Republic Bancorp (RBCAA) 10-Q 2023 Q1 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 March 31, 2023

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 or 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 April 30, 2023 was 17,588,374 and 2,159,495.

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.	65
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	101
Item 4.	Controls and Procedures.	101
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings.	101
Item 1A.	Risk Factors.	102
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	103
Item 6.	Exhibits.	104
	SIGNATURES	105

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

3

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)

	March 31,		December 31,
	2023		2022
ASSETS
Cash and cash equivalents	$	249,289	$	313,689
Available-for-sale debt securities, at fair value (amortized cost of $650,379 in 2023 and $663,003 in 2022, allowance for credit losses of $3 in 2023 and $0 in 2022)		612,948		620,365
Held-to-maturity debt securities (fair value of $111,796 in 2023 and $87,357 in 2022, allowance for credit losses of $10 in 2023 and $10 in 2022)		112,108		87,386
Equity securities with readily determinable fair value		107		111
Mortgage loans held for sale, at fair value		1,034		1,302
Consumer loans held for sale, at fair value		4,688		4,706
Consumer loans held for sale, at the lower of cost or fair value		12,744		13,169
Loans (loans carried at fair value of $0 in 2023 and $2 in 2022)		4,774,234		4,515,802
Allowance for credit losses		(96,121)		(70,413)
Loans, net		4,678,113		4,445,389
Federal Home Loan Bank stock, at cost		25,939		9,146
Premises and equipment, net		33,672		31,978
Right-of-use assets		36,245		37,017
Goodwill		41,618		16,300
Other real estate owned		1,529		1,581
Bank owned life insurance		102,322		101,687
Low-income housing tax credit investments		73,901		75,324
Other assets and accrued interest receivable		87,834		76,393
TOTAL ASSETS	$	6,074,091	$	5,835,543
LIABILITIES
Deposits:
Noninterest-bearing	$	2,013,957	$	1,908,768
Interest-bearing		2,785,711		2,629,077
Total deposits		4,799,668		4,537,845
Securities sold under agreements to repurchase and other short-term borrowings		134,412		216,956
Operating lease liabilities		37,031		37,809
Federal Home Loan Bank advances		108,000		95,000
Low-income housing tax credit obligations		42,437		43,609
Other liabilities and accrued interest payable		70,341		47,711
Total liabilities		5,191,889		4,978,930
Commitments and contingent liabilities (Footnote 10)		—		—
STOCKHOLDERS’ EQUITY
Preferred stock, no par value		—		—
Class A Common Stock, no par value, 30,000,000 shares authorized, 17,597,874 shares (2023) and 17,584,928 shares (2022) issued and outstanding; Class B Common Stock, no par value, 5,000,000 shares authorized, 2,159,495 shares (2023) and 2,159,495 shares (2022) issued and outstanding		4,648		4,648
Additional paid in capital		142,601		141,694
Retained earnings		763,027		742,250
Accumulated other comprehensive (loss) income		(28,074)		(31,979)
Total stockholders’ equity		882,202		856,613
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,074,091	$	5,835,543

See accompanying footnotes to consolidated financial statements.

4

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended
	March 31,
	2023		2022
INTEREST INCOME:
Loans, including fees	$	92,609	$	61,570
Taxable investment securities		4,603		2,059
Federal Home Loan Bank stock and other		3,144		481
Total interest income		100,356		64,110
INTEREST EXPENSE:
Deposits		4,878		879
Securities sold under agreements to repurchase and other short-term borrowings		248		28
Federal Home Loan Bank advances		2,588		36
Total interest expense		7,714		943
NET INTEREST INCOME		92,642		63,167
Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities)		26,766		9,226
NET INTEREST INCOME AFTER PROVISION		65,876		53,941
NONINTEREST INCOME:
Service charges on deposit accounts		3,299		3,226
Net refund transfer fees		10,807		12,051
Mortgage banking income		800		2,657
Interchange fee income		3,051		3,070
Program fees		3,241		3,854
Increase in cash surrender value of bank owned life insurance		635		612
Net losses on other real estate owned		(53)		(53)
Contract termination fee		—		5,000
Other		901		592
Total noninterest income		22,681		31,009
NONINTEREST EXPENSE:
Salaries and employee benefits		29,961		29,312
Technology, equipment, and communication		7,228		7,214
Occupancy		3,406		3,440
Marketing and development		1,574		1,348
FDIC insurance expense		637		419
Interchange related expense		1,499		1,117
Legal and professional fees		1,061		1,365
Merger expense		2,073		—
Other		5,004		4,366
Total noninterest expense		52,443		48,581
INCOME BEFORE INCOME TAX EXPENSE		36,114		36,369
INCOME TAX EXPENSE		8,022		8,019
NET INCOME	$	28,092	$	28,350
BASIC EARNINGS PER SHARE:
Class A Common Stock	$	1.42	$	1.42
Class B Common Stock		1.30		1.29
DILUTED EARNINGS PER SHARE:
Class A Common Stock	$	1.42	$	1.42
Class B Common Stock		1.29		1.29

See accompanying footnotes to consolidated financial statements.

5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three Months Ended
	March 31,
	2023		2022
Net income	$	28,092	$	28,350
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on AFS debt securities		5,205		(21,249)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		5		24
Total other comprehensive loss before income tax		5,210		(21,225)
Tax effect		(1,305)		5,308
Total other comprehensive loss, net of tax		3,905		(15,917)
COMPREHENSIVE INCOME	$	31,997	$	12,433

See accompanying footnotes to consolidated financial statements.

6

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

	Three Months Ended March 31, 2023
	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income (Loss)		Equity
Balance, January 1, 2023	17,585	2,160	$	4,648	$	141,694	$	742,250	$	(31,979)	$	856,613
Net income	—	—		—		—		28,092		—		28,092
Net change in AOCI	—	—		—		—		—		3,905		3,905
Dividends declared on Common Stock:
Class A Shares ($0.374 per share)	—	—		—		—		(6,581)		—		(6,581)
Class B Shares ($0.340 per share)	—	—		—		—		(734)		—		(734)
Stock options exercised, net of shares withheld	—	—		—		(84)		—		—		(84)
Conversion of Class B to Class A Common Shares	—	—		—		—		—		—		—
Repurchase of Class A Common Stock	—	—		—		—		—		—		—
Net change in notes receivable on Class A Common Stock	—	—		—		84		—		—		84
Deferred compensation - Class A Common Stock:
Directors	—	—		—		110		—		—		110
Designated key employees	7	—		—		221		—		—		221
Employee stock purchase plan - Class A Common Stock	4	—		—		162		—		—		162
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		39		—		—		39
Restricted stock	2	—		—		173		—		—		173
Stock options	—	—		—		202		—		—		202
Balance, March 31, 2023	17,598	2,160	$	4,648	$	142,601	$	763,027	$	(28,074)	$	882,202

	Three Months Ended March 31, 2022
	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income (Loss)		Equity
Balance, January 1, 2022	17,816	2,165	$	4,702	$	139,956	$	688,522	$	1,874	$	835,054
Net income	—	—		—		—		28,350		—		28,350
Net change in AOCI	—	—		—		—		—		(15,917)		(15,917)
Dividends declared on Common Stock:
Class A Shares ($0.341 per share)	—	—		—		—		(6,081)		—		(6,081)
Class B Shares ($0.310 per share)	—	—		—		—		(671)		—		(671)
Stock options exercised, net of shares withheld	1	—		—		(48)		—		—		(48)
Conversion of Class B to Class A Common Shares	—	—		—		—		—		—		—
Repurchase of Class A Common Stock	—	—		—		—		—		—		—
Net change in notes receivable on Class A Common Stock	—	—		—		60		—		—		60
Deferred compensation - Class A Common Stock:
Directors	6	—		—		129		—		—		129
Designated key employees	—	—		—		179		—		—		179
Employee stock purchase plan - Class A Common Stock	4	—		1		162		—		—		163
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		38		—		—		38
Restricted stock	7	—		—		163		—		—		163
Stock options	—	—		—		156		—		—		156
Balance, March 31, 2022	17,834	2,165	$	4,703	$	140,795	$	710,120	$	(14,043)	$	841,575

See accompanying footnotes to consolidated financial statements.

7

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three Months Ended
	March 31,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	28,092	$	28,350
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization on investment securities and low-income housing investments		1,438		1,391
Net accretion and amortization on loans		(618)		(1,256)
Unrealized and realized losses on equity securities with readily determinable fair value		4		118
Depreciation of premises and equipment		1,594		2,038
Amortization of mortgage servicing rights		490		668
Provision for on-balance sheet exposures		26,766		9,226
Provision for off-balance sheet exposures		210		(12)
Net gain on sale of mortgage loans held for sale		(420)		(2,460)
Origination of mortgage loans held for sale		(15,942)		(100,661)
Proceeds from sale of mortgage loans held for sale		16,630		119,212
Net gain on sale of consumer loans held for sale		(2,534)		(3,117)
Origination of consumer loans held for sale		(207,222)		(245,214)
Proceeds from sale of consumer loans held for sale		210,199		256,280
Writedowns of other real estate owned		52		52
Deferred compensation expense - Class A Common Stock		331		308
Stock-based awards and ESPP expense - Class A Common Stock		438		381
Increase in cash surrender value of bank owned life insurance		(635)		(612)
Net change in other assets and liabilities:
Accrued interest receivable		(2,502)		451
Accrued interest payable		103		33
Other assets		(3,858)		795
Other liabilities		18,120		14,897
Net cash provided by operating activities		70,736		80,868
INVESTING ACTIVITIES:
Net cash proceeds paid in acquisition		(40,970)		—
Purchases of available-for-sale debt securities		(25,000)		(115,777)
Purchases of held-to-maturity debt securities		(25,000)		—
Proceeds from calls, maturities and paydowns of equity and available-for-sale debt securities		54,066		15,944
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities		278		5,508
Net change in outstanding warehouse lines of credit		(53,805)		160,350
Net change in other loans		10,939		(54,869)
Purchase of Federal Home Loan Bank stock		(16,793)		—
Investments in low-income housing tax partnerships		(1,172)		(3,645)
Net purchases of premises and equipment		(1,688)		(323)
Net cash (used in) provided by investing activities		(99,145)		7,188
FINANCING ACTIVITIES:
Net change in deposits		40,145		246,688
Net change in securities sold under agreements to repurchase and other short-term borrowings		(82,544)		(3,149)
Payments of Federal Home Loan Bank advances		—		(25,000)
Proceeds from Federal Home Loan Bank advances		13,000		20,000
Net proceeds from Class A Common Stock purchased through employee stock purchase plan		138		139
Net proceeds from option exercises and equity awards vested - Class A Common Stock		(84)		(48)
Cash dividends paid		(6,646)		(6,075)
Net cash (used in) provided by financing activities		(35,991)		232,555
NET CHANGE IN CASH AND CASH EQUIVALENTS		(64,400)		320,611
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		313,689		756,971
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	249,289	$	1,077,582
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	7,611	$	910
Income taxes		471		470
SUPPLEMENTAL NONCASH DISCLOSURES:
Mortgage servicing rights capitalized	$	127	$	974
Right-of-use assets recorded		772		4,538

See accompanying footnotes to consolidated financial statements.

8

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

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

9

Core Bank

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

● Kentucky — 29

● Metropolitan Louisville — 18

● Central Kentucky — 7

● Georgetown — 1

● Lexington — 5

● Shelbyville — 1

● Northern Kentucky — 4

● Bellevue — 1

● Covington — 1

● Crestview Hills — 1

● Florence — 1

● Southern Indiana — 3

● Floyds Knobs — 1

● Jeffersonville — 1

● New Albany — 1

● Metropolitan Tampa, Florida — 7

● Metropolitan Cincinnati, Ohio — 4

● Metropolitan Nashville, Tennessee — 2

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

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

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

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

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

10

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

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

With the assistance of an independent third-party, the MSRs asset is reviewed at least quarterly for impairment based on the fair value of the MSRs using groupings of the underlying loans based on predominant risk characteristics. Any impairment of a grouping is reported as a valuation allowance. A primary factor influencing the fair value is the estimated life of the underlying loans serviced. The estimated life of the loans serviced is significantly influenced by market interest rates. During a period of declining interest rates, the fair value of the MSRs is expected to decline due to increased anticipated prepayment speeds within the portfolio. Alternatively, during a period of rising interest rates, the fair value of MSRs would be expected to increase as prepayment speeds on the underlying loans would be expected to decline.

Republic Processing Group

Tax Refund Solutions segment — Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). The majority of all the business generated by the TRS business occurs during the first half of each year. During the second half of each year, TRS generates limited revenue and incurs costs preparing for the next year’s tax season. TRS also originated $98 million of ERAs during December 2022 related to estimated tax returns that were anticipated to be filed during the first quarter 2023 tax filing season.

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

The RA credit product is a loan made in conjunction with the filing of a taxpayer’s federal tax return, which allows the taxpayer to borrow funds as an advance of a portion of their tax refund. The RA product had the following features during the first quarters of 2023 and 2022:

● Offered only during the first two months of each year;

● The taxpayer was given the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $6,250;

● No requirement that the taxpayer pays for another bank product, such as an RT;

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

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

● If an insufficient refund to repay the RA occurs:

o there is no recourse to the taxpayer, 

o no negative credit reporting on the taxpayer, and

o no collection efforts against the taxpayer.

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

11

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

● Offered only during December 2022 and January 2023;

● The taxpayer had the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $1,000;

● No requirement that the taxpayer pays for another bank product, such as an RT;

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

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

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

o there is no recourse to the taxpayer, 

o no negative credit reporting on the taxpayer, and

o no collection efforts against the taxpayer.

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

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

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

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

Republic Payment Solutions division

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

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

Republic Credit Solutions segment — Through the RCS segment, the Bank offers consumer credit products. In general, the credit products are unsecured, small dollar consumer loans that are dependent on various factors. RCS loans typically earn a higher yield but also have higher credit risk compared to loans originated through the Traditional Banking segment, with a significant portion of RCS

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clients considered subprime or near-prime borrowers. The Bank uses third-party service providers for certain services such as marketing and loan servicing of RCS loans. Additional information regarding consumer loan products offered through RCS follows:

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

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

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

o One of RCS’s third-party service providers, subject to the Bank’s oversight and supervision, provides the Bank with marketing services and loan servicing for the LOC II product. The Bank is the lender for this product and is marketed as such, up to a maximum advance amount of $10,000. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this product. 

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

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

● RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through three different third-party service providers.

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

o For the remaining program, in some instances the Bank retains 100% of the receivables originated, with recourse in the event of default, and in other instances, the Bank sells 100% of the receivables generally within one month of origination. Loan balances held for sale through this program are carried at the lower of cost or fair value.

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

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Recently Adopted Accounting Standards

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

				Method of	Financial
ASU. No.	Topic	Nature of Update	Date Adopted	Adoption	Statement Impact
2022-02	Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures	This ASU eliminates the TDR recognition and measurement guidance and, instead, requires the Company to evaluate (consistent with the accounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan. This ASU also enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. This ASU requires the Company to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross writeoff information must be included in the vintage disclosures required for the Company in accordance with ASC 326-20-50-6, which requires that the Company disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. (see Note 5 in this section of the filing)	January 1, 2023	Prospectively	Immaterial
2022-06	Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848	This ASU extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.	January 1, 2023	Prospectively	Immaterial. The Company ceased making new loans and renewing loans indexed to LIBOR on January 1, 2022.

14

Accounting Standards Update

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

			Date Adoption	Adoption	Expected
ASU. No.	Topic	Nature of Update	Required	Method	Financial Impact
2022-03	Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions	This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.	January 1, 2024	Prospectively	Immaterial
2023-02	Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)	This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.	January 1, 2024	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.
2023-01	Leases (Topic 842): Common Control Arrangements	This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions).	January 1, 2024	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

15

2. ACQUISITION OF CBANK

OVERVIEW

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

ACQUISITION SUMMARY

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

	March 15, 2023
	As Recorded		Fair Value			As Recorded
(in thousands)	by CBank		Adjustments (1)			by Republic (1)
Assets acquired:
Cash and cash equivalents	$	10,030	$	—		$	10,030
Investment securities		16,463		(4)	a		16,459
Loans		221,707		(4,219)	b		217,488
Allowance for loan and lease losses		(2,953)		1,353	c		(1,600)
Loans, net		218,754		(2,866)			215,888
Goodwill		954		(954)	d		—
Core deposit intangible		—		2,844	e	��	2,844
Premises and equipment, net		162		35	f		197
Other assets and accrued interest receivable		7,067		(320)	g		6,747
Total assets acquired	$	253,430	$	(1,265)		$	252,165
Liabilities assumed:
Deposits:
Noninterest-bearing	$	42,160	$	—		$	42,160
Interest-bearing		179,487		31	h		179,518
Total deposits		221,647		31			221,678
Other liabilities and accrued interest payable		4,709		96	i		4,805
Total liabilities assumed		226,356		127			226,483
Net assets acquired	$	27,074	$	(1,392)			25,682
Cash consideration paid							(51,000)
Goodwill						$	25,318

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

Explanation of preliminary fair value adjustments:

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

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

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

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

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

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

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

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

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

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

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

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

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CBANK CONTRIBUTION FOR THE REPORTING PERIOD

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

	Three Months Ended March 31, 2023
	Non-Acquisition		Acquisition
(in thousands)	Related		Related			Total
INTEREST INCOME:
Loans, including fees	$	625	$	—		$	625
Taxable investment securities		47		—			47
Federal Home Loan Bank stock and other		13		—			13
Total interest income		685		—			685
INTEREST EXPENSE:
Deposits		295		—			295
Total interest expense		295		—			295
NET INTEREST INCOME		390		—			390
Provision for expected credit loss expense		—		2,684	a		2,684
NET INTEREST INCOME AFTER PROVISION		390		(2,684)			(2,294)
NONINTEREST INCOME:
Service charges on deposit accounts		8		—			8
Other		32		—			32
Total noninterest income		40		—			40
NONINTEREST EXPENSE:
Salaries and employee benefits		76		106	c		182
Technology, equipment, and communication		51		—			51
Occupancy		55		—			55
FDIC insurance expense		8		—			8
Interchange related expense		12		—			12
Legal and professional fees		—		(81)	b		(81)
Other		31		2,199	b,d		2,230
Total noninterest expense		233		2,224			2,457
INCOME BEFORE INCOME TAX EXPENSE		197		(4,908)			(4,711)
INCOME TAX EXPENSE		7		(171)			(164)
NET INCOME	$	190	$	(4,737)		$	(4,547)

Explanation of acquisition-related items:

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

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

c. Retention bonuses for CBank employees.

d. Core systems conversion-related costs.

