank has also granted fee waivers, payment deferrals, and other expanded assistance for credit card, automobile, mortgage, small business, and personal loan clients. Future governmental actions may require these and other types of customer relief. Also, if enough borrowers were unable to meet their loan payment obligations at the end of their accommodation periods and were also unable to further extend their accommodation arrangements with the Bank, the Bank’s delinquent and nonperforming loans would substantially increase and negatively impact the Company’s overall operating performance.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Details of Republic’s Class A Common Stock purchases during the third quarter of 2020 are included in the following table:

				Total Number of	Maximum Number
				Shares Purchased	of Shares that May
				as Part of Publicly	Yet Be Purchased
	Total Number of	Average Price		Announced Plans	Under the Plan
Period	Shares Purchased	Paid Per Share		or Programs	or Programs
July 1 - July 31	—	$	—	—
August 1 - August 31	—		—	—
September 1 - September 30	—		—	—
Total	—	$	—	—	87,423

The Company repurchased no shares during the third quarter of 2020. In connection with employee stock awards, there were 2,708 shares withheld upon exercise of stock options to cover withholding taxes and the exercise price. During 2011, the Company’s Board of Directors amended its existing share repurchase program by approving the repurchase of 300,000 additional shares from time to time, as market conditions are deemed attractive to the Company. The repurchase program will remain effective until the total number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of September 30, 2020, the Company had 87,423 shares that could be repurchased under its current share repurchase programs.

During the third quarter of 2020, there were no 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	Master Office Lease between Republic Bank & Trust Company and Makbe LLC, dated August 1, 2020, relating to property at 601 West Market Street (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended June 30, 2020 (Commission File Number 0-24649))
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 at September 30, 2020 and December 31, 2019, (ii) Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019, (iii) Consolidated Statements of Stockholders’ Equity for the Three and Nine months Ended September 30, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 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 6, 2020	/s/ Steven E. Trager
	By: Steven E. Trager
	Chairman and Chief Executive Officer
	Principal Financial Officer:
Date: November 6, 2020	/s/ Kevin Sipes
	By: Kevin Sipes
	Executive Vice President, Chief Financial
	Officer and Chief Accounting Officer

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