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3. INVESTMENT SECURITIES

Available-for-Sale Debt Securities

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

			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
March 31, 2023 (in thousands)	Cost		Gains		Losses		Credit Losses		Value
U.S. Treasury securities and U.S. Government agencies	$	416,388	$	—	$	(21,771)	$	—	$	394,617
Private label mortgage-backed security		721		1,289		—		—		2,010
Mortgage-backed securities - residential		192,614		134		(16,066)		—		176,682
Collateralized mortgage obligations		24,884		69		(1,302)		—		23,651
Corporate bonds		12,017		—		(27)		(3)		11,987
Trust preferred security		3,755		246		—		—		4,001
Total available-for-sale debt securities	$	650,379	$	1,738	$	(39,166)	$	(3)	$	612,948

			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
December 31, 2022 (in thousands)	Cost		Gains		Losses		Credit Losses		Value
U.S. Treasury securities and U.S. Government agencies	$	436,333	$	1	$	(25,193)	$	—	$	411,141
Private label mortgage-backed security		843		1,284		—		—		2,127
Mortgage-backed securities - residential		189,312		16		(17,455)		—		171,873
Collateralized mortgage obligations		22,774		21		(1,427)		—		21,368
Corporate bonds		10,000		1		—		—		10,001
Trust preferred security		3,741		114		—		—		3,855
Total available-for-sale debt securities	$	663,003	$	1,437	$	(44,075)	$	—	$	620,365

Held-to-Maturity Debt Securities

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

			Gross		Gross				Allowance
	Amortized		Unrecognized		Unrecognized		Fair		for
March 31, 2023 (in thousands)	Cost		Gains		Losses		Value		Credit Losses
U.S. Treasury securities and U.S. Government agencies	$	100,000	$	6	$	(234)	$	99,772	$	—
Mortgage-backed securities - residential		27		—		(1)		26		—
Collateralized mortgage obligations		6,989		58		(133)		6,914		—
Corporate bonds		4,977		—		(18)		4,959		(10)
Obligations of state and political subdivisions		125		—		—		125		—
Total held-to-maturity debt securities	$	112,118	$	64	$	(386)	$	111,796	$	(10)

			Gross		Gross				Allowance
	Amortized		Unrecognized		Unrecognized		Fair		for
December 31, 2022 (in thousands)	Cost		Gains		Losses		Value		Credit Losses
U.S. Treasury securities and U.S. Government agencies	$	75,000	$	106	$	—	$	75,106	$	—
Mortgage-backed securities - residential		27		—		(1)		26		—
Collateralized mortgage obligations		7,270		54		(148)		7,176		—
Corporate bonds		4,974		—		(49)		4,925		(10)
Obligations of state and political subdivisions		125		—		(1)		124		—
Total held-to-maturity debt securities	$	87,396	$	160	$	(199)	$	87,357	$	(10)

Sales of Available-for-Sale Debt Securities

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

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Debt Securities by Contractual Maturity

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

	Available-for-Sale				Held-to-Maturity
	Debt Securities				Debt Securities
	Amortized		Fair		Amortized		Fair
March 31, 2023 (in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	50,468	$	49,327	$	125	$	125
Due from one year to five years		377,937		357,277		104,977		104,731
Due from five years to ten years		—		—		—		—
Due beyond ten years		3,755		4,001		—		—
Private label mortgage-backed security		721		2,010		—		—
Mortgage-backed securities - residential		192,614		176,682		27		26
Collateralized mortgage obligations		24,884		23,651		6,989		6,914
Total debt securities	$	650,379	$	612,948	$	112,118	$	111,796

Unrealized-Loss Analysis on Debt Securities

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

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

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

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

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

As of March 31, 2023 and December 31, 2022, there were no holdings of debt securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Private Label Mortgage-Backed Security

The Bank owns one private label mortgage-backed security with a total carrying value of $2 million as of March 31, 2023. This security is mostly backed by “Alternative A” first-lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-

20

transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

See additional discussion regarding the Bank’s private label mortgage-backed security under Footnote 11 “Fair Value” in this section of the filing.

Mortgage-Backed Securities and Collateralized Mortgage Obligations

As of March 31, 2023, with the exception of the $2 million private label mortgage-backed security, all other mortgage-backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FHLMC and FNMA. As of March 31, 2023 and December 31, 2022, there were gross unrealized losses of $17.4 million and $18.9 million related to AFS mortgage-backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to have OTTI.

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

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

	ACLS Roll-forward
	Three Months Ended March 31,
	2023										2022
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance
Available-for-Sale Securities:
Corporate Bonds	$	—	$	3	$	—	$	—	$	3	$	—	$	—	$	—	$	—	$	—
Held-to-Maturity Securities:
Corporate Bonds		10		—		—		—		10		47		(7)		—		—		40
Total	$	10	$	3	$	—	$	—	$	13	$	47	$	(7)	$	—	$	—	$	40

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

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

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

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

Pledged Debt Securities

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

(in thousands)	March 31, 2023		December 31, 2022
Amortized cost	$	146,011	$	236,047
Fair value		133,652		217,562
Carrying amount		133,652		217,562

21

Equity Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2023 (in thousands)	Cost		Gains		Losses		Value
Freddie Mac preferred stock	$	—	$	107	$	—	$	107
Total equity securities with readily determinable fair values	$	—	$	107	$	—	$	107

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2022 (in thousands)	Cost		Gains		Losses		Value
Freddie Mac preferred stock	$	—	$	111	$	—	$	111
Total equity securities with readily determinable fair values	$	—	$	111	$	—	$	111

For equity securities with readily determinable fair values, the gross realized and unrealized gains and losses recognized in the Company’s consolidated statements of income were as follows:

	Gains (Losses) Recognized on Equity Securities
	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total
Freddie Mac preferred stock	$	—	$	(4)	$	(4)	$	—	$	(6)	$	(6)
Community Reinvestment Act mutual fund		—		—		—		—		(112)		(112)
Total equity securities with readily determinable fair value	$	—	$	(4)	$	(4)	$	—	$	(118)	$	(118)

22

4. LOANS HELD FOR SALE

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

Mortgage Loans Held for Sale, at Fair Value

See additional detail regarding mortgage loans originated for sale, at fair value under Footnote 12 “Mortgage Banking Activities” of this section of the filing.

Consumer Loans Held for Sale, at Fair Value

The Bank offers RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

Activity for consumer loans held for sale and carried at fair value was as follows:

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Balance, beginning of period	$	4,706	$	19,747
Origination of consumer loans held for sale		22,797		96,732
Proceeds from the sale of consumer loans held for sale		(23,560)		(106,648)
Net gain on sale of consumer loans held for sale		745		1,878
Balance, end of period	$	4,688	$	11,709

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

RCS originates for sale 90% or 95% of the balances from its line-of-credit products and 100% for some of its healthcare receivables products. Ordinary gains or losses on the sale of these RCS products are reported as a component of “Program fees.”

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

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Balance, beginning of period	$	13,169	$	2,937
Origination of consumer loans held for sale		184,425		148,482
Proceeds from the sale of consumer loans held for sale		(186,639)		(149,632)
Net gain on sale of consumer loans held for sale		1,789		1,239
Balance, end of period	$	12,744	$	3,026

23

5. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:

(in thousands)	March 31, 2023		December 31, 2022
Traditional Banking:
Residential real estate:
Owner occupied	$	972,214	$	911,427
Nonowner occupied		328,529		321,358
Commercial real estate		1,682,573		1,599,510
Construction & land development		167,829		153,875
Commercial & industrial		478,101		413,387
Lease financing receivables		73,270		10,505
Aircraft		184,344		179,785
Home equity		250,050		241,739
Consumer:
Credit cards		16,775		15,473
Overdrafts		775		726
Automobile loans		5,267		6,731
Other consumer		5,450		626
Total Traditional Banking		4,165,177		3,855,142
Warehouse lines of credit*		457,365		403,560
Total Core Banking		4,622,542		4,258,702
Republic Processing Group*:
Tax Refund Solutions:
Refund Advances		31,665		97,505
Other TRS commercial & industrial loans		8,327		51,767
Republic Credit Solutions		111,700		107,828
Total Republic Processing Group		151,692		257,100
Total loans**		4,774,234		4,515,802
Allowance for credit losses		(96,121)		(70,413)
Total loans, net	$	4,678,113	$	4,445,389

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

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

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

(in thousands)	March 31, 2023		December 31, 2022
Contractually receivable	$	4,781,284	$	4,519,136
Unearned income		(714)		(835)
Unamortized premiums		169		99
Unaccreted discounts		(4,100)		(479)
PPP net unamortized deferred origination (fees) and costs		(84)		(91)
Other net unamortized deferred origination (fees) and costs		(2,321)		(2,028)
Carrying value of loans	$	4,774,234	$	4,515,802

24

Credit Quality Indicators

The following tables include loans by segment, risk category, and, for non-revolving loans, origination year. Loan segments and risk categories as of March 31, 2023 remain unchanged from those defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Regarding origination year, loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a loan modification (formerly TDR.) Loan extensions and renewals classified as loan modifications (formerly TDRs) generally receive no change in origination date upon extension or renewal.

											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year										Amortized		Converted
As of March 31, 2023	2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
Residential real estate owner occupied:
Risk Rating
Pass or not rated	$	71,391	$	221,178	$	189,378	$	186,685	$	280,428	$	—	$	749	$	949,809
Special Mention		47		—		—		—		7,002		—		—		7,049
Substandard		—		1,297		1,361		1,160		11,538		—		—		15,356
Doubtful		—		—		—		—		—		—		—		—
Total	$	71,438	$	222,475	$	190,739	$	187,845	$	298,968	$	—	$	749	$	972,214
YTD Gross Charge-offs	$	—	$	—	$	6	$	—	$	—	$	—	$	—	$	6
Residential real estate nonowner occupied:
Risk Rating
Pass or not rated	$	19,017	$	74,848	$	88,212	$	51,821	$	86,161	$	—	$	8,364	$	328,423
Special Mention		—		—		—		—		30		—		—		30
Substandard		—		—		27		—		49		—		—		76
Doubtful		—		—		—		—		—		—		—		—
Total	$	19,017	$	74,848	$	88,239	$	51,821	$	86,240	$	—	$	8,364	$	328,529
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk Rating
Pass or not rated	$	57,928	$	457,789	$	389,353	$	213,912	$	377,754	$	22,947	$	113,157	$	1,632,840
Special Mention		586		10,897		4,000		—		30,808		142		—		46,433
Substandard		—		—		—		—		3,300		—		—		3,300
Doubtful		—		—		—		—		—		—		—		—
Total	$	58,514	$	468,686	$	393,353	$	213,912	$	411,862	$	23,089	$	113,157	$	1,682,573
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land development:
Risk Rating
Pass or not rated	$	28,475	$	106,203	$	29,978	$	1,958	$	642	$	275	$	298	$	167,829
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	28,475	$	106,203	$	29,978	$	1,958	$	642	$	275	$	298	$	167,829
YTD Gross Charge-offs		—		—		—		—		—		—		—		—
Commercial and industrial:
Risk Rating
Pass or not rated	$	47,157	$	112,078	$	89,610	$	20,170	$	73,499	$	115,529	$	3,707	$	461,750
Special Mention		—		508		12,817		—		1,752		255		—		15,332
Substandard		—		—		—		—		1,019		—		—		1,019
Doubtful		—		—		—		—		—		—		—		—
Total	$	47,157	$	112,586	$	102,427	$	20,170	$	76,270	$	115,784	$	3,707	$	478,101
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Lease financing receivables:
Risk Rating
Pass or not rated	$	12,346	$	31,683	$	14,896	$	7,298	$	6,229	$	—	$	—	$	72,452
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		818		—		—		818
Doubtful		—		—		—		—		—		—		—		—
Total	$	12,346	$	31,683	$	14,896	$	7,298	$	7,047	$	—	$	—	$	73,270
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Aircraft:
Risk Rating
Pass or not rated	$	13,640	$	62,951	$	51,083	$	33,033	$	23,432	$	—	$	—	$	184,139
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		205		—		—		205
Doubtful		—		—		—		—		—		—		—		—
Total	$	13,640	$	62,951	$	51,083	$	33,033	$	23,637	$	—	$	—	$	184,344
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	248,978	$	—	$	248,978
Special Mention		—		—		—		—		—		106		—		106
Substandard		—		—		—		—		—		966		—		966
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	250,050	$	—	$	250,050
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

25

											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted
As of March 31, 2023	2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
Consumer:
Risk Rating
Pass or not rated	$	563	$	1,864	$	868	$	133	$	5,272	$	19,528	$	—	$	28,228
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		10		—		29		—		—		39
Doubtful		—		—		—		—		—		—		—		—
Total	$	563	$	1,864	$	878	$	133	$	5,301	$	19,528	$	—	$	28,267
YTD Gross Charge-offs	$	—	$	9	$	7	$	—	$	4	$	305	$	—	$	325
Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	457,365	$	—	$	457,365
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	457,365	$	—	$	457,365
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	39,992	$	—	$	39,992
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	39,992	$	—	$	39,992
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
RCS:
Risk Rating
Pass or not rated	$	10,577	$	18,530	$	1,668	$	1,059	$	29,120	$	49,864	$	—	$	110,818
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		882		—		882
Doubtful		—		—		—		—		—		—		—		—
Total	$	10,577	$	18,530	$	1,668	$	1,059	$	29,120	$	50,746	$	—	$	111,700
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	3,099	$	—	$	3,099
Grand Total:
Risk Rating
Pass or not rated	$	261,094	$	1,087,124	$	855,046	$	516,069	$	882,537	$	954,478	$	126,275	$	4,682,623
Special Mention		633		11,405		16,817		—		39,592		503		—		68,950
Substandard		—		1,297		1,398		1,160		16,958		1,848		—		22,661
Doubtful		—		—		—		—		—		—		—		—
Grand Total	$	261,727	$	1,099,826	$	873,261	$	517,229	$	939,087	$	956,829	$	126,275	$	4,774,234
YTD Gross Charge-offs	$	—	$	9	$	13	$	—	$	4	$	3,404	$	—	$	3,430

											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year										Amortized		Converted
As of December 31, 2022	2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Residential real estate owner occupied:
Risk Rating
Pass or not rated	$	231,638	$	189,495	$	188,004	$	71,306	$	208,296	$	—	$	—	$	888,739
Special Mention		—		160		—		—		7,240		—		—		7,400
Substandard		1,230		1,103		1,501		1,460		9,994		—		—		15,288
Doubtful		—		—		—		—		—		—		—		—
Total	$	232,868	$	190,758	$	189,505	$	72,766	$	225,530	$	—	$	—	$	911,427
YTD Gross Charge-offs	$	21	$	—	$	—	$	—	$	—	$	—	$	—	$	21
Residential real estate nonowner occupied:
Risk Rating
Pass or not rated	$	78,337	$	91,778	$	55,058	$	32,803	$	57,053	$	—	$	6,147	$	321,176
Special Mention		—		—		—		—		32		—		—		32
Substandard		—		30		—		—		120		—		—		150
Doubtful		—		—		—		—		—		—		—		—
Total	$	78,337	$	91,808	$	55,058	$	32,803	$	57,205	$	—	$	6,147	$	321,358
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk Rating
Pass or not rated	$	451,327	$	394,317	$	210,055	$	117,928	$	253,213	$	25,499	$	99,791	$	1,552,130
Special Mention		3,124		11,870		—		21,296		9,967		318		—		46,575
Substandard		—		—		—		—		805		—		—		805
Doubtful		—		—		—		—		—		—		—		—
Total	$	454,451	$	406,187	$	210,055	$	139,224	$	263,985	$	25,817	$	99,791	$	1,599,510
YTD Gross Charge-offs	$	—	$	9	$	—	$	—	$	—	$	—	$	—	$	9
Construction and land development:
Risk Rating
Pass or not rated	$	107,153	$	43,289	$	638	$	641	$	373	$	1,781	$	—	$	153,875
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	107,153	$	43,289	$	638	$	641	$	373	$	1,781	$	—	$	153,875
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

26

											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted
As of December 31, 2022	2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Commercial and industrial:
Risk Rating
Pass or not rated	$	116,483	$	82,431	$	17,944	$	36,254	$	36,367	$	103,257	$	4,865	$	397,601
Special Mention		536		13,239		—		—		1,756		255		—		15,786
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	117,019	$	95,670	$	17,944	$	36,254	$	38,123	$	103,512	$	4,865	$	413,387
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Lease financing receivables:
Risk Rating
Pass or not rated	$	5,469	$	1,964	$	542	$	1,548	$	982	$	—	$	—	$	10,505
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	5,469	$	1,964	$	542	$	1,548	$	982	$	—	$	—	$	10,505
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Aircraft:
Risk Rating
Pass or not rated	$	65,399	$	54,749	$	35,085	$	16,888	$	7,454	$	—	$	—	$	179,575
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		210		—		—		210
Doubtful		—		—		—		—		—		—		—		—
Total	$	65,399	$	54,749	$	35,085	$	16,888	$	7,664	$	—	$	—	$	179,785
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	240,704	$	—	$	240,704
Special Mention		—		—		—		—		—		171		—		171
Substandard		—		—		—		—		—		864		—		864
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	241,739	$	—	$	241,739
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer:
Risk Rating
Pass or not rated	$	415	$	499	$	168	$	2,531	$	4,328	$	15,573	$	—	$	23,514
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		9		33		—		—		42
Doubtful		—		—		—		—		—		—		—		—
Total	$	415	$	499	$	168	$	2,540	$	4,361	$	15,573	$	—	$	23,556
YTD Gross Charge-offs	$	—	$	5	$	—	$	11	$	—	$	1,274	$	—	$	1,290
Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	403,560	$	—	$	403,560
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	403,560	$	—	$	403,560
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	149,272	$	—	$	149,272
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	149,272	$	—	$	149,272
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	11,659	$	—	$	11,659
RCS:
Risk Rating
Pass or not rated	$	22,357	$	2,273	$	1,264	$	602	$	29,594	$	50,589	$	—	$	106,679
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		1,149		—		1,149
Doubtful		—		—		—		—		—		—		—		—
Total	$	22,357	$	2,273	$	1,264	$	602	$	29,594	$	51,738	$	—	$	107,828
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	11,390	$	—	$	11,390
Grand Total:
Risk Rating
Pass or not rated	$	1,078,578	$	860,795	$	508,758	$	280,501	$	597,660	$	990,235	$	110,803	$	4,427,330
Special Mention		3,660		25,269		—		21,296		18,995		744		—		69,964
Substandard		1,230		1,133		1,501		1,469		11,162		2,013		—		18,508
Doubtful		—		—		—		—		—		—		—		—
Grand Total	$	1,083,468	$	887,197	$	510,259	$	303,266	$	627,817	$	992,992	$	110,803	$	4,515,802
YTD Gross Charge-offs	$	21	$	14	$	—	$	11	$	—	$	24,323	$	—	$	24,369

27

Allowance for Credit Losses on Loans

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

	ACLL Roll-forward
	Three Months Ended March 31,
	2023												2022
	Beginning			CBank			Charge-				Ending				Beginning			Charge-				Ending
(in thousands)	Balance			Adjustment*	Provision		offs		Recoveries		Balance				Balance	Provision		offs		Recoveries		Balance
Traditional Banking:
Residential real estate:
Owner occupied	$	8,909	$	—	$	(120)	$	(6)	$	15	$	8,798		$	8,647	$	(331)	$	—	$	42	$	8,358
Nonowner occupied		2,831		—		64		—		—		2,895			2,700		45		—		1		2,746
Commercial real estate		23,739		—		1,041		—		47		24,827			23,769		854		—		1		24,624
Construction & land development		4,123		—		329		—		—		4,452			4,128		(235)		—		—		3,893
Commercial & industrial		3,976		1,008		602		—		90		5,676			3,487		(84)		—		9		3,412
Lease financing receivables		110		592		648		—		—		1,350			91		18		—		—		109
Aircraft		449		—		12		—		—		461			357		21		—		—		378
Home equity		4,628		—		31		—		1		4,660			4,111		(70)		—		3		4,044
Consumer:
Credit cards		996		—		112		(40)		12		1,080			934		32		(39)		17		944
Overdrafts		726		—		52		(247)		64		595			683		188		(214)		59		716
Automobile loans		87		—		(16)		(7)		2		66			186		(36)		—		1		151
Other consumer		135		—		229		(31)		23		356			314		(75)		(10)		12		241
Total Traditional Banking		50,709		1,600		2,984		(331)		254		55,216			49,407		327		(263)		145		49,616
Warehouse lines of credit		1,009		—		135		—		—		1,144			2,126		(401)		—		—		1,725
Total Core Banking		51,718		1,600		3,119		(331)		254		56,360			51,533		(74)		(263)		145		51,341
Republic Processing Group:
Tax Refund Solutions:
Refund Advances		3,797		—		21,715		—		285		25,797			—		8,315		—		—		8,315
Other TRS commercial & industrial loans		91		—		93		—		—		184			96		(403)		—		362		55
Republic Credit Solutions		14,807		—		1,839		(3,099)		233		13,780			12,948		1,395		(2,673)		275		11,945
Total Republic Processing Group		18,695		—		23,647		(3,099)		518		39,761			13,044		9,307		(2,673)		637		20,315
Total	$	70,413	$	1,600	$	26,766	$	(3,430)	$	772	$	96,121		$	64,577	$	9,233	$	(2,936)	$	782	$	71,656

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

The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of March 31, 2023 was primarily based on a static pool analysis of each of the Company’s loan pools using the Company’s loss experience from 2013 through 2023, supplemented by qualitative factor adjustments for current and forecasted conditions. The Company employs one-year forecasts of unemployment and CRE values within its ACLL model, with reversion to long-term averages following the forecasted period. The cumulative loss rate within the Company’s ACLL also includes estimated losses based on an individual evaluation of loans which are either collateral dependent or which do not share risk characteristics with pooled loans, e.g., Loan Modifications.

For its CRE loan pool, the Company employed a one-year forecast of CRE vacancy rates through March 31, 2022 but discontinued use of this forecast during the second quarter of 2022 in favor of a one-year forecast of general CRE values. This change in forecast method had no material impact on the Company’s ACLL.

28

Nonperforming Loans and Nonperforming Assets

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

(dollars in thousands)	March 31, 2023			December 31, 2022
Loans on nonaccrual status*	$	15,833		$	15,562
Loans past due 90-days-or-more and still on accrual**		777			756
Total nonperforming loans		16,610			16,318
Other real estate owned		1,529			1,581
Total nonperforming assets	$	18,139		$	17,899
Credit Quality Ratios - Total Company:
Nonperforming loans to total loans		0.35	%		0.36	%
Nonperforming assets to total loans (including OREO)		0.38			0.40
Nonperforming assets to total assets		0.30			0.31
Credit Quality Ratios - Core Bank:
Nonperforming loans to total loans		0.34	%		0.37	%
Nonperforming assets to total loans (including OREO)		0.38			0.40
Nonperforming assets to total assets		0.32			0.32

* Loans on nonaccrual status include collateral-dependent loans.

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

29

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

					Past Due 90-Days-or-More
	Nonaccrual				and Still Accruing Interest*
(in thousands)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Traditional Banking:
Residential real estate:
Owner occupied	$	13,046	$	13,388	$	—	$	—
Nonowner occupied		76		117		—		—
Commercial real estate		1,568		1,001		—		—
Construction & land development		—		—		—		—
Commercial & industrial		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—				—		—
Home equity		904		815		—		—
Consumer:
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Automobile loans		33		31		—		—
Other consumer		206		210		—		—
Total Traditional Banking		15,833		15,562		—		—
Warehouse lines of credit		—		—		—		—
Total Core Banking		15,833		15,562		—		—
Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—		—		—		—
Other TRS commercial & industrial loans		—		—		—		—
Republic Credit Solutions		—		—		777		756
Total Republic Processing Group		—		—		777		756
Total	$	15,833	$	15,562	$	777	$	756

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

							Three Months Ended
	As of March 31, 2023						March 31, 2023
	Nonaccrual		Nonaccrual			Total	Interest Income
	Loans with		Loans without			Nonaccrual	Recognized
(in thousands)	ACLL		ACLL			Loans	on Nonaccrual Loans*
Residential real estate:
Owner occupied	$	222	$	12,824	$	13,046	$	181
Nonowner occupied		24		52		76		1
Commercial real estate		966		602		1,568		23
Construction & land development		—		—		—		—
Commercial & industrial		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—		—		—		—
Home equity		1		903		904		23
Consumer		—		239		239		3
Total	$	1,213	$	14,620	$	15,833	$	231

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

30

							Three Months Ended
	As of December 31, 2022						December 31, 2022
	Nonaccrual		Nonaccrual			Total	Interest Income
	Loans with		Loans without			Nonaccrual	Recognized
(in thousands)	ACLL		ACLL			Loans	on Nonaccrual Loans*
Residential real estate:
Owner occupied	$	2,252	$	11,136	$	13,388	$	230
Nonowner occupied		56		61		117		1
Commercial real estate		1,001		—		1,001		630
Construction & land development		—		—		—		—
Commercial & industrial		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—		—		—		—
Home equity		—		815		815		44
Consumer		15		226		241		46
Total	$	3,324	$	12,238	$	15,562	$	951

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

Nonaccrual loans and loans past due 90-days-or-more and still on accrual both include smaller balance, primarily retail, homogeneous loans. Nonaccrual loans are typically returned to accrual status when all the principal and interest amounts contractually due are brought current and held current for six consecutive months and future contractual payments are reasonably assured. Loan Modifications (formerly TDRs prior to the adoption of ASU 2022-02) on nonaccrual status are reviewed for return to accrual status on an individual basis, with additional consideration given to performance under the modified terms.

Delinquent Loans

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

	30 - 59			60 - 89			90 or More
March 31, 2023	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total
Traditional Banking:
Residential real estate:
Owner occupied	$	2,587		$	1,195		$	929		$	4,711		$	967,503	$	972,214
Nonowner occupied		—			—			—			—			328,529		328,529
Commercial real estate		—			—			602			602			1,681,971		1,682,573
Construction & land development		—			—			—			—			167,829		167,829
Commercial & industrial		—			—			—			—			478,101		478,101
Lease financing receivables		—			—			—			—			73,270		73,270
Aircraft		—			—			—			—			184,344		184,344
Home equity		59			—			4			63			249,987		250,050
Consumer:
Credit cards		24			6			—			30			16,745		16,775
Overdrafts		109			1			2			112			663		775
Automobile loans		—			—			13			13			5,254		5,267
Other consumer		5			1			—			6			5,444		5,450
Total Traditional Banking		2,784			1,203			1,550			5,537			4,159,640		4,165,177
Warehouse lines of credit		—			—			—			—			457,365		457,365
Total Core Banking		2,784			1,203			1,550			5,537			4,617,005		4,622,542
Republic Processing Group:
Tax Refund Solutions:
Refund Advances		18,450			—			—			18,450			13,215		31,665
Other TRS commercial & industrial loans		406			—			—			406			7,921		8,327
Republic Credit Solutions		7,685			3,269			777			11,731			99,969		111,700
Total Republic Processing Group		26,541			3,269			777			30,587			121,105		151,692
Total	$	29,325		$	4,472		$	2,327		$	36,124		$	4,738,110	$	4,774,234
Delinquency ratio***		0.61	%		0.09	%		0.05	%		0.76	%

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

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

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

31

	30 - 59			60 - 89			90 or More
December 31, 2022	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total
Traditional Banking:
Residential real estate:
Owner occupied	$	2,382		$	1,185		$	1,267		$	4,834		$	906,593	$	911,427
Nonowner occupied		—			—			—			—			321,358		321,358
Commercial real estate		604			—			—			604			1,598,906		1,599,510
Construction & land development		—			—			—			—			153,875		153,875
Commercial & industrial		177			—			—			177			413,210		413,387
Lease financing receivables		—			—			—			—			10,505		10,505
Aircraft		—			—			—			—			179,785		179,785
Home equity		56			93			26			175			241,564		241,739
Consumer:
Credit cards		50			5			—			55			15,418		15,473
Overdrafts		158			1			1			160			566		726
Automobile loans		8			—			3			11			6,720		6,731
Other consumer		43			1			—			44			582		626
Total Traditional Banking		3,478			1,285			1,297			6,060			3,849,082		3,855,142
Warehouse lines of credit		—			—			—			—			403,560		403,560
Total Core Banking		3,478			1,285			1,297			6,060			4,252,642		4,258,702
Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—			—			—			—			97,505		97,505
Other TRS commercial & industrial loans		—			—			—			—			51,767		51,767
Republic Credit Solutions		6,488			1,956			756			9,200			98,628		107,828
Total Republic Processing Group		6,488			1,956			756			9,200			247,900		257,100
Total	$	9,966		$	3,241		$	2,053		$	15,260		$	4,500,542	$	4,515,802
Delinquency ratio***		0.22	%		0.07	%		0.05	%		0.34	%

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

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

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

32

Collateral-Dependent Loans

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

	March 31, 2023				December 31, 2022
	Secured		Secured		Secured		Secured
	by Real		by Personal		by Real		by Personal
(in thousands)	Estate		Property		Estate		Property
Traditional Banking:
Residential real estate:
Owner occupied	$	17,011	$	—	$	18,057	$	—
Nonowner occupied		77		—		150		—
Commercial real estate		1,602		—		1,041		—
Construction & land development		—		—		—		—
Commercial & industrial		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—		205		—		210
Home equity		967		—		967		—
Consumer		—		38		—		26
Total Traditional Banking	$	19,657	$	243	$	20,215	$	236

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

Loan Modification Disclosures Pursuant to ASU 2022-02

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

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

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

33

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

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

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

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

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

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

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

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

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

34

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

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

	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
March 31, 2022 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Legal modification	6	$	772	—	$	—	6	$	772
Total residential TDRs	6		772	—		—	6		772
Consumer loans:
Principal deferral	258		42	—		—	258		42
Total consumer TDRs	258		42	—		—	258		42
Total troubled debt restructurings	264	$	814	—	$	—	264	$	814

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

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

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

	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
December 31, 2022 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Rate reduction	67	$	6,305	3	$	242	70	$	6,547
Principal deferral	7		699	—		—	7		699
Legal modification	67		3,149	6		377	73		3,526
Total residential TDRs	141		10,153	9		619	150		10,772
Commercial related and construction/land development loans:
Rate reduction	1		847	—		—	1		847
Principal deferral	1		1	—		—	1		1
Total commercial TDRs	2		848	—		—	2		848
Consumer loans:
Principal deferral	2,320		393	—		—	2,320		393
Legal modification	3		13	—		—	3		13
Total consumer TDRs	2,323		406	—		—	2,323		406
Total troubled debt restructurings	2,466	$	11,407	9	$	619	2,475	$	12,026

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

35

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

Foreclosures

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

(in thousands)	March 31, 2023		December 31, 2022
Commercial real estate	$	1,529	$	1,581
Total other real estate owned	$	1,529	$	1,581

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

(in thousands)	March 31, 2023		December 31, 2022
Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure	$	546	$	909

Refund Advances

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

Information regarding RAs follows:

	Three Months Ended
	March 31,
(dollars in thousands)	2023			2022
Refund Advances originated	$	737,047		$	311,207
Net charge to the Provision for RAs, including ERAs		21,715			8,315
Provision as a percentage of RAs, including ERAs, originated during the first quarter		2.95	%		2.67	%

36

6. DEPOSITS

The composition of the deposit portfolio follows:

(in thousands)	March 31, 2023		December 31, 2022
Core Bank:
Demand	$	1,272,086	$	1,336,082
Money market accounts		794,710		707,272
Savings		316,947		323,015
Reciprocal money market		123,486		28,635
Individual retirement accounts (1)		36,334		38,640
Time deposits, $250 and over (1)		46,687		54,855
Other certificates of deposit (1)		176,257		129,324
Reciprocal time deposits (1)		13,273		7,405
Total Core Bank interest-bearing deposits		2,779,780		2,625,228
Total Core Bank noninterest-bearing deposits		1,471,180		1,464,493
Total Core Bank deposits		4,250,960		4,089,721
Republic Processing Group:
Money market accounts		5,931		3,849
Total RPG interest-bearing deposits		5,931		3,849
Brokered prepaid card deposits		390,052		328,655
Other noninterest-bearing deposits		152,725		115,620
Total RPG noninterest-bearing deposits		542,777		444,275
Total RPG deposits		548,708		448,124
Total deposits	$	4,799,668	$	4,537,845

(1) Includes time deposit.

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

Securities sold under agreements to repurchase consist of short-term excess funds from correspondent banks, repurchase agreements, and overnight liabilities to deposit clients arising from the Bank’s treasury management program. While comparable to deposits in their transactional nature, these overnight liabilities to clients are in the form of repurchase agreements. Repurchase agreements collateralized by securities are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. Should the fair value of currently pledged securities fall below the associated repurchase agreements, the Bank would be required to pledge additional securities. To mitigate the risk of under collateralization, the Bank typically pledges at least two percent more in securities than the associated repurchase agreements. All such securities are under the Bank’s control.

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

(dollars in thousands)	March 31, 2023			December 31, 2022
Outstanding balance at end of period	$	134,412		$	216,956
Weighted average interest rate at end of period		0.45	%		0.41	%
Fair value of securities pledged:
U.S. Treasury securities and U.S. Government agencies	$	133,652		$	254,296
Total securities pledged	$	133,652		$	254,296

	Three Months Ended
	March 31,
(dollars in thousands)	2023			2022
Average outstanding balance during the period	$	202,910		$	300,169
Weighted average interest rate during the period		0.49	%		0.04	%
Maximum outstanding at any month end during the period	$	224,067		$	299,376

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

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

As of March 31, 2023, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 36 of its offices, with 12 such operating leases contracted with a related party of the Company. As of March 31, 2023, payments on 22 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.

The Company recorded a renewal to one of its third-party leases during the first quarter of 2023 with a total right-of-use asset value of $772,000.

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

	Three Months Ended
	March 31,
(dollars in thousands)	2023		2022
Operating lease expense:
Related Party:
Variable lease expense	$	1,224	$	1,265
Fixed lease expense		59		35
Third-Party:
Variable lease expense		311		197
Fixed lease expense		389		345
Total operating lease expense	$	1,983	$	1,842
Other information concerning operating leases:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,730	$	1,705
Cash paid for variable rent payments not included in measurement of operating lease liabilities		151		151
Short-term lease payments not included in the measurement of lease liabilities		—		—

The following table presents the weighted average remaining term and weighted average discount rate for the Company’s non-short-term operating leases as of March 31, 2023 and December 31, 2022:

	March 31, 2023			December 31, 2022
Weighted average remaining term in years		8.19			8.44
Weighted average discount rate		2.13	%		2.10	%

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The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of March 31, 2023:

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

9. FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:

(in thousands)	March 31, 2023		December 31, 2022
Overnight advances	$	88,000	$	75,000
Fixed interest rate advances		20,000		20,000
Total FHLB advances	$	108,000	$	95,000

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

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

			Weighted
			Average
Year (dollars in thousands)	Principal		Rate
2023	$	88,000	4.86	%
2024		—	—
2025		—	—
2026		—	—
2027		20,000	1.89
Total	$	108,000	4.31	%

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

	Three Months Ended
	March 31,
(dollars in thousands)	2023			2022
Average outstanding balance during the period	$	225,344		$	1,711
Weighted average interest rate during the period		4.43	%		0.15	%
Maximum outstanding at any month end during the period	$	485,000		$	25,000

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

(in thousands)	March 31, 2023		December 31, 2022
First lien, single family residential real estate	$	1,159,090	$	1,106,287
Home equity lines of credit		223,472		219,644

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10. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

Commitments to Extend Credit

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

The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the contracts. For example, the Company may not be obligated to advance funds if the client’s financial condition deteriorates or if the client fails to meet specific covenants.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding.

The following table presents the Company’s commitments, exclusive of Mortgage Banking loan commitments, for each period ended:

(in thousands)	March 31, 2023		December 31, 2022
Unused warehouse lines of credit	$	540,135	$	733,940
Unused home equity lines of credit		419,814		410,057
Unused loan commitments - other		1,027,617		951,021
Standby letters of credit		8,819		9,735
FHLB letter of credit		233		643
Total commitments	$	1,996,618	$	2,105,396

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

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The following tables present a roll-forward of the ACLC for the three months ended March 31, 2023 and 2022:

	ACLC Roll-forward
	Three Months Ended March 31,
	2023										2022
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance
Loan Commitments
Unused warehouse lines of credit	$	190	$	8	$	—	$	—	$	198	$	154	$	(24)	$	—	$	—	$	130
Unused home equity lines of credit		332		9		—		—		341		247		9		—		—		256
Unused construction lines of credit		384		163		—		—		547		383		(16)		—		—		367
Unused loan commitments - other		344		30		—		—		374		268		19		—		—		287
Total	$	1,250	$	210	$	—	$	—	$	1,460	$	1,052	$	(12)	$	—	$	—	$	1,040

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

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11. FAIR VALUE

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Bank used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Available-for-sale debt securities: Except for the Bank’s U.S. Treasury securities, its private label mortgage-backed security, and its TRUP investment, the fair value of AFS debt securities is typically determined by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The Bank’s U.S. Treasury securities are based on quoted market prices (Level 1 inputs) and considered highly liquid.

The Bank’s private label mortgage-backed security remains illiquid, and as such, the Bank classifies this security as a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (present value model) approach in determining the fair value of this security.

See in this section of the filing under Footnote 3 “Investment Securities” for additional discussion regarding the Bank’s private label mortgage-backed security.

The Company acquired its TRUP investment in 2015 and considered the most recent bid price for the same instrument to approximate market value as of March 31, 2023. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

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

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

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

Consumer loans held for sale, at fair value: The fair value for these loans is based on contractual sales terms, Level 3 inputs.

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

44

Mortgage Banking derivatives: Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts (“forward contracts”) and interest rate lock loan commitments. The fair value of the Bank’s derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by the Bank. Forward contracts and rate lock loan commitments are classified as Level 2 in the fair value hierarchy.

Interest rate swap agreements: Interest rate swaps are recorded at fair value on a recurring basis. The Company values its interest rate swaps using a third-party valuation service and classifies such valuations as Level 2. Valuations of these interest rate swaps are also received from the relevant dealer counterparty and validated against the Company’s calculations. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.

Collateral-dependent loans: Collateral-dependent loans generally reflect partial charge-downs to their respective fair value, which is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Collateral-dependent loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other real estate owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for collateral-dependent loans, impaired premises and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Bank. Once the appraisal is received, a member of the Bank’s CCAD reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources, such as recent market data or industry-wide statistics. On at least an annual basis, the Bank performs a back test of collateral appraisals by comparing actual selling prices on recent collateral sales to the most recent appraisal of such collateral. Back tests are performed for each collateral class, e.g., residential real estate or commercial real estate, and may lead to additional adjustments to the value of unliquidated collateral of similar class.

Mortgage servicing rights: At least quarterly, MSRs are evaluated for impairment based upon the fair value of the MSRs as compared to carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded, and the respective individual tranche is carried at fair value. If the carrying amount of an individual tranche does not exceed fair value, impairment is reversed if previously recognized and the carrying value of the individual tranche is based on the amortization method. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and can generally be validated against available market data (Level 2).

45

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below. Information as of March 31, 2023 is presented net of any applicable ACL.

	Fair Value Measurements at
	March 31, 2023 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	174,871	$	219,746	$	—	$	394,617
Private label mortgage-backed security		—		—		2,010		2,010
Mortgage-backed securities - residential		—		176,682		—		176,682
Collateralized mortgage obligations		—		23,651		—		23,651
Corporate bonds		—		11,987		—		11,987
Trust preferred security		—		—		4,001		4,001
Total available-for-sale debt securities	$	174,871	$	432,066	$	6,011	$	612,948
Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	107	$	—	$	107
Total equity securities with readily determinable fair value	$	—	$	107	$	—	$	107
Mortgage loans held for sale	$	—	$	1,034	$	—	$	1,034
Consumer loans held for sale		—		—		4,688		4,688
Rate lock loan commitments		—		96		—		96
Mandatory forward contracts		—		19		—		19
Interest rate swap agreements		—		6,852		—		6,852
Financial liabilities:
Interest rate swap agreements		—		6,852		—		6,852

46

	Fair Value Measurements at
	December 31, 2022 Using:
	Quoted Prices in			Significant
	Active Markets			Other		Significant
	for Identical			Observable		Unobservable		Total
	Assets			Inputs		Inputs		Fair
(in thousands)	(Level 1)			(Level 2)		(Level 3)		Value
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	193,385		$	217,756	$	—	$	411,141
Private label mortgage-backed security		—			—		2,127		2,127
Mortgage-backed securities - residential		—			171,873		—		171,873
Collateralized mortgage obligations		—			21,368		—		21,368
Corporate bonds		—			10,001		—		10,001
Trust preferred security		—	���		—		3,855		3,855
Total available-for-sale debt securities	$	193,385		$	420,998	$	5,982	$	620,365
Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—		$	111	$	—	$	111
Total equity securities with readily determinable fair value	$	—		$	111	$	—	$	111
Mortgage loans held for sale	$	—		$	1,302	$	—	$	1,302
Consumer loans held for sale		—			—		4,706		4,706
Consumer loans held for investment		—			—		2		2
Rate lock loan commitments		—			2		—		2
Mandatory forward contracts		—			—		—		—
Interest rate swap agreements		—			8,127		—		8,127
Financial liabilities:
Mandatory forward contracts	$	—		$	67	$	—	$	67
Interest rate swap agreements		—			8,127		—		8,127

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

Private Label Mortgage-Backed Security

The following table presents a reconciliation of the Bank’s private label mortgage-backed security measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Balance, beginning of period	$	2,127	$	2,731
Total gains or losses included in earnings:
Net change in unrealized gain		5		24
Principal paydowns		(122)		(153)
Balance, end of period	$	2,010	$	2,602

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

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

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

	Fair		Valuation
March 31, 2023 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range
Private label mortgage-backed security	$	2,010	Discounted cash flow	(1) Constant prepayment rate	4.5% - 4.7%
				(2) Probability of default	1.8% - 9.3%
				(3) Loss severity	25% - 35%

	Fair		Valuation
December 31, 2022 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range
Private label mortgage-backed security	$	2,127	Discounted cash flow	(1) Constant prepayment rate	4.5% - 4.7%
				(2) Probability of default	1.8% - 9.3%
				(3) Loss severity	25% - 35%

Trust Preferred Security

The following table presents a reconciliation of the Company’s TRUP measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Balance, beginning of period	$	3,855	$	3,847
Total gains or losses included in earnings:
Discount accretion		14		14
Net change in unrealized gain		132		(136)
Balance, end of period	$	4,001	$	3,725

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

48

Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2023 and December 31, 2022.

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

(in thousands)	March 31, 2023		December 31, 2022
Aggregate fair value	$	1,034	$	1,302
Contractual balance		1,005		1,265
Unrealized (loss) gain		29		37

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

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Interest income	$	61	$	204
Change in fair value		(8)		(706)
Total included in earnings	$	53	$	(502)

Consumer Loans Held for Sale

RCS carries loans originated through its installment loan program at fair value. Interest income is recorded based on the contractual terms of the loan and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2023 and December 31, 2022.

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

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

	Fair		Valuation
March 31, 2023 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate
Consumer loans held for sale	$	4,688	Contract Terms	(1) Net Premium	0.15%
				(2) Discounted Sales	10.00%

	Fair		Valuation
December 31, 2022 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate
Consumer loans held for sale	$	4,706	Contract Terms	(1) Net Premium	0.15%
				(2) Discounted Sales	10.00%

49

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

(in thousands)	March 31, 2023		December 31, 2022
Aggregate fair value	$	4,688	$	4,706
Contractual balance		4,713		4,734
Unrealized (loss) gain		(25)		(28)

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

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Interest income	$	765	$	2,890
Change in fair value		3		(37)
Total included in earnings	$	768	$	2,853

50

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

	Fair Value Measurements at
	March 31, 2023 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	1,270	$	1,270
Commercial real estate		—		—		879		879
Total collateral-dependent loans*	$	—	$	—	$	2,149	$	2,149
Other real estate owned:
Commercial real estate	$	—	$	—	$	1,529	$	1,529
Total other real estate owned	$	—	$	—	$	1,529	$	1,529

	Fair Value Measurements at
	December 31, 2022 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	1,456	$	1,456
Commercial real estate		—		—		906		906
Total collateral-dependent loans*	$	—	$	—	$	2,362	$	2,362
Other real estate owned:
Residential real estate	$	—	$	—	$	1,581	$	1,581
Total other real estate owned	$	—	$	—	$	1,581	$	1,581

51

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

					Range
	Fair		Valuation	Unobservable	(Weighted
March 31, 2023 (dollars in thousands)	Value		Technique	Inputs	Average)
Collateral-dependent loans - residential real estate owner occupied	$	1,270	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 22% (5%)
Collateral-dependent loans - commercial real estate	$	879	Sales comparison approach	Adjustments determined for differences between comparable sales	16% (16%)
Other real estate owned - commercial real estate	$	1,529	Sales comparison approach	Adjustments determined for differences between comparable sales	39% (39%)

					Range
	Fair		Valuation	Unobservable	(Weighted
December 31, 2022 (dollars in thousands)	Value		Technique	Inputs	Average)
Collateral-dependent loans - residential real estate owner occupied	$	1,456	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 41% (11%)
Collateral-dependent loans - commercial real estate	$	906	Sales comparison approach	Adjustments determined for differences between comparable sales	16% (16%)
Other real estate owned - commercial real estate	$	1,581	Sales comparison approach	Adjustments determined for differences between comparable sales	39% (39%)

52

Collateral-Dependent Loans

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

Collateral-dependent loans are as follows:

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Provision on collateral-dependent loans	$	(19)	$	(4)

Other Real Estate Owned

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

(in thousands)	March 31, 2023		December 31, 2022
Other real estate owned carried at fair value	$	1,529	$	1,581
Total carrying value of other real estate owned	$	1,529	$	1,581
Other real estate owned write-downs during the years ended	$	52	$	211

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Other real estate owned write-downs during the period	$	52	$	52

53

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

			Fair Value Measurements at
			March 31, 2023:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value
Assets:
Cash and cash equivalents	$	249,289	$	249,289	$	—	$	—	$	249,289
Available-for-sale debt securities		612,948		174,871		432,066		6,011		612,948
Held-to-maturity debt securities		112,108		—		111,796		—		111,796
Equity securities with readily determinable fair values		107		—		107		—		107
Mortgage loans held for sale, at fair value		1,034		—		1,034		—		1,034
Consumer loans held for sale, at fair value		4,688		—		—		4,688		4,688
Consumer loans held for sale, at the lower of cost or fair value		12,744		—		—		12,744		12,744
Loans, net		4,678,113		—		—		4,488,620		4,488,620
Federal Home Loan Bank stock		25,939		—		—		—		NA
Accrued interest receivable		16,074		—		5,316		10,758		16,074
Mortgage servicing rights		8,406		—		16,554		—		16,554
Rate lock loan commitments		96		—		96		—		96
Mandatory forward contracts		19		—		19		—		19
Interest rate swap agreements		6,852		—		6,852		—		6,852
Liabilities:
Noninterest-bearing deposits	$	2,013,957	$	—	$	2,013,957	$	—	$	2,013,957
Transaction deposits		2,513,160		—		2,513,160		—		2,513,160
Time deposits		272,551		—		259,421		—		259,421
Securities sold under agreements to repurchase and other short-term borrowings		134,412		—		134,412		—		134,412
Federal Home Loan Bank advances		108,000		—		106,490		—		106,490
Accrued interest payable		342		—		342		—		342
Rate lock loan commitments		96		—		96		—		96
Mandatory forward contracts		19		—		19		—		19
Interest rate swap agreements		6,852		—		6,852		—		6,852

54

			Fair Value Measurements at
			December 31, 2022:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value
Assets:
Cash and cash equivalents	$	313,689	$	313,689	$	—	$	—	$	313,689
Available-for-sale debt securities		620,365		193,385		420,998		5,982		620,365
Held-to-maturity debt securities		87,386		—		87,357		—		87,357
Equity securities with readily determinable fair values		111		—		111		—		111
Mortgage loans held for sale, at fair value		1,302		—		1,302		—		1,302
Consumer loans held for sale, at fair value		4,706		—		—		4,706		4,706
Consumer loans held for sale, at the lower of cost or fair value		13,169		—		—		13,169		13,169
Loans, net		4,445,389		—		—		4,276,423		4,276,423
Federal Home Loan Bank stock		9,146		—		—		—		NA
Accrued interest receivable		13,572		—		2,462		11,110		13,572
Mortgage servicing rights		8,769		—		17,592		—		17,592
Rate lock loan commitments		2		—		2		—		2
Interest rate swap agreements		8,127		—		8,127		—		8,127
Liabilities:
Noninterest-bearing deposits	$	1,908,768	$	—	$	1,908,768	$	—	$	1,908,768
Transaction deposits		2,398,853		—		2,398,853		—		2,398,853
Time deposits		230,224		—		223,912		—		223,912
Securities sold under agreements to repurchase and other short-term borrowings		216,956		—		216,956		—		216,956
Federal Home Loan Bank advances		95,000		—		93,044		—		93,044
Accrued interest payable		239		—		239		—		239
Interest rate swap agreements		8,127		—		8,127		—		8,127

55

12. MORTGAGE BANKING ACTIVITIES

Mortgage Banking activities primarily include residential mortgage originations and servicing.

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

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Balance, beginning of period	$	1,302	$	29,393
Origination of mortgage loans held for sale		15,942		100,661
Proceeds from the sale of mortgage loans held for sale		(16,630)		(119,212)
Net gain on sale of mortgage loans held for sale		420		2,460
Balance, end of period	$	1,034	$	13,302

The following table presents the components of Mortgage Banking income:

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Net gain realized on sale of mortgage loans held for sale	$	248	$	2,733
Net change in fair value recognized on loans held for sale		(8)		(706)
Net change in fair value recognized on rate lock loan commitments		94		(962)
Net change in fair value recognized on forward contracts		86		1,395
Net gain recognized		420		2,460
Loan servicing income		870		865
Amortization of mortgage servicing rights		(490)		(668)
Change in mortgage servicing rights valuation allowance		—		—
Net servicing income recognized		380		197
Total Mortgage Banking income	$	800	$	2,657

Activity for capitalized mortgage servicing rights was as follows:

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Balance, beginning of period	$	8,769	$	9,196
Additions		127		974
Amortized to expense		(490)		(668)
Change in valuation allowance		—		—
Balance, end of period	$	8,406	$	9,502

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

56

Other information relating to mortgage servicing rights follows:

(dollars in thousands)	March 31, 2023			December 31, 2022
Fair value of mortgage servicing rights portfolio	$	16,554		$	17,145
Monthly weighted average prepayment rate of unpaid principal balance*		125	%		127	%
Discount rate		10.22	%		10.21	%
Weighted average foreclosure rate		0.08	%		0.10	%
Weighted average life in years		7.64			7.54

* Rates are applied to individual tranches with similar characteristics.

Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts and interest rate lock loan commitments. Mandatory forward contracts represent future commitments to deliver loans at a specified price and date or to purchase TBA securities and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Interest rate lock loan commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within 90 days from the date of issuance. Notional amounts are amounts on which calculations and payments are based, but which do not represent credit exposure, as credit exposure is limited to the amounts required to be received or paid.

Mandatory forward contracts also contain an element of risk in that the counterparties may be unable to meet the terms of such agreements. In the event the counterparties fail to deliver commitments or are unable to fulfill their obligations, the Bank could potentially incur significant additional costs by replacing the positions at then current market rates. The Bank manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management and the Board of Directors. The Bank does not expect any counterparty to default on their obligations and therefore, the Bank does not expect to incur any cost related to counterparty default.

The Bank is exposed to interest rate risk on loans held for sale and rate lock loan commitments. As market interest rates fluctuate, the fair value of mortgage loans held for sale and rate lock commitments will decline or increase. To offset this interest rate risk the Bank enters into derivatives, such as mandatory forward contracts to sell loans or purchase TBA securities. The fair value of these mandatory forward contracts will fluctuate as market interest rates fluctuate, and the change in the value of these instruments is expected to largely, though not entirely, offset the change in fair value of loans held for sale and rate lock commitments. The objective of this activity is to minimize the exposure to losses on rate loan lock commitments and loans held for sale due to market interest rate fluctuations. The net effect of derivatives on earnings will depend on risk management activities and a variety of other factors, including: market interest rate volatility; the amount of rate lock commitments that close; the ability to fill the forward contracts before expiration; and the time period required to close and sell loans.

The following table includes the notional amounts and fair values of mortgage loans held for sale and mortgage banking derivatives as of the period ends presented:

	March 31, 2023				December 31, 2022
	Notional				Notional
(in thousands)	Amount		Fair Value		Amount		Fair Value
Included in Mortgage loans held for sale:
Mortgage loans held for sale, at fair value	$	1,005	$	1,034	$	1,265	$	1,302
Included in other assets:
Rate lock loan commitments	$	5,174	$	96	$	4,118	$	2
Mandatory forward contracts		2,936		19		—		—
Included in other liabilities:
Mandatory forward contracts		—		—		4,009		67

57

13. INTEREST RATE SWAPS

Non-hedge Interest Rate Swaps

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

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or client owes the Bank, and results in credit risk to the Bank. When the fair value of a derivative instrument contract is negative, the Bank owes the client or counterparty, and therefore, has no credit risk.

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

		March 31, 2023				December 31, 2022
		Notional				Notional
(in thousands)	Bank Position	Amount		Fair Value		Amount		Fair Value
Interest rate swaps with Bank clients - Assets	Pay variable/receive fixed	$	50,941	$	2,131	$	40,032	$	1,386
Interest rate swaps with Bank clients - Liabilities	Pay variable/receive fixed		77,830		(4,721)		91,636		(6,742)
Interest rate swaps with Bank clients - Total	Pay variable/receive fixed	$	128,771	$	(2,590)	$	131,668	$	(5,356)
Offsetting interest rate swaps with institutional swap dealer - Assets	Pay fixed/receive variable		77,830		4,721		91,636		6,742
Offsetting interest rate swaps with institutional swap dealer - Liabilities	Pay fixed/receive variable		50,941		(2,131)		40,032		(1,386)
Offsetting interest rate swaps with institutional swap dealer - Total	Pay fixed/receive variable	$	128,771	$	2,590	$	131,668	$	5,356
Total		$	257,542	$	—	$	263,336	$	—

The Bank is required to pledge securities as collateral when the Bank is in a net loss position for all swaps with dealer counterparties when such net loss positions exceed $250,000. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $590,000 and $560,000 as of March 31, 2023 and December 31, 2022.

58

14. EARNINGS PER SHARE

The Company calculates earnings per share under the two-class method. Under the two-class method, earnings available to common shareholders for the period are allocated between Class A Common Stock and Class B Common Stock according to dividends declared (or accumulated) and participation rights in undistributed earnings. The difference in earnings per share between the two classes of common stock results from the 10% per share cash dividend premium paid on Class A Common Stock over that paid on Class B Common Stock.

A reconciliation of the combined Class A and Class B Common Stock numerators and denominators of the earnings per share and diluted earnings per share computations is presented below:

	Three Months Ended
	March 31,
(in thousands, except per share data)	2023		2022
Net income	$	28,092	$	28,350
Dividends declared on Common Stock:
Class A Shares		(6,581)		(6,081)
Class B Shares		(734)		(671)
Undistributed net income for basic earnings per share		20,777		21,598
Weighted average potential dividends on Class A shares upon exercise of dilutive options		(21)		(27)
Undistributed net income for diluted earnings per share	$	20,756	$	21,571
Weighted average shares outstanding:
Class A Shares		17,776		17,980
Class B Shares		2,159		2,165
Effect of dilutive securities on Class A Shares outstanding		55		80
Weighted average shares outstanding including dilutive securities		19,990		20,225
Basic earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.37	$	0.34
Undistributed earnings per share*		1.05		1.08
Total basic earnings per share - Class A Common Stock	$	1.42	$	1.42
Class B Common Stock:
Per share dividends distributed	$	0.34	$	0.31
Undistributed earnings per share*		0.96		0.98
Total basic earnings per share - Class B Common Stock	$	1.30	$	1.29
Diluted earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.37	$	0.34
Undistributed earnings per share*		1.05		1.08
Total diluted earnings per share - Class A Common Stock	$	1.42	$	1.42
Class B Common Stock:
Per share dividends distributed	$	0.34	$	0.31
Undistributed earnings per share*		0.95		0.98
Total diluted earnings per share - Class B Common Stock	$	1.29	$	1.29

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

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

	Three Months Ended
	March 31,
	2023	2022
Antidilutive stock options	245,898	186,000
Average antidilutive stock options	245,898	175,000

59

15. OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Available-for-Sale Debt Securities:
Unrealized gain (loss) on AFS debt securities	$	5,205	$	(21,249)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		5		24
Net gains (losses)		5,210		(21,225)
Tax effect		(1,305)		5,308
Net of tax	$	3,905	$	(15,917)

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

			2023
(in thousands)	December 31, 2022		Change		March 31, 2023
Unrealized gain (loss) on AFS debt securities	$	(32,934)	$	3,900	$	(29,034)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		955		5		960
Total unrealized gain (loss)	$	(31,979)	$	3,905	$	(28,074)

			2022
(in thousands)	December 31, 2021		Change		March 31, 2022
Unrealized gain (loss) on AFS debt securities	$	890	$	(15,935)	$	(15,045)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		984		18		1,002
Total unrealized gain (loss)	$	1,874	$	(15,917)	$	(14,043)

60

16. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

	Three Months Ended March 31, 2023
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company
Net interest income (1)	$	50,107		$	2,087		$	61		$	52,255		$	31,765		$	8,622		$	40,387		$	92,642
Noninterest income:
Service charges on deposit accounts		3,288			11			—			3,299			—			—			—			3,299
Net refund transfer fees		—			—			—			—			10,807			—			10,807			10,807
Mortgage banking income (1)		—			—			800			800			—			—			—			800
Interchange fee income		3,006			—			—			3,006			45			—			45			3,051
Program fees (1)		—			—			—			—			707			2,534			3,241			3,241
Increase in cash surrender value of BOLI (1)		635			—			—			635			—			—			—			635
Net losses on OREO		(53)			—			—			(53)			—			—			—			(53)
Other		778			—			17			795			81			25			106			901
Total noninterest income		7,654			11			817			8,482			11,640			2,559			14,199			22,681
Total net revenue	$	57,761		$	2,098		$	878		$	60,737		$	43,405		$	11,181		$	54,586		$	115,323
Net-revenue concentration (2)		49	%		2	%		1	%		52	%		38	%		10	%		48	%		100	%

	Three Months Ended March 31, 2022
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company
Net interest income (1)	$	36,148		$	4,515		$	204		$	40,867		$	15,404		$	6,896		$	22,300		$	63,167
Noninterest income:
Service charges on deposit accounts		3,219			13			—			3,232			(6)			—			(6)			3,226
Net refund transfer fees		—			—			—			—			12,051			—			12,051			12,051
Mortgage banking income (1)		—			—			2,657			2,657			—			—			—			2,657
Interchange fee income		3,012			—			—			3,012			58			—			58			3,070
Program fees (1)		—			—			—			—			727			3,127			3,854			3,854
Increase in cash surrender value of BOLI (1)		612			—			—			612			—			—			—			612
Net losses on OREO		(53)			—			—			(53)			—			—			—			(53)
Contract termination fee		—			—			—			—			5,000			—			5,000			5,000
Other		452			—			34			486			106			—			106			592
Total noninterest income		7,242			13			2,691			9,946			17,936			3,127			21,063			31,009
Total net revenue	$	43,390		$	4,528		$	2,895		$	50,813		$	33,340		$	10,023		$	43,363		$	94,176
Net-revenue concentration (2)		46	%		5	%		3	%		54	%		35	%		11	%		46	%		100	%

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

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

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

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

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

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fees and all applicable tax preparation, transmitter, audit, and any other taxpayer authorized amounts are deducted from the tax refund by either the Bank or the Bank’s service provider and automatically forwarded to the appropriate party as authorized by the taxpayer. RT fees generally receive first priority when applying fees against the taxpayer’s refund, with the Bank’s share of RT fees generally superior to the claims of other third-party service providers, including the Tax Providers. The remainder of the refund is disbursed to the taxpayer by a Bank check, direct deposit to the taxpayer’s personal bank account, or loaded to a prepaid card.

The Company executes contracts with individual Tax Providers to offer RTs to their taxpayer customers. RT revenue is recognized by the Bank immediately after the taxpayer’s refund is disbursed in accordance with the RT contract with the taxpayer customer. The fee paid by the taxpayer for the RT is shared between the Bank and the Tax Providers based on contracts executed between the parties.

The Company presents RT revenue net of any amounts shared with the Tax Providers. The Bank’s share of RT revenue is generally based on the obligations undertaken by the Tax Provider for each individual RT program, with more obligations generally corresponding to higher RT revenue share. The significant majority of net RT revenue is recognized and obligations under RT contracts fulfilled by the Bank during the first half of each year. Incremental expenses associated with the fulfilment of RT contracts are generally expensed during the first half of the year.

Interchange fee income – As an “issuing bank” for card transactions, the Company earns interchange fee income on transactions executed by its cardholders with various third-party merchants. Through third-party intermediaries, merchants compensate the Company for each transaction for the ability to efficiently settle the transaction, and for the Company’s willingness to accept certain risks inherent in the transaction. There is no written contract between the merchant and the Company, but a contract is implied between the two parties by customary business practices. Interchange fee income is recognized almost simultaneously by the Company upon the completion of a related card transaction.

The Company compensates its cardholders by way of cash or other “rewards” for generating card transactions. These rewards are disclosed in cardholder agreements between the Company and its cardholders. Reward costs are accrued over time based on card transactions generated by the cardholder. Interchange fee income is presented net of reward costs within noninterest income.

Net gains/(losses) on other real estate – The Company routinely sells OREO it has acquired through loan foreclosure. Net gains/(losses) on OREO reflect both 1) the gain or loss recognized upon an executed deed and 2) mark-to-market write-downs the Company takes on its OREO inventory.

The Company generally recognizes gains or losses on OREO at the time of an executed deed, although gains may be recognized over a financing period if the Company finances the sale. For financed OREO sales, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant financing component is present.

Mark-to-market write-downs taken by the Company during the property’s holding period are generally at least 10% per year but may be higher based on updated real estate appraisals or BPOs. Incremental expenditures to bring OREO to salable condition are generally expensed as-incurred.

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

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17. SEGMENT INFORMATION

Reportable segments are determined by the type of products and services offered and the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business (such as banking centers and business units), which are then aggregated if operating performance, products/services, and clients are similar.

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

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

Reportable Segment:	Nature of Operations:	Primary Drivers of Net Revenue:
Core Banking:
Traditional Banking	Provides traditional banking products to clients in its market footprint primarily via its network of banking centers and to clients outside of its market footprint primarily via its digital delivery channels.	Loans, investments, and deposits
Warehouse Lending	Provides short-term, revolving credit facilities to mortgage bankers across the United States.	Mortgage warehouse lines of credit
Mortgage Banking	Primarily originates, sells, and services long-term, single-family, first-lien residential real estate loans primarily to clients in the Bank's market footprint.	Loan sales and servicing
Republic Processing Group:
Tax Refund Solutions	TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax 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 2022 Annual Report on Form 10-K. Republic evaluates segment performance using operating income. The Company allocates goodwill to the Traditional Banking segment. Republic generally allocates income taxes based on income before income tax expense unless reasonable and specific segment allocations can be made. The Company makes transactions among reportable segments at carrying value.

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Segment information follows:

	Three Months Ended March 31, 2023
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company
Net interest income	$	50,107		$	2,087		$	61		$	52,255		$	31,765		$	8,622		$	40,387		$	92,642
Provision for expected credit loss expense		2,984			135			—			3,119			21,808			1,839			23,647			26,766
Net refund transfer fees		—			—			—			—			10,807			—			10,807			10,807
Mortgage banking income		—			—			800			800			—			—			—			800
Program fees		—			—			—			—			707			2,534			3,241			3,241
Contract termination fee		—			—			—			—			—			—			—			—
Legal settlement		—			—			—			—			—			—			—			—
Other noninterest income		7,654			11			17			7,682			126			25			151			7,833
Total noninterest income		7,654			11			817			8,482			11,640			2,559			14,199			22,681
Total noninterest expense		40,852			968			2,554			44,374			5,648			2,421			8,069			52,443
Income (loss) before income tax expense		13,925			995			(1,676)			13,244			15,949			6,921			22,870			36,114
Income tax expense (benefit)		3,082			223			(369)			2,936			3,541			1,545			5,086			8,022
Net income (loss)	$	10,843		$	772		$	(1,307)		$	10,308		$	12,408		$	5,376		$	17,784		$	28,092
Period-end assets	$	4,974,002		$	458,675		$	13,421		$	5,446,098		$	511,150		$	116,843		$	627,993		$	6,074,091
Net interest margin		4.07	%		2.53	%		NM			3.98	%		NM			NM			NM			6.52	%
Net-revenue concentration*		49	%		2	%		1	%		52	%		38	%		10	%		48	%		100	%

	Three Months Ended March 31, 2022
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company
Net interest income	$	36,148		$	4,515		$	204		$	40,867		$	15,404		$	6,896		$	22,300		$	63,167
Provision for expected credit loss expense		320			(401)			—			(81)			7,912			1,395			9,307			9,226
Net refund transfer fees		—			—			—			—			12,051			—			12,051			12,051
Mortgage banking income		—			—			2,657			2,657			—			—			—			2,657
Program fees		—			—			—			—			727			3,127			3,854			3,854
Contract termination fee		—			—			—			—			5,000			—			5,000			5,000
Legal settlement		—			—			—			—			—			—			—			—
Other noninterest income		7,242			13			34			7,289			158			—			158			7,447
Total noninterest income		7,242			13			2,691			9,946			17,936			3,127			21,063			31,009
Total noninterest expense		38,227			952			2,690			41,869			5,145			1,567			6,712			48,581
Income before income tax expense		4,843			3,977			205			9,025			20,283			7,061			27,344			36,369
Income tax expense		468			904			45			1,417			4,906			1,696			6,602			8,019
Net income	$	4,375		$	3,073		$	160		$	7,608		$	15,377		$	5,365		$	20,742		$	28,350
Period-end assets	$	4,984,918		$	689,204		$	28,573		$	5,702,695		$	552,101		$	95,073		$	647,174		$	6,349,869
Net interest margin		2.90	%		3.09	%		NM			2.92	%		NM			NM			NM			4.34	%
Net-revenue concentration*		46	%		5	%		3	%		54	%		35	%		11	%		46	%		100	%

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

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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.

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

Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss future events or conditions, the statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” “potential,” or similar expressions. Do not rely on forward-looking statements. Forward-looking statements detail management’s expectations regarding the future and are not guarantees. Forward-looking statements are assumptions based on information known to management only as of the date the statements are made and management undertakes no obligation to update forward-looking statements, except as required by applicable law.

Broadly speaking, forward-looking statements include:

● the potential impact of inflation on Company operations;

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

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

● descriptions and projections related to management strategies for loans, deposits, investments, and borrowings;

● forecasts of future economic performance; and

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

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

● the impact of inflation on the Company’s operations and credit losses;

● litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future;

● natural disasters impacting the Company’s operations;

● changes in political and economic conditions;

● the impact of bank failures and potential bank failures to the industry, the Bank’s deposit base and the FDIC’s deposit insurance fund;

● the discontinuation of LIBOR;

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

● long-term and short-term interest rate fluctuations and the overall steepness of the U.S. Treasury yield curve, as well as their impact on the Company’s net interest income and Mortgage Banking operations;

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

● equity and fixed income market fluctuations;

● client bankruptcies and loan defaults;

● 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;

● the ability of the Company to remediate its material weaknesses in its internal control over financial reporting;

● success in gaining regulatory approvals when required;

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

● the ability for Tax Providers to successfully market and realize the expected RA and RT volume anticipated by TRS;

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

● other risks and uncertainties reported from time to time in the Company’s filings with the SEC, including Part 1 Item 1A “Risk Factors.” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and Part II Item 1A “Risk Factors” of the current filing.

Accounting Standards Update

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

A summary of the Company's significant accounting policies is set forth in Part II “Item 8. Financial Statements and Supplementary Data” of its Annual Report on Form 10-K for the year ended December 31, 2022.

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

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

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

ACLL and Provision — As of March 31, 2023, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the ACLL monthly and presents and discusses the ACLL with the Audit Committee and the Board of Directors quarterly.

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

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

The ACLL is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the ACLL, and therefore, greater volatility to the Company’s reported earnings.

BUSINESS SEGMENT COMPOSITION

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

(I)  Traditional Banking segment

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

● Kentucky — 29

● Metropolitan Louisville — 18

● Central Kentucky — 7

● Georgetown — 1

● Lexington — 5

● Shelbyville — 1

● Northern Kentucky — 4

●Bellevue— 1

● Covington — 1

● Crestview Hills — 1

● Florence — 1

● Southern Indiana — 3

● Floyds Knobs — 1

● Jeffersonville — 1

● New Albany — 1

● Metropolitan Tampa, Florida — 7

● Metropolitan Cincinnati, Ohio — 4

● Metropolitan Nashville, Tennessee — 2

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See additional detail regarding the Traditional Banking segment under Footnote 17 “Segment Information” of Part I Item 1 “Financial Statements.”

(II)  Warehouse Lending segment

The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the United States through mortgage warehouse lines of credit. These credit facilities are primarily secured by single-family, first-lien residential real estate loans. The credit facility enables the mortgage banking clients to close single-family, first-lien residential real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank. Individual loans are expected to remain on the warehouse line for an average of 15 to 30 days. Advances for Reverse mortgage loans and construction loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each

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

See additional detail regarding the Warehouse Lending segment under Footnote 17 “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.

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

With the assistance of an independent third-party, the MSRs asset is reviewed at least quarterly for impairment based on the fair value of the MSRs using groupings of the underlying loans based on predominant risk characteristics. Any impairment of a grouping is reported as a valuation allowance. A primary factor influencing the fair value is the estimated life of the underlying loans serviced. The estimated life of the loans serviced is significantly influenced by market interest rates. During a period of declining interest rates, the fair value of the MSRs is expected to decline due to increased anticipated prepayment speeds within the portfolio. Alternatively, during a period of rising interest rates, the fair value of MSRs would be expected to increase as prepayment speeds on the underlying loans would be expected to decline.

See additional detail regarding the Mortgage Banking segment under Footnote 12 “Mortgage Banking Activities” and Footnote 17 “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”). The majority of all the business generated by the TRS business occurs during the first half of each year. During the second half of each year, TRS generates limited revenue and incurs costs preparing for the next year’s tax season. TRS also originated $98 million of ERAs during December 2022 related to tax returns that were anticipated to be filed during the first quarter 2023 tax filing season.

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

The RA credit product is a loan made in conjunction with the filing of a taxpayer’s federal tax return, which allows the taxpayer to borrow funds as an advance of a portion of their tax refund. The RA product had the following features during the first quarters of 2023 and 2022:

● Offered only during the first two months of each year;

● The taxpayer was given the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $6,250;

● No requirement that the taxpayer pays for another bank product, such as an RT;

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

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

● If an insufficient refund to repay the RA occurs:

o there is no recourse to the taxpayer, 

o no negative credit reporting on the taxpayer, and

o no collection efforts against the taxpayer.

The ERA credit product is also a loan that allows a taxpayer to borrow funds as an advance of a portion of their tax refund. Unlike the RA product described immediately above, however, which is originated in conjunction with the filing of the taxpayer’s federal tax return, an ERA is originated prior to the filing of the taxpayer’s federal tax return and prior to the taxpayer receiving their year-end taxable income documentation, e.g., W-2. As such, the Company generally uses paystub information to estimate the tax refund and underwrite the ERA. The repayment of the ERA is incumbent upon the taxpayer client returning to the Bank’s Tax Provider for the filing of their federal tax return in order for the tax refund to potentially be received by the Bank from the federal government to pay off the advance. The ERA product related to the first quarter 2023 tax filing season had the following features:

● Offered only during December 2022 and January 2023;

● The taxpayer had the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $1,000;

● No requirement that the taxpayer pays for another bank product, such as an RT;

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

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

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

o there is no recourse to the taxpayer, 

o no negative credit reporting on the taxpayer, and

o no collection efforts against the taxpayer.

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

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

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

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

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

Republic Payment Solutions division

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

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

 (V) Republic Credit Solutions segment

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

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

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

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

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

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

● RCS installment loan product – Through RCS, the Bank offers installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. The same third-party service provider for RCS’s LOC II is the third-party provider for the installment loans. This third-party provider is subject to the Bank’s oversight and supervision and provides the Bank with marketing services and loan servicing for these RCS installment loans. The Bank is the lender for these RCS installment loans and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this RCS installment loan product. Currently, all loan balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intention to sell these

71

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

● RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through three different third-party service providers.

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

o For the remaining program, in some instances the Bank retains 100% of the receivables originated, with recourse in the event of default, and in other instances, the Bank sells 100% of the receivables generally within one month of origination. Loan balances held for sale through this program are carried at the lower of cost or fair value.

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

OVERVIEW (Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022)

Total Company net income for the first quarter of 2023 was $28.1 million, a $258,000, or 1%, decrease from the same period in 2022. Diluted EPS was $1.42 for first quarters of 2023 and 2022.

The following are general highlights by reportable segment:

Traditional Banking segment

● Net income increased $6.5 million, or 148%, for the first quarter of 2023 compared to the same period in 2022.

● Net interest income increased $14.0 million, or 39%, for the first quarter of 2023 compared to the same period in 2022.

● Provision was a net charge of $3.0 million for the first quarter of 2023 compared to a net charge of $320,000 for the same period in 2022.

● Noninterest income increased $412,000, or 6%, for the first quarter of 2023 compared to the same period in 2022.

● Noninterest expense increased $2.6 million, or 7%, for the first quarter of 2023 compared to the same period in 2022.

● Total Traditional Bank loans increased $310 million, or 8%, during the first quarter of 2023.

● Total nonperforming loans to total loans for the Traditional Banking segment was 0.34% as of March 31, 2023 compared to 0.37% as of December 31, 2022.

● Delinquent loans to total loans for the Traditional Banking segment was 0.13% as of March 31, 2023 compared to 0.16% as of December 31, 2022.

● Total Traditional Bank deposits increased $158 million, or 3.91%, during the first quarter of 2023.

Warehouse Lending segment

● Net income decreased $2.3 million, or 75%, for the first quarter of 2023 compared to the same period in 2022.

● Net interest income decreased $2.4 million, or 54%, for the first quarter of 2023 compared to the same period in 2022.

● The Warehouse Provision was a net charge of $135,000 for the first quarter of 2023 compared to a net credit of $401,000 for the same period in 2022.

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● Average committed Warehouse lines decreased to $1.0 billion in the first quarter of 2023 compared to $1.4 billion in the first quarter of 2022.

● Average line usage was 31% during the first quarter of 2023 compared to 42% during the same period in 2022.

Mortgage Banking segment

● Within the Mortgage Banking segment, mortgage banking income decreased $1.9 million, or 70%, during the first quarter of 2023 compared to the same period in 2022 due to a significant decline in volume.

Tax Refund Solutions segment

● Net income decreased $3.0 million, or 19%, for the first quarter of 2023 compared to the same period in 2022. Net income for the first quarter of 2022 included a contract termination fee related to the cancelled Sale Transaction, which added approximately $3.8 million of after-tax net income to that quarter.

● Net interest income increased $16.4 million, or 106%, for the first quarter of 2023 compared to the same period in 2022.

● Total RA originations were $737 million during the first quarter of 2023 compared to $311 million for the first quarter of 2022.

● Overall, TRS recorded a net charge to the Provision of $21.8 million during the first quarter of 2023 compared to a net charge to the Provision of $7.9 million for the same period in 2022.

● Noninterest income decreased $6.3 million for the first quarter of 2023 compared to the same period in 2022. Noninterest income for the first quarter of 2022 included a pre-tax $5.0 million contract termination fee.

● Net RT revenue decreased $1.2 million for the first quarter of 2023 compared to the same period in 2022.

● Noninterest expense was $5.6 million for the first quarter of 2023 compared to $5.1 million for the same period in 2022.

Republic Credit Solutions segment

● Net income was flat at $5.4 million for the first quarters of 2023 and 2022.

● Net interest income increased $1.7 million, or 25%, for the first quarter of 2023 compared to the same period in 2022.

● Overall, RCS recorded a net charge to the Provision of $1.8 million during the first quarter of 2023 compared to a net charge of $1.4 million for the same period in 2022.

● Noninterest income decreased $568,000, or 18%, from the first quarter of 2022 to the first quarter of 2023.

● Noninterest expense was $2.4 million for the first quarter of 2023 and $1.6 million for the same period in 2022.

● Total nonperforming loans to total loans for the RCS segment was 0.70% as of March 31, 2023 compared to 0.70% as of December 31, 2022.

● Delinquent loans to total loans for the RCS segment was 10.50% as of March 31, 2023 compared to 8.53% as of December 31, 2022.

��

RESULTS OF OPERATIONS (Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022)

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

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those assets, such as interest-bearing deposits, securities sold under agreements to repurchase, and FHLB advances. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities, as well as market interest rates.

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

A large amount of the Company’s financial instruments tracks closely with, or is primarily indexed to, either the FFTR, Prime, or LIBOR. These rates trended lower beginning in the first quarter of 2020 with the onset of the COVID pandemic, as the FOMC reduced the FFTR to approximately 25 basis points. During 2022 inflation rose to levels not seen in approximately 40 years. In response, the FOMC began executing a quantitative tightening program by reducing its balance sheet, selling certain types of bonds in the market, and repeatedly increasing the FFTR. The FOMC’s increases to the FFTR during 2022 and the first three months of 2023 included the following:

Table 1 — Increases to the Federal Funds Target Rate during 2022 and 2023

	Increase to		FFTR
Date	the FFTR		after Increase
March 17, 2022	0.25	%	0.50	%
May 5, 2022	0.50		1.00
June 16, 2022	0.75		1.75
July 27, 2022	0.75		2.50
September 21, 2022	0.75		3.25
November 2, 2022	0.75		4.00
December 15, 2022	0.50		4.50
February 2, 2023	0.25		4.75
March 23, 2023	0.25		5.00

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

Total Company net interest income was $92.6 million during the first quarter of 2023 and represented an increase of $29.4 million, or 47%, from the first quarter of 2022. Total Company net interest margin increased to 6.52% during the first quarter of 2023 compared to 4.34% for the same period in 2022.

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

Traditional Banking segment

The Traditional Banking’s net interest income increased $14.0 million, or 39%, for the first quarter of 2023 compared to the same period in 2022. Traditional Banking’s net interest margin was 4.07% for the first quarter of 2023, an increase of 117 basis points from the same period in 2022.

This increase in net interest income and the related expansion in NIM resulted primarily from the benefits of the Traditional Bank’s low-cost core deposit base and strong year-over-year growth in average loan balances. These benefits were partially offset by a decline in the Company’s average interest-earning cash balances, with these balances near more normal, historical levels during the first quarter of 2023 as the excess liquidity from the various government stimulus programs related to COVID continued to wane

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throughout the industry. The following highlights some of the more impactful items affecting net interest income during the quarter for the Traditional Bank.

● Average Traditional Bank loans grew from $3.5 billion with a weighted-average yield of 3.95% during the first quarter of 2022 to $3.9 billion with a weighted average yield of 4.59% during the first quarter of 2023.

● Average investments grew to $773 million with a weighted-average yield of 2.61% during the first quarter of 2023 from $606 million with a weighted-average yield of 1.39% for the first quarter of 2022.

● Average interest-earning cash was $238 million with a weighted-average yield of 4.55% during the first quarter of 2023 compared to $858 million with a weighted-average yield of 0.20% for the first quarter of 2022.

● The Traditional Bank’s cost of average total deposits, including the positive benefit of its average noninterest-bearing deposits, increased from 0.08% during the first quarter of 2022 to 0.47% for the first quarter of 2023.

As previously disclosed, short-term interest rates have risen dramatically since March of 2022 as a result of FOMC monetary actions. Short-term rates could further increase in the second quarter of 2023 as a result of continued monetary tightening by the FOMC. Over the past year, increases in short-term interest rates were generally favorable to the Traditional Bank’s net interest income and net interest margin primarily as a result of the substantial amount of immediately-repricing, interest-earning cash it maintained on its balance sheet and its ability to sustain a low cost of deposits in relation to the rising FFTR. During the third quarter of 2022, however, the Traditional Bank began to use its excess cash to fund a decline in deposit balances. This trend of declining interest-earning cash to fund decreasing deposit balances continued during the first quarter of 2023. In addition, during the first quarter of 2023, the Traditional Bank’s interest-bearing deposit costs began to increase more significantly during the latter part of the quarter due to customer pricing pressures.

As a result of the declining cash balances and the additional customer pricing pressures, the Bank began to experience a diminishing benefit to its net interest income and net interest margin with additional increases in the FFTR during the first quarter of 2023. Management also believes the Traditional Bank will experience some net interest margin compression on a linked quarter basis during the remainder of 2023 as any positive impacts to the Traditional Bank’s net interest income and net interest margin from any increase in short-term interest rates will likely be more than offset by the negative impact of lower interest-earning cash and deposit balances and the rising cost of interest-bearing deposits. Additional variables which may also impact the Traditional Bank’s net interest income and net interest margin in the future include, but are not limited to, the actual steepness and shape of the yield curve, future demand for the Traditional Bank’s financial products, and the Traditional Bank’s overall future liquidity needs.

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

Warehouse Lending segment

Net interest income within the Warehouse segment decreased $2.4 million, or 54%, from the first quarter of 2022 to the first quarter of 2023, driven by decreases in both average outstanding balances and net interest margin. Overall average outstanding Warehouse balances declined from $585 million during the first quarter of 2022 to $330 million for the first quarter of 2023, as home-mortgage refinancing dipped from a significantly higher volume in early 2022. Driving this decrease in average outstanding balances was a decline in committed lines-of-credit to $1.0 billion as of March 31, 2023 from $1.4 billion as of March 31, 2022. Concurrent with the decline in committed lines of credit, the average usage rates for Warehouse lines decreased to 31% during the first quarter of 2023 from 42% for the first quarter of 2022.

The Warehouse net interest margin compressed 56 basis points from 3.09% during the first quarter of 2022 to 2.53% during the first quarter of 2023. The decline in the Warehouse net interest margin occurred as its funding costs, as charged through the Company’s internal FTP methodology, generally rose in tandem with the increase in short-term interest rates since rates began rising in March 2022, while its yield increases were delayed until the adjustable rates on its clients’ lines of credit surpassed their contractual interest rate floors. These interest rate floors benefited Warehouse’s net interest margin substantially during 2020 and 2021 when market rates declined to historical lows but have produced margin compression since the onset of the FFTR increases during the first quarter of 2022.

Additional increases in short-term interest rates and overall market rates are generally believed by management to be favorable to Warehouse’s net interest income and net interest margin in the near term, however, the benefit of an increase in rates could be partially

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or entirely offset by a reduction in average outstanding balances driven by a decline in demand from Warehouse clients, as higher long-term interest rates generally drive lower demand for Warehouse borrowings. In addition, a lower demand for Warehouse borrowings could cause additional competitive pricing pressures for the industry, driving down the yield Warehouse earns on its lines of credits.

Tax Refund Solutions segment

Net interest income within the TRS segment was up $16.4 million from the first quarter of 2022 to the first quarter of 2023. Net interest income at TRS includes income from its prepaid card products as well as the income associated with its tax-related credit products.

The prepaid card product component of TRS drove a $3.1 million increase to net interest income for the segment. This increase was generally driven by a higher crediting rate applied through the Company’s internal FTP. The prepaid card FTP credit yield was 3.82% for average prepaid card-related balances of $377 million during the first quarter of 2023 compared to 0.37% for average prepaid card-related balances of $397 million during the first quarter of 2022.

Related to the segment’s tax-related products, net interest income increased $13.3 million for the quarter. Loan-related interest and fees increased $18.0 million for the quarter and was driven primarily by a $426 million increase in RA origination volume, most of which resulted from a new contract with a large national tax preparation provider. This increase in loan revenue was partially offset by a $4.4 million increase to the segment’s net cost of funds as applied through its internal FTP.

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

Republic Credit Solutions segment

RCS’s net interest income increased $1.7 million, or 25%, from the first quarter of 2022 to the first quarter of 2023. The increase was driven primarily by an increase in fee income from RCS’s LOC II product. Loan fees on this product, recorded as interest income on loans, increased $2.0 million from the first quarter of 2022 to the first quarter of 2023.

The impact of higher short-term interest rates to RCS during 2023 is expected to be negative to the segment’s financial results, although the exact amount of the negative impact will depend on the internal FTP cost assigned, as well as the overall volume and mix of loans it generates.

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The following table presents the average balance sheets for the three-month periods ended March 31, 2023 and 2022, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

Table 2 — Total Company Average Balance Sheets and Interest Rates

	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
	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	$	241,211	$	2,700	4.48	%	$	861,822	$	429	0.20	%
Investment securities, including FHLB stock (1)		773,172		5,047	2.61			606,182		2,111	1.39
TRS Refund Advance loans (2)		249,378		31,405	50.37			84,557		13,444	63.60
RCS LOC products (2)		31,086		7,962	102.45			26,279		6,257	95.24
Other RPG loans (3) (6)		141,975		2,625	7.40			120,917		1,984	6.56
Outstanding Warehouse lines of credit (4) (6)		329,716		5,720	6.94			584,519		4,878	3.34
All other Core Bank loans (5) (6)		3,913,388		44,897	4.59			3,538,983		35,007	3.96
Total interest-earning assets		5,679,926		100,356	7.07			5,823,259		64,110	4.40
Allowance for credit loss		(83,195)						(69,287)
Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		295,905						354,165
Premises and equipment, net		32,232						35,460
Bank owned life insurance		102,004						99,532
Other assets (1)		186,169						180,913
Total assets	$	6,213,041					$	6,424,042
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Transaction accounts	$	1,644,777	$	1,742	0.42	%	$	1,692,120	$	96	0.02	%
Money market accounts		748,623		2,106	1.13			798,943		94	0.05
Time deposits		225,847		859	1.52			261,703		641	0.98
Reciprocal money market and time deposits		43,852		171	1.56			74,730		48	0.26
Total interest-bearing deposits		2,663,099		4,878	0.73			2,827,496		879	0.12
SSUARs and other short-term borrowings		202,910		248	0.49			300,169		28	0.04
Federal Home Loan Bank advances and other long-term borrowings		245,344		2,588	4.22			23,333		36	0.62
Total interest-bearing liabilities		3,111,353		7,714	0.99			3,150,998		943	0.12
Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		2,089,162						2,312,233
Other liabilities		133,321						112,699
Stockholders’ equity		879,205						848,112
Total liabilities and stock-holders’ equity	$	6,213,041					$	6,424,042
Net interest income			$	92,642					$	63,167
		���
Net interest spread					6.08	%					4.28	%
Net interest margin					6.52	%					4.34	%

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

(2) Interest income for Refund Advances and RCS line-of-credit products is composed entirely of loan fees.

(3) Interest income includes loan fees of $933,000 and $662,000 for the three months ended March 31, 2023 and 2022.

(4) Interest income includes loan fees of $248,000 and $574,000 for the three months ended March 31, 2023 and 2022.

(5) Interest income includes loan fees of $946,000 and $2.3 million for the three months ended March 31, 2023 and 2022.

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

Table 3 — Total Company Volume/Rate Variance Analysis

		Three Months Ended March 31, 2023
		Compared to
		Three Months Ended March 31, 2022
	Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate
Interest income:
Federal funds sold and other interest-earning deposits	$	2,271	$	(524)	$	2,795
Investment securities, including FHLB stock		2,936		703		2,233
TRS Refund Advance loans		17,961		21,282		(3,321)
RCS LOC products		1,705		1,206		499
Other RPG loans		641		371		270
Outstanding Warehouse lines of credit		842		(2,786)		3,628
All other Core Bank loans		9,890		3,940		5,950
Net change in interest income		36,246		24,192		12,054
Interest expense:
Transaction accounts		1,646		(2)		1,648
Money market accounts		2,011		(7)		2,018
Time deposits		219		(98)		317
Reciprocal money market and time deposits		123		(27)		150
SSUARs and other short-term borrowings		220		(12)		232
Federal Home Loan Bank advances		2,552		1,581		971
Net change in interest expense		6,771		1,435		5,336
Net change in net interest income	$	29,475	$	22,757	$	6,718

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Provision

Total Company Provision was a net charge of $26.8 million for the first quarter of 2023 compared to a net charge of $9.2 million for the same period in 2022.

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

Traditional Banking segment

The Traditional Banking Provision during the first quarter of 2023 was a net charge of $3.0 million compared to a net charge of $320,000 for the first quarter of 2022. An analysis of the Provision for the first quarter of 2023 compared to the same period in 2022 follows:

● The net charge during the first quarter of 2023 was primarily driven by the Day-1 Provision of $2.7 million for the acquired CBank non-PCD loans.

● The remaining net charge of $295,000 to the Traditional Bank Provision was primarily from general formula reserves applied to $92 million of Traditional Bank legacy loan growth from December 31, 2022, to March 31, 2023, which excludes the loans acquired from the CBank acquisition.

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.33% as of March 31, 2023 compared to 1.32% as of December 31, 2022 and 1.39% as of March 31, 2022. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of March 31, 2023.

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

Warehouse Lending segment

Warehouse recorded a net charge to the Provision of $135,000 for the first quarter of 2023 compared to a net credit of $401,000 for the same period in 2022. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances increased $54 million during the first quarter of 2023 compared to a decrease of $160 million during the first quarter of 2022.

As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% as of March 31, 2023, December 31, 2021, and March 31, 2022. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses as of March 31, 2023.

Tax Refund Solutions segment

TRS recorded a net charge to the Provision of $21.8 million during the first quarter of 2023 compared to a net charge of $7.9 million for the same period in 2022. Substantially all TRS Provision in both periods was related to its RA product.

TRS recorded a charge to the Provision for RAs, including ERAs, of $22.0 million, or 2.98% of its $737 million in RAs originated during the first quarter of 2023 compared to a net charge to the Provision of $8.3 million, or 2.67% of its $311 million of RAs originated during the first quarter of 2022. The $13.7 million increase in Provision for the first quarter of 2023 was primarily due to the increased volume from the previously mentioned new contract with a large national tax preparation provider which generated approximately $462 million in new RA volume during the first quarter of 2023.

RAs related to a first quarter tax filing season are only originated during December of the previous year and the first two months of the current year. As is the case each year as of March 31^st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30th. The final charge-off figures posted during the second quarter of a calendar year can be meaningfully different (higher or lower) than its March 31^st estimate based on actual paydowns received during the second quarter. RAs collected during the second half of each year are recorded as recoveries of previously charged-off loans. TRS’s loss rate as of June 30, 2022 was 2.85% of total originations and it finished 2022 with a RA loss rate of 2.20% of total RAs originated.

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For factors affecting the comparison of the TRS results of operations for the first quarter of 2023 and the first quarter of 2022, see section titled “OVERVIEW (Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022) - Tax Refund Solutions.”

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

Republic Credit Solutions segment

As illustrated in Table 4 below, RCS recorded a net charge to the Provision of $1.8 million during the first quarter of 2023 compared to a net charge to the Provision of $1.4 million for the same period in 2022. The increase in the Provision was driven primarily by a $450,000 increase in net charge-offs for RCS’s LOC II product. The $450,000, or 63%, increase in net charge-offs within the LOC II product was driven by a $6.3 million, or 126%, increase in average outstanding balances from the first quarter of 2022 to the first quarter of 2023.

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 12.34% as of March 31, 2023, 13.73% as of December 31, 2022, and 13.63% as of March 31, 2022. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of March 31, 2023.

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

Table 4 — RCS Provision by Product

	Three Months Ended Mar. 31,
(dollars in thousands)	2023		2022		$ Change		% Change
Product:
Lines of credit	$	1,825	$	1,403	$	422	30	%
Healthcare receivables		14		(8)		22	NM
Total	$	1,839	$	1,395	$	444	32	%

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Table 5 — Summary of Loan and Lease Loss Experience

	Three Months Ended
	March 31,
(dollars in thousands)	2023			2022
ACLL at beginning of period	$	70,413		$	64,577
CBank Initial Recognition of ACLL		1,600			—
Charge-offs:
Traditional Banking:
Residential real estate		(6)			—
Consumer		(325)			(263)
Total Traditional Banking		(331)			(263)
Warehouse lines of credit		—			—
Total Core Banking		(331)			(263)
Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—			—
Other TRS commercial & industrial loans		—			—
Republic Credit Solutions		(3,099)			(2,673)
Total Republic Processing Group		(3,099)			(2,673)
Total charge-offs		(3,430)			(2,936)
Recoveries:
Traditional Banking:
Residential real estate		15			43
Commercial real estate		47			1
Commercial & industrial		90			9
Home equity		1			3
Consumer		101			89
Total Traditional Banking		254			145
Warehouse lines of credit		—			—
Total Core Banking		254			145
Republic Processing Group:
Tax Refund Solutions:
Refund Advances		285			—
Other TRS commercial & industrial loans		—			362
Republic Credit Solutions		233			275
Total Republic Processing Group		518			637
Total recoveries		772			782
Net loan charge-offs		(2,658)			(2,154)
Provision - Core Banking		3,119			(74)
Provision - RPG		23,647			9,307
Total Provision		26,766			9,233
ACLL at end of period	$	96,121		$	71,656
Credit Quality Ratios - Total Company:
ACLL to total loans		2.01	%		1.63	%
ACLL to nonperforming loans		579			422
Net loan charge-offs to average loans		0.23			0.20
Credit Quality Ratios - Core Banking:
ACLL to total loans		1.22	%		1.20	%
ACLL to nonperforming loans		356			303
Net loan charge-offs to average loans		0.01			0.01

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

	Net Loan Charge-Offs (Recoveries) to Average Loans
	Three Months Ended
	March 31,
	2023		2022
Traditional Banking:
Residential real estate:
Owner occupied	—	%	—	%
Nonowner occupied	—		—
Commercial real estate	(0.01)		—
Construction & land development	—		—
Commercial & industrial	(0.09)		—
Lease financing receivables	—		—
Aircraft	—		—
Home equity	—		(0.01)
Consumer:
Credit cards	0.65		0.58
Overdrafts	95.97		90.70
Automobile loans	0.40		(0.03)
Other consumer	0.84		(0.26)
Total Traditional Banking	0.01		0.01
Warehouse lines of credit	—		—
Total Core Banking	0.01		0.01
Republic Processing Group:
Tax Refund Solutions:
Refund Advances*	NM		—
Other TRS commercial & industrial loans	NM		(1.16)
Republic Credit Solutions	10.14		2.62
Total Republic Processing Group	2.45		0.97
Total	0.23	%	0.20	%

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

The Company’s net charge-offs to average total Company loans increased from 0.20% during the first quarter of 2022 to 0.23% during the first quarter of 2023, with net charge-offs increasing $504,000, or 23%, and average total Company loans increasing $310 million, or 7%. The increase in net charge-offs was primarily driven by a $468,000 increase in net charge-offs within the Company’s RCS operations, which has historically conducted higher-risk lending activities that the Company’s Core Banking operations. As previously noted above, the net charge-offs within the RCS division was primarily driven by an increase in the average outstanding balances for the RCS LOC II product. During the first quarters of 2023 and 2022, the Company’s Core Bank net charge-offs to average Core Bank loans remained near zero.

Noninterest Income

Total Company noninterest income decreased $8.3 million during the first quarter of 2023 compared to the same period in 2022.

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

Traditional Banking segment

Traditional Banking’s noninterest income increased $412,000, or 6%, for the first quarter of 2023 compared to the same period in 2022. There were no notable increases within any particular noninterest income category for the Traditional Bank.

The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the three months ended March 31, 2023 and 2022 were $1.7 million and $1.6 million. The total daily overdraft charges, net of refunds, included in interest income for the three months ended March 31, 2023 and 2022 were $294,000 and $288,000.

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Mortgage Banking segment

A significant rise in long-term interest rates during the first quarter of 2023 led to a significant slowdown in the origination and subsequent sale of mortgage loans into the secondary market. As a result, Mortgage Banking income decreased from $2.7 million during the first quarter of 2022 to $817,000 for the first quarter of 2023. For the first quarter of 2023, the Bank sold $17 million in secondary market loans and achieved an average cash-gain-as-a-percent-of-loans-sold during the quarter of 1.74%. During the first two months of the first quarter of 2022, however, long-term interest rates were notably lower, driving secondary market loan sales of $119 million with comparable cash-gain-as-a-percent-of-loans-sold of 2.29%.

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

Tax Refund Solutions segment

TRS’s noninterest income decreased $6.3 million, or 35%, during the first quarter of 2023 compared to the same period in 2022. The decrease in TRS noninterest income was primarily a result of the following factors:

● As previously disclosed, RB&T received a $5.0 million contract termination fee during the first quarter of 2022 for the cancelled Sale Transaction.

● Regarding TRS’s RT product, net RT revenue decreased 10% from $12.1 million during the first quarter of 2022 to $10.8 million during the same period in 2023. RT revenue for the first quarter of 2023 was negatively impacted by a general decline in overall RT demand across the industry.

For factors affecting the comparison of the TRS results of operations for the first quarter of 2023 and the first quarter of 2022, see section titled “OVERVIEW (Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022) - Tax Refund Solutions.”

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Republic Credit Solutions segment

RCS’s noninterest income decreased $568,000, or 18%, during the first quarter of 2023 compared to the same period in 2022, with program fees representing the entirety of RCS’s noninterest income. The decrease in RCS program fees primarily reflected lower sales volume from RCS’s installment loan product. Proceeds from the sale of RCS installment loan products totaled $210 million during the first quarter of 2023, a 18% decrease from the same period in 2022.

The following table presents RCS program fees by product:

Table 7 — RCS Program Fees by Product

	Three Months Ended Mar. 31,
(dollars in thousands)	2023		2022		$ Change		% Change
Product:
Lines of credit	$	1,740	$	1,188	$	552	46	%
Healthcare receivables		49		61		(12)	(20)
Installment loans*		745		1,878		(1,133)	(60)
Total	$	2,534	$	3,127	$	(593)	(19)	%

* 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 $3.9 million, or 8%, during the first quarter of 2023 compared to the same period in 2022.

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

Traditional Banking segment

Traditional Banking noninterest expense increased $2.6 million for the first quarter of 2023 compared to the same period in 2022. The most notable item driving this increase was $2.1 million of merger related expenses for the CBank acquisition.

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COMPARISON OF FINANCIAL CONDITION AS OF MARCH 31, 2023 AND DECEMBER 31, 2022

Cash and Cash Equivalents

Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Republic had $249 million in period-end cash and cash equivalents as of March 31, 2023 compared to $314 million as of December 31, 2022. Comparing average balances for the first quarters of 2023 and 2022, the Company had average interest-earning cash and cash equivalent balances of $241 million for the first quarter of 2023 compared to $554 million for the first quarter of 2022. The decline in average interest-earning cash balances from period to period was driven by a decrease in average deposits and an increase in average loan balances.

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

For cash held at the FRB, the Bank earns a yield on amounts more than required reserves. This cash earned a weighted-average yield of 4.48% during the first quarter of 2023 with a spot balance yield of 4.90% on March 31, 2023. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.

Investment Securities

Republic’s investment portfolio increased $34 million from December 31, 2022 to March 31, 2023, driven by $50 million in portfolio purchases, $16 million of securities acquired in the CBank acquisition, and a $17 million increase in FHLB stock. These increases were offset by portfolio declines resulting from $54 million of calls and maturities of debt securities.

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Table 8 — Loan Portfolio Composition

(dollars in thousands)	March 31, 2023		December 31, 2022		$ Change		% Change
Traditional Banking:
Residential real estate:
Owner occupied	$	972,214	$	911,427	$	60,787	7	%
Nonowner occupied		328,529		321,358		7,171	2
Commercial real estate		1,682,573		1,599,510		83,063	5
Construction & land development		167,829		153,875		13,954	9
Commercial & industrial		478,101		413,387		64,714	16
Lease financing receivables		73,270		10,505		62,765	597
Aircraft		184,344		179,785		4,559	3
Home equity		250,050		241,739		8,311	3
Consumer:
Credit cards		16,775		15,473		1,302	8
Overdrafts		775		726		49	7
Automobile loans		5,267		6,731		(1,464)	(22)
Other consumer		5,450		626		4,824	771
Total Traditional Banking		4,165,177		3,855,142		310,035	8
Warehouse lines of credit*		457,365		403,560		53,805	13
Total Core Banking		4,622,542		4,258,702		363,840	9
Republic Processing Group*:
Tax Refund Solutions:
Refund Advances		31,665		97,505		(65,840)	(68)
Other TRS commercial & industrial loans		8,327		51,767		(43,440)	(84)
Republic Credit Solutions		111,700		107,828		3,872	4
Total Republic Processing Group		151,692		257,100		(105,408)	(41)
Total loans**		4,774,234		4,515,802		258,432	6
Allowance for credit losses		(96,121)		(70,413)		(25,708)	37
Total loans, net	$	4,678,113	$	4,445,389	$	232,724	5

*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 $258 million, or 6%, during the first quarter of 2022 to $4.8 billion as of March 31, 2023. The most significant components comprising the change in loans by reportable segment follow:

Traditional Banking segment

Period-end balances for Traditional Banking loans increased $310 million, or 8%, from December 31, 2022 to March 31, 2023. The following primarily drove the change in loan balances during the first quarter of 2023:

● The Traditional Bank acquired loans and leases with a fair value of $216 million in connection with the CBank acquisition.

● The Traditional Bank’s legacy CRE portfolio, which excludes the CRE loans acquired from CBank, grew $11 million, or 1%, during the first quarter of 2023, as the Traditional Bank experienced strong loan demand within its Corporate Lending, Private Banking and Commercial Real Estate divisions in its Louisville market.

● With mortgage refinance volume at all-time record levels during 2020 and 2021, balances of 1-4 family loans, including HELOCs, generally declined as the vast majority of the volume of refinancings was sold into the secondary market. This trend began to change in mid to late 2022, however, as a significant rise in long-term, fixed-rate mortgages caused portfolio level ARM loans to become generally more attractive than secondary market loans. As a result, the Traditional Bank’s legacy residential real estate portfolio, which excludes the residential real estate loans acquired from CBank, increased $47

86

million during the first quarter of 2023. By comparison, these two portfolios declined by $3.7 million in total during the first quarter of 2022.

Warehouse Lending segment

Outstanding Warehouse period-end balances increased $54 million from December 31, 2022 to March 31, 2023. 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 first quarter of 2023 to a high of 71% during the fourth quarter of 2019. On an annual basis, weighted average usage rates on the Bank’s Warehouse lines have ranged from a low of 39% during 2022 to a high of 66% during 2020.

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

Tax Refund Solutions segment

Outstanding TRS loans decreased $109 million from December 31, 2022 to March 31, 2023 primarily reflecting the substantial paydown of ERAs originated during December 2022. In addition, TRS also received substantial paydowns of commercial loans made during the fourth quarter of 2022 to third-party tax-related businesses for their cash flow needs for the first quarter tax season. RAs, including ERAs, are only made during the December of the previous year and the first two months of each year, with all unpaid RAs charged off by June 30^th of each year.

Republic Credit Solutions segment

Outstanding RCS loans increased $4 million from December 31, 2022 to March 31, 2023 primarily reflecting a $5.5 million increase in outstanding balances for RCS’s healthcare receivable products.

Allowance for Credit Losses

As of March 31, 2023, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. The Bank also maintained an ACLS and an ACLC for expected losses in its securities portfolio and its off-balance sheet credit exposures, respectively. Management evaluates the adequacy of the ACLL monthly, and the adequacy of the ACLS and ACLC quarterly. All ACLs are presented and discussed with the Audit Committee and the Board of Directors quarterly.

The Company’s ACLL increased $26 million from $70 million as of December 31, 2022 to $96 million as of March 31, 2023. As a percent of total loans, the total Company’s ACLL increased to 2.01% as of March 31, 2023 compared to 1.56% as of December 31, 2022. An analysis of the ACL by reportable segment follows:

Traditional Banking segment

The Traditional Banking ACLL increased approximately $5 million to $55 million as of March 31, 2023 driven primarily by formula reserves tied to loan growth during the first quarter of 2023, a $2.7 million Day-1 Provision for the $214 million of non-PCD loans acquired from the CBank acquisition, and a $2 million Allowance for the PCD loans acquired from the CBank acquisition.  

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Warehouse Lending segment

The Warehouse ACLL increased to approximately $134,000, and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparing March 31, 2023 to December 31, 2022. As of March 31, 2023, the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for the first quarter of 2023. 

Tax Refund Solutions segment

TRS recorded a charge to the Provision for RA loans of $22.0 million, or 2.98% of its $737 million in RAs originated during the first quarter of 2023. This compares to a net charge to the Provision of $8.3 million, or 2.67% of its $311 million of RAs originated during the first quarter of 2022. The $13.5 million increase in Provision for the first quarter of 2023 was primarily due to the increased volume from the new contract with the large national tax preparer.

Including early season RAs originated during the fourth quarter of 2022, TRS had a total Allowance for RAs of $25.8 million as of March 31, 2023, representing 3.09% of all RAs originated related to the first quarter 2023 tax season. TRS’s loss rate as of June 30, 2022 was 2.85% of total originations and TRS finished 2022 with a final RA loss rate of 2.20% of total RAs originated.

RAs are only originated during December of the previous year and the first two months of the current year related to the first quarter tax season of a year. As is the case each year as of March 31^st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30th. The final charge-off figures posted during the second quarter of a calendar year can be meaningfully different (higher or lower) than its March 31^st estimate based on actual paydowns received during the second quarter. RAs collected during the second half of each year are recorded as recoveries of previously charged-off loans.

Republic Credit Solutions segment

The RCS ACLL decreased $1 million from $15 million as of December 31, 2022 to $14 million as of March 31, 2023, with this decrease driven by a decrease in the RCS LOC II reserve percentage and a change in the RCS loan mix as the outstanding healthcare receivable spot balance increased and the RCS LOC spot balance decreased.

RCS maintained an ACLL for two distinct credit products offered as of March 31, 2023, including its line-of-credit products and its healthcare-receivables products. As of March 31, 2023, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables products to as high as 51.79% for its line-of-credit products. The lower reserve percentage of 0.25% was provided for RCS’s healthcare receivables, as such receivables have recourse back to the third-party providers.

Asset Quality

Classified and Special Mention Loans

The Bank applies credit quality indicators, or ratings, to individual loans based on internal Bank policies. Such internal policies are informed by regulatory standards. Loans rated “Loss,” “Doubtful,” “Substandard,” and “PCD-Substandard” are considered “Classified.” Loans rated “Special Mention” or “PCD-Special Mention” are considered Special Mention. The Bank’s Classified and Special Mention loans increased approximately $3 million during the first quarter of 2023, driven primarily by commercial-purpose loans repaid or upgraded to a Pass rating during the first quarter of 2023.

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

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Table 9 — Classified and Special Mention Loans

(dollars in thousands)	March 31, 2023		December 31, 2022		$ Change		% Change
Loss	$	—	$	—	$	—	—	%
Doubtful		—		—		—	—
Substandard		19,011		17,010		2,001	12
PCD - Substandard		3,650		1,498		2,152	144
Total Classified Loans		22,661		18,508		4,153	22
Special Mention		68,622		69,246		(624)	(1)
PCD - Special Mention		328		718		(390)	(54)
Total Special Mention Loans		68,950		69,964		(1,014)	(1)
Total Classified and Special Mention Loans	$	91,611	$	88,472	$	3,139	4	%

Nonperforming Loans

Nonperforming loans include loans on nonaccrual status and loans past due 90-days-or-more and still accruing. The nonperforming loan category includes loan modifications (formerly TDRs) totaling approximately $1 million and $2 million as of March 31, 2023 and December 31, 2022.

Nonperforming loans to total loans decreased to 0.35% at March 31, 2023 from 0.36% at December 31, 2022, as the total balance of nonperforming loans increased by $292,000, or 2%, while total loans increased $258 million, or 6%, during the first quarter of 2023. As presented in Tables 13 and 14 below, the decrease in nonperforming loans during 2023, including the nonaccrual loan component, was primarily driven by the improvement of $1 million of these loans, which returned to accrual status.

The ACLL to total nonperforming loans increased to 607% as of March 31, 2023 from 452% as of December 31, 2022, as the total ACLL increased $26 million, or 37%, and the balance of nonperforming loans increased by $292,000, or 2%. The driver of the increase in ACLL was primarily RAs originated through the Company’s TRS segment and, while the driver of the decrease in nonperforming loans primarily driven by the improvement of $1 million of these loans, which returned to accrual status during the first quarter of 2023.

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Table 10 — Nonperforming Loans and Nonperforming Assets Summary

(dollars in thousands)	March 31, 2023			December 31, 2022
Loans on nonaccrual status*	$	15,833		$	15,562
Loans past due 90-days-or-more and still on accrual**		777			756
Total nonperforming loans		16,610			16,318
Other real estate owned		1,529			1,581
Total nonperforming assets	$	18,139		$	17,899
Credit Quality Ratios - Total Company:
ACLL to total loans		2.01	%		1.56	%
Nonaccrual loans to total loans		0.33			0.34
ACLL to nonaccrual loans		607			452
Nonperforming loans to total loans		0.35			0.36
Nonperforming assets to total loans (including OREO)		0.38			0.40
Nonperforming assets to total assets		0.30			0.31
Credit Quality Ratios - Core Bank:
ACLL to total loans		1.22	%		1.21	%
Nonaccrual loans to total loans		0.34			0.37
ACLL to nonaccrual loans		356			332
Nonperforming loans to total loans		0.34			0.37
Nonperforming assets to total loans (including OREO)		0.38			0.40
Nonperforming assets to total assets		0.32			0.32

* Loans on nonaccrual status include collateral-dependent loans. See Footnote 5 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding collateral-dependent loans.

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

Table 11 — Nonperforming Loan Composition

	March 31, 2023					December 31, 2022
				Percent of					Percent of
				Total					Total
(dollars in thousands)	Balance			Loan Class		Balance			Loan Class
Traditional Banking:
Residential real estate:
Owner occupied		$	13,046	1.34	%		$	13,388	1.47	%
Nonowner occupied			76	0.02				117	0.04
Commercial real estate			1,568	0.09				1,001	0.06
Construction & land development			—	—				—	—
Commercial & industrial			—	—				—	—
Lease financing receivables			—	—				—	—
Aircraft			—	—				—	—
Home equity			904	0.36				815	0.34
Consumer:
Credit cards			—	—				—	—
Overdrafts			—	—				—	—
Automobile loans			33	0.63				31	0.46
Other consumer			206	3.78				210	33.55
Total Traditional Banking			15,833	0.38				15,562	0.40
Warehouse lines of credit			—	—				—	—
Total Core Banking			15,833	0.34				15,562	0.37
Republic Processing Group:
Tax Refund Solutions:
Refund Advances			—	—				—	—
Other TRS commercial & industrial loans			—	—				—	—
Republic Credit Solutions			777	0.70				756	0.70
Total Republic Processing Group			777	0.51				756	0.29
Total nonperforming loans		$	16,610	0.35	%		$	16,318	0.36	%

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Table 12 — Stratification of Nonperforming Loans

	Number of Nonperforming Loans and Recorded Investment
					Balance
March 31, 2023		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance
Traditional Banking:
Residential real estate:
Owner occupied	122	$	4,146	46	$	7,052	2	$	1,848	170	$	13,046
Nonowner occupied	3		76	—		—	—		—	3		76
Commercial real estate	—		—	1		223	2		1,345	3		1,568
Construction & land development	—		—	—		—	—		—	—		—
Commercial & industrial	—		—	—		—	—		—	—		—
Lease financing receivables	—		—	—		—	—		—	—		—
Aircraft	—		—	—		—	—		—	—		—
Home equity	28		802	1		102	—		—	29		904
Consumer:
Credit cards	—		—	—		—	—		—	—		—
Overdrafts	NM		—	—		—	—		—	NM		—
Automobile loans	5		33	—		—	—		—	5		33
Other consumer	1		1	1		205	—		—	2		206
Total Traditional Banking	159		5,058	49		7,582	4		3,193	212		15,833
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	159		5,058	49		7,582	4		3,193	212		15,833
Republic Processing Group:
Tax Refund Solutions:
Refund Advances	—		—	—		—	—		—	—		—
Other TRS commercial & industrial loans	—		—	—		—	—		—	—		—
Republic Credit Solutions	NM		—	—		—	—		777	NM		777
Total Republic Processing Group	NM		—	—		—	—		777	NM		777
Total	159	$	5,058	49	$	7,582	4	$	3,970	212	$	16,610

	Number of Nonperforming Loans and Recorded Investment
					Balance
December 31, 2022		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance
Traditional Banking:
Residential real estate:
Owner occupied	134	$	4,650	45	$	7,353	1	$	1,385	180	$	13,388
Nonowner occupied	4		117	—		—	—		—	4		117
Commercial real estate	—		—	1		232	1		769	2		1,001
Construction & land development	—		—	—		—	—		—	—		—
Commercial & industrial	—		—	—		—	—		—	—		—
Lease financing receivables	—		—	—		—	—		—	—		—
Aircraft	—		—	—		—	—		—	—		—
Home equity	28		711	1		104	—		—	29		815
Consumer:
Credit cards	—		—	—		—	—		—	—		—
Overdrafts	NM		—	—		—	—		—	NM		—
Automobile loans	6		31	—		—	—		—	6		31
Other consumer	—		—	1		210	—		—	1		210
Total Traditional Banking	172		5,509	48		7,899	2		2,154	222		15,562
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	172		5,509	48		7,899	2		2,154	222		15,562
Republic Processing Group:
Tax Refund Solutions:
Refund Advances	—		—	—		—	—		—	—		—
Other TRS commercial & industrial loans	—		—	—		—	—		—	—		—
Republic Credit Solutions	NM		—	—		—	—		756	NM		756
Total Republic Processing Group	NM		—	—		—	—		756	NM		756
Total	172	$	5,509	48	$	7,899	2	$	2,910	222	$	16,318

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Table 13 — Roll-forward of Nonperforming Loans

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Nonperforming loans at the beginning of the period	$	16,318	$	20,552
Loans added to nonperforming status during the period that remained nonperforming at the end of the period		2,669		1,607
Loans removed from nonperforming status during the period that were nonperforming at the beginning of the period (see table below)		(2,015)		(4,799)
Principal balance paydowns of loans nonperforming at both period ends		(383)		(378)
Net change in principal balance of other loans nonperforming at both period ends*		21		(16)
Nonperforming loans at the end of the period	$	16,610	$	16,966

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

Table 14 — Detail of Loans Removed from Nonperforming Status

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Loans charged off	$	—	$	—
Loans transferred to OREO		—		—
Loan payoffs and paydowns		(770)		(4,595)
Loans returned to accrual status		(1,245)		(204)
Total loans removed from nonperforming status during the period that were nonperforming at the beginning of the period	$	(2,015)	$	(4,799)

Based on the Bank’s review as of March 31, 2023, management believes that its reserves are adequate to absorb expected losses on all nonperforming loans.

Delinquent Loans

Total Company delinquent loans to total loans increased to 0.76% as of March 31, 2023 from 0.34% as of December 31, 2022. Core Bank delinquent loans to total Core Bank loans decreased to 0.12% as of March 31, 2023 from 0.14% as of December 31, 2022. With the exception of small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of March 31, 2023 and December 31, 2022 were on nonaccrual status.

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Table 15 — Delinquent Loan Composition* 

	March 31, 2023					December 31, 2022
				Percent of					Percent of
				Total					Total
(dollars in thousands)	Balance			Loan Class		Balance			Loan Class
Traditional Banking:
Residential real estate:
Owner occupied		$	4,711	0.48	%		$	4,834	0.53	%
Nonowner occupied			—	—				—	—
Commercial real estate			602	0.04				604	0.04
Construction & land development			—	—				—	—
Commercial & industrial			—	—				177	0.04
Lease financing receivables			—	—				—	—
Aircraft			—	—				—	—
Home equity			63	0.03				175	0.07
Consumer:
Credit cards			30	0.18				55	0.36
Overdrafts			112	14.45				160	22.04
Automobile loans			13	0.25				11	0.16
Other consumer			6	0.11				44	7.03
Total Traditional Banking			5,537	0.13				6,060	0.16
Warehouse lines of credit			—	—				—	—
Total Core Banking			5,537	0.12				6,060	0.14
Republic Processing Group:
Tax Refund Solutions:
Refund Advances			18,450	58.27				—	—
Other TRS commercial & industrial loans			406	4.88				—	—
Republic Credit Solutions			11,731	10.50				9,200	8.53
Total Republic Processing Group			30,587	20.16				9,200	3.58
Total delinquent loans		$	36,124	0.76	%		$	15,260	0.34	%

*     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 16 — Roll-forward of Delinquent Loans

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Delinquent loans at the beginning of the period	$	15,260	$	13,465
Loans that became delinquent during the period - Refund Advances*		18,450		4,524
Loans added to delinquency status during the period and remained in delinquency status at the end of the period		2,675		2,103
Loans removed from delinquency status during the period that were in delinquency status at the beginning of the period (see table below)		(3,094)		(3,604)
Principal balance paydowns of loans delinquent at both period ends		(31)		(28)
Net change in principal balance of other loans delinquent at both period ends*		2,864		(245)
Delinquent loans at the end of period	$	36,124	$	16,215

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

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

Table 17 — Detail of Loans Removed from Delinquent Status

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Loans charged off	$	(1)	$	(1)
Refund Advances paid off or charged off		—		—
Loans transferred to OREO		—		—
Loan payoffs and paydowns		(510)		(3,418)
Loans paid current		(2,583)		(185)
Total loans removed from delinquency status during the period that were in delinquency status at the beginning of the period	$	(3,094)	$	(3,604)

Collateral-Dependent Loans and Loan Modifications

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 loan modification (formerly a TDR prior to the adoption of ASU 2022-02) 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 loan modifications 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 loan modifications remain on nonaccrual status and continue to be reported as nonperforming loans. Accruing loans modified as loan modifications 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. With the adoption of ASU 2022-02 in 2023, all loan modifications will now be recognized as collateral-dependent. As of March 31, 2023 there were $1 million collateral-dependent loan modifications.

Table 18 — Collateral-Dependent Loans and Troubled Debt Restructurings

(dollars in thousands)	December 31, 2022
Cashflow-dependent TDRs	$	5,761
Collateral-dependent TDRs		6,265
Total TDRs		12,026
Collateral-dependent loans (which are not TDRs)		14,186
Total recorded investment in TDRs and collateral-dependent loans	$	26,212

See Footnote 5 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding collateral-dependent loans and loan modifications and Footnote 1 “Basis of Presentation and Summary of Significant Accounting Policies” for additional discussion regarding ASU 2022-02.

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Deposits

Table 19 — Deposit Composition

(in thousands)	March 31, 2023		December 31, 2022		$ Change		% Change
Core Bank:
Demand	$	1,272,086	$	1,336,082	$	(63,996)	(5)	%
Money market accounts		794,710		707,272		87,438	12
Savings		316,947		323,015		(6,068)	(2)
Reciprocal money market		123,486		28,635		94,851	331
Individual retirement accounts (1)		36,334		38,640		(2,306)	(6)
Time deposits, $250 and over (1)		46,687		54,855		(8,168)	(15)
Other certificates of deposit (1)		176,257		129,324		46,933	36
Reciprocal time deposits (1)		13,273		7,405		5,868	79
Total Core Bank interest-bearing deposits		2,779,780		2,625,228		154,552	6
Total Core Bank noninterest-bearing deposits		1,471,180		1,464,493		6,687	0
Total Core Bank deposits		4,250,960		4,089,721		161,239	4
Republic Processing Group:
Money market accounts		5,931		3,849		2,082	54
Total RPG interest-bearing deposits		5,931		3,849		2,082	54
Brokered prepaid card deposits		390,052		328,655		61,397	19
Other noninterest-bearing deposits		152,725		115,620		37,105	32
Total RPG noninterest-bearing deposits		542,777		444,275		98,502	22
Total RPG deposits		548,708		448,124		100,584	22
Total deposits	$	4,799,668	$	4,537,845	$	261,823	6	%

(1) Includes time deposit

Total Bank deposits increased $262 million from December 31, 2022 to $4.8 billion as of March 31, 2023. Total Core Bank deposits increased by $161 million with the CBank acquisition resulting in $283 million of this growth. Core Bank legacy deposits, which excludes the deposits assumed from the CBank acquisition, decreased $122 million, or 3%, from December 31, 2022. Within the Core Bank’s legacy deposits, interest-bearing deposits decreased $28 million and noninterest-bearing deposits decreased $94 million.

The decline in Core Bank legacy deposits was a continuing trend from the second half of 2022. Management believes the net decrease in Core Bank interest-bearing deposits was generally due to clients’ responses to the low deposit beta the Bank maintained throughout 2022 and most of the first quarter of 2023. A deposit beta measures the change in the interest rates the Bank pays for its interest-bearing deposit accounts versus the change in the federal funds target rate, which is a public index the Bank generally uses to price its non-maturity, interest-bearing deposits. A low deposit beta would indicate that the Bank has not changed the interest rates it pays on deposit accounts to the same magnitude as the FOMC has changed the FFTR.

For most of the previous 12 months, the Bank has continued a general strategy to maintain a low deposit beta as part of its approach to increase its overall net interest margin and net interest income. In general, the Bank maintained a low deposit beta during this period by not applying across-the-board increases in rates to all its interest-bearing accounts as a result of increases to the FFTR. Instead, the Bank applied a nominal amount of the FFTR’s increases to products on an across-the-board basis and selectively applied larger rate increases for more price-sensitive commercial accounts. This strategy played a significant part in expanding the Core Bank’s net interest margin throughout 2022 and into the first quarter of 2023 as the Bank’s yield on its interest earning assets generally outpaced the cost of its interest-bearing liabilities as the FFTR increased. As a result of this strategy, however, the Bank did experience a decline in both personal and business account balances during the second half of 2022 and the first quarter of 2023 as some clients moved their funds to more attractive offerings outside of the Bank. In response to this deposit outflow, the Bank expects to begin marketing select deposit products during the second quarter of 2023, such as money market accounts and short-term certificates of deposit, with higher offering rates. Management is unsure if these offering rates will reverse the recent trend of deposit outflows. Regardless, Management does believe these higher offering rates will raise the Traditional Bank's overall cost of funds and begin to cause contraction to its net interest margin on a linked-quarter basis. This strategy is subject to change depending upon several factors including, but not limited to, the Bank’s overall current and projected liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.

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In addition to the above, the Core Bank also experienced a $160 million decrease in its legacy noninterest-bearing deposits. Management believes two factors generally drove this overall decrease in noninterest-bearing deposits. The first is a general decline in liquidity among both businesses and consumers as the excess liquidity created during the COVID pandemic continued to wane. Second, Management believes that the substantial increase in market interest rates caused the difference between what a client can earn for an interest-bearing deposit versus the client’s lack of a financial return for a noninterest-bearing deposit to become large enough to cause some clients to pursue other opportunities for their cash outside the Bank.

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

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

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

SSUARs decreased $82 million, or 39%, during the first three months of 2023 to $131 million as of March 31, 2023. SSUARs generally represent large customer relationships deposited into the Bank that require security collateral above the $250,000 FDIC insurance limit of the Bank. Due to the size of the underlying relationships, large fluctuations in the underlying account balances from period to period are common.

As it did with interest-bearing deposits, the Bank generally maintained a low beta strategy with its SSUARs over the past 12 months. As a result of this strategy, the Bank experienced a decline in SSUAR balances as some clients moved their funds to more attractive offerings outside of the Bank. As was noted with deposits, the Bank expects to market more attractive offering rates to its clients during the second quarter of 2023 and could do the same for its SSUAR clients. This strategy is subject to change depending upon several factors including, but not limited to, the Bank’s overall current and projected liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.

Federal Home Loan Bank Advances

The Bank’s total FHLB advances were $108 million as of March 31, 2023 compared to $95 million as of December 31, 2022 and $20 million as of March 31, 2022. Approximately $88 million of these borrowings were overnight in nature as of March 31, 2023 compared to $75 million as of December 31, 2022. The Company has utilized FHLB advances over the past year to fund its deposit outflow and overall loan growth. As of March 31, 2023, the Company’s $108 million of FHLB advances had a weighted-average maturity of 0.93 years and a weighted-average cost of 4.31%.

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

Interest Rate Swaps

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

See Footnote 13 “Interest Rate Swaps” of Part I Item 1 “Financial Statements” for additional discussion regarding the Bank’s interest rate swaps.

Liquidity

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

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Table 20 — Liquid Assets and Borrowing Capacity

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

(in thousands)	March 31, 2023		December 31, 2022
Cash and cash equivalents	$	249,289	$	313,689
Unencumbered debt securities		479,296		438,052
Total liquid assets		728,585		751,741
Available borrowing capacity with the FHLB		929,688		899,362
Available borrowing capacity through unsecured credit lines		125,000		125,000
Total available borrowing capacity		1,054,688		1,024,362
Total liquid assets and available borrowing capacity	$	1,783,273	$	1,776,103

The Bank had a loan to deposit ratio (excluding brokered deposits) of 99% as of March 31, 2023 and 100% as of December 31, 2022. Republic’s banking centers and its website, www.republicbank.com, provide access to retail deposit markets. These retail deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were cancelled, or if the Bank cannot obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.

As noted in the sections above titled “Deposits” and “Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings”, the Bank implemented a general strategy during the last 12 months to maintain a low beta for its client-related interest-bearing liabilities as part of its overall strategy to increase its net interest margin and net interest income. As a result of this strategy, however, the Bank did experience a decline in both personal and business deposit balances and SSUAR balances as some clients moved their funds to more attractive offerings outside of the Bank. In response to this deposit outflow, the Bank expects to begin marketing select deposit products during the second quarter of 2023, such as money market accounts and short-term certificates of deposit, with higher offering rates. Management is unsure if these offering rates will reverse the recent trend of deposit outflows. Regardless, Management does believe these higher offering rates will raise the Traditional Bank's overall cost of funds and begin to cause contraction to its net interest margin on a linked-quarter basis. This strategy is subject to change depending upon several factors including, but not limited to, the Bank’s overall current and projected liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.

As of March 31, 2023, the Bank had approximately $915 million in deposits from 194 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded $2 million. Total uninsured deposits for the Bank were $1.8 billion, or 38%, of total deposits as of March 31, 2023. The 20 largest non-sweep deposit relationships represented approximately $282 million, or 6%, of the Company’s total deposit balances as of as of March 31, 2023. These accounts do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances were moved from the Bank, the Bank would likely utilize overnight borrowing lines in the short-term to replace the balances. On a longer-term basis, the Bank would likely utilize wholesale-brokered deposits to replace withdrawn balances, or alternatively, higher-cost internet-sourced deposits. Based on past experience utilizing brokered deposits and internet-sourced deposits, the Bank believes it can quickly obtain these types of deposits if needed. The overall cost of gathering these types of deposits, however, could be substantially higher than the Traditional Bank deposits they replace, potentially decreasing the Bank’s earnings.

The Bank’s liquidity is impacted by its ability to sell certain investment securities, which is limited due to the level of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings, and for other purposes, as required by law. As of March 31, 2023 and December 31, 2022, these pledged investment securities had a fair value of $134 million and $218 million.

Capital

Total stockholders’ equity increased from $857 million as of December 31, 2022 to $882 million as of March 31, 2023. The increase in stockholders’ equity was primarily attributable to net income earned during 2023 reduced primarily by cash dividends declared.

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

Dividend Restrictions — The Parent Company’s principal source of funds for dividend payments are dividends received from RB&T. Banking regulations limit the amount of dividends that may be paid to the Parent Company by the Bank without prior approval of the respective states’ banking regulators. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. As of April 1, 2023, RB&T could, without prior approval, declare dividends of approximately $107 million. Any payment of dividends in the future will depend, in large part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors.

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

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

Republic continues to exceed the regulatory requirements for Total Risk-Based Capital, Common Equity Tier I Risk-Based Capital, Tier I Risk Based-Capital and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or 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 14.15% as of March 31, 2023 compared to 13.41% as of December 31, 2022. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.

Table 21 — Capital Ratios (1)

	As of March 31, 2023				As of December 31, 2022
(dollars in thousands)	Amount		Ratio		Amount		Ratio
Total capital to risk-weighted assets
Republic Bancorp, Inc.	$	933,317	17.18	%	$	941,865	17.92	%
Republic Bank & Trust Company		894,843	16.48			904,592	17.23
Common equity tier 1 capital to risk-weighted assets
Republic Bancorp, Inc.	$	869,187	16.00	%	$	877,735	16.70	%
Republic Bank & Trust Company		826,672	15.23			840,462	16.01
Tier 1 (core) capital to risk-weighted assets
Republic Bancorp, Inc.	$	869,187	16.00	%	$	877,735	16.70	%
Republic Bank & Trust Company		826,672	15.23			840,462	16.01
Tier 1 leverage capital to average assets
Republic Bancorp, Inc.	$	869,187	14.74	%	$	877,735	14.81	%
Republic Bank & Trust Company		826,672	13.30			840,462	14.09

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(1) The Company and the Bank elected in 2020 to defer the impact of CECL on regulatory capital. The deferral period is five years, with the total estimated CECL impact 100% deferred for the first two years, then phased in over the next three years. If not for this election, the Company’s regulatory capital ratios would have been approximately 6 basis points and 10 basis points lower than those presented in the table above as of March 31, 2023 and December 31, 2022.

Asset/Liability Management and Market Risk

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

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

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

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As of March 31, 2023, a dynamic simulation model was run for interest rate changes from “Down 200” basis points to “Up 300” basis points. The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning April 1, 2023 and ending March 31, 2024 based on instantaneous movements in interest rates from Down 200 to Up 300 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 22 — Bank Interest Rate Sensitivity

	Change in Rates
	-200		-100		+100		+200		+300
	Basis Points		Basis Points		Basis Points		Basis Points		Basis Points
% Change from base net interest income as of March 31, 2023	(2.0)	%	(1.1)	%	0.7	%	1.4	%	2.1	%
% Change from base net interest income as of December 31, 2022	(2.8)	%	(0.6)	%	1.8	%	3.7	%	5.7	%

The most material changes noted for the Bank’s interest rate sensitivity projections from December 31, 2022 to March 31, 2023 occurred in the up-rate scenarios, while the down-rate scenarios reflected modest changes.

The period-to-period declines in the up-rate scenarios were generally tied to two main factors. First, the Company’s average interest-earning cash balances further declined from December to March. As a result, the benefit the Company expects to receive from rising short-term interest rates, as a result of its immediately repricing interest-earning cash, decreased. Second, the Company increased its assumed deposit betas from December to March in anticipation of a more competitive deposit gathering and retention environment. These higher deposit betas resulted in higher projected costs for the Company’s interest-bearing deposits in a rising rate environment.

For further discussion of interest-bearing deposit betas, see section titled “Deposits” in this Form 10-Q.

LIBOR Exposure

In July 2017, the Financial Conduct Authority (“FCA”), the authority regulating LIBOR, along with various other regulatory bodies, announced that LIBOR would likely be discontinued at the end of 2021. Subsequent to that announcement, in November 2020, the FCA announced that many tenors of LIBOR would continue to be published through June 2023. In compliance with regulatory guidance, the Bank discontinued referencing LIBOR for new financial instruments during 2021 and chose SOFR to be its primary alternative reference rate for most transaction types upon the discontinuance or unavailability of LIBOR.

Regarding its legacy assets that reference LIBOR, the Bank has previously disclosed that the underlying contracts for these assets may not include adequate “fallback” language to use alternative indexes and margins when LIBOR ceases. However, on March 15, 2022, President Biden signed into law the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Law”), which is designed to accomplish the following:

● Establish a clear and uniform process, on a nationwide basis, for replacing LIBOR in existing contracts, the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate, without affecting the ability of parties to use any appropriate benchmark rate in new contracts;

● Preclude litigation related to existing contracts, the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate;

● Allow existing contracts that reference LIBOR but provide for the use of a clearly defined and practicable replacement rate to operate according to their terms; and

● Address LIBOR references in federal law.

With limited exception, the LIBOR Law generally covers legacy LIBOR contracts with no or inadequate fallback provisions. Additionally, under the LIBOR Law, the Board of Governors of the Federal Reserve System (the “FRB Board”) issued final regulations in December 2022 that included the selection of an FRB Board-Selected Benchmark Replacement based on SOFR and incorporates an applicable tenor spread adjustment and identification of any related conforming changes.

As of March 31, 2023, the Company had approximately $421 million of legacy assets that reference LIBOR, with short-term Warehouse loans representing $6 million of these assets, investment securities representing $62 million, and commercial and mortgage loans primarily making up the remainder. As of March 31, 2023, of the Bank’s legacy assets that reference LIBOR,

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approximately $416 million of those assets were scheduled to mature after June 30, 2023. These amounts exclude derivative assets and liabilities on the Company’s consolidated balance sheet. As of March 31, 2023, the notional amount of the Company’s LIBOR-referenced interest rate derivative contracts was approximately $178 million, with $178 million of such notional amount scheduled to mature after June 30, 2023.

For additional discussion regarding the Bank’s net interest income, see the sections titled “Net Interest Income” in this section of the filing under “RESULTS OF OPERATIONS (Three months ended March 31, 2023 Compared to Three months ended March 31, 2022.”)

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.

Evaluation of Disclosure 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 not effective as of the end of the period covered by this report because of material weaknesses in our internal control over financial reporting, as described in Management’s Report on Internal Control over Financial Reporting in “Item 9A. Controls and Procedures” in its Annual Report on Form 10-K for the year ended December 31, 2022.

In addition, other than the measures described below taken in response to the material weaknesses, 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.

Material Weakness Remediation Efforts

The Company has commenced the implementation of some remediation measures with respect to the material weaknesses as outlined in its Annual Report on Form 10-K for the year ended December 31, 2022. As part of its remediation efforts for one of its material weaknesses, Management enhanced its internal monthly financial reporting during the first quarter of 2023 to provide a more detailed yield analysis at the product level for the performance of each RCS product. In addition, the Company has begun the planning process for those remediation measures that have not yet been implemented. Management cannot determine when all its remediation plans will be fully completed, and Management cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

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

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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 year ended December 31, 2022. You should carefully consider the risk factors discussed below and in Republic’s 2022 Form 10-K, which could materially affect the Company’s business, financial condition and results of operations in the future.

Recent negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations. Recent bank failures and their related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, bank holding companies for regional, and community banks. These developments have negatively impacted customer confidence in regional and community banks, which could prompt customers to maintain their deposits with larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings.

The proportion of our deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk and earnings risks in times of financial distress. A significant factor in the two recent bank failures that occurred during the first quarter of 2023 appears to have been the proportion of the deposits held by each institution that exceeded FDIC insurance limits. In these two failures, the estimated percentage of uninsured deposits to total deposits, as previously disclosed, were at, or approaching, 90%. In response to these failures, many large depositors across the industry have withdrawn deposits in excess of applicable deposit insurance limits and deposited these funds in other financial institutions and, in many instances, moved these funds into money market mutual funds or other similar securities accounts in an effort to diversify the risk of further bank failure(s).

Uninsured deposits historically have been less stable than insured deposits. As a result, in the event of financial distress, uninsured depositors historically have been more likely to withdraw their deposits. The Company estimates that 38% of its total deposits as of March 31, 2023, were uninsured as they were above the FDIC’s insurance limit. If a significant portion of these uninsured deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, RB&T may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin. Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits. This spread may be exacerbated by higher prevailing interest rates.

We may experience additional increases in FDIC insurance assessments. The FDIC deposit insurance fund has recently incurred losses with the resolution of bank failures during the first quarter of 2023. As a result, the FDIC has announced that it intends to publish a notice of proposed rulemaking for a special assessment in May 2023. It is possible that our regular deposit insurance assessment rates, which were already expected to increase significantly during 2023 over 2022, will further increase should the FDIC alter its assessment rate schedule or calculation methodology for financial institutions as a result of these recent bank failures. Although we cannot predict the specific timing and terms of any special assessment or any other increase in our deposit insurance assessment rates, any increase in our assessment fees could have a materially adverse effect on our results of operations and financial condition.

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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 first quarter of 2023 are included in the following table:

				Total Number of	Maximum Number
				Shares Purchased	of Shares that May
				as Part of Publicly	Yet Be Purchased
	Total Number of	Average Price		Announced Plans	Under the Plan
Period	Shares Purchased	Paid Per Share		or Programs	or Programs
January 1 - January 31	—	$	—	—	490,000
February 1 - February 28	—		—	—	490,000
March 1 - March 31	—		—	—	490,000
Total	—	$	—	—	490,000

The Company did not repurchase any of its shares during the first quarter of 2023. In addition, in connection with employee stock awards, there were 3,057 shares withheld upon exercise of stock options to satisfy the withholding taxes. On October 25, 2022, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase shares of its Class A Common Stock to 500,000 shares. The repurchase program will remain effective until the total number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of March 31, 2023, the Company had 490,000 shares which could be repurchased under its current share repurchase programs.

During the first quarter of 2023, 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
31.1	Certification of Principal Executive Officer pursuant to the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002
32*	Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following financial statements from the Company’s quarterly report on Form 10-Q were formatted in iXBRL(Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, (ii) Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2023 and 2022, (iii) Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022, (iv) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 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: May 5, 2023	/s/ Steven E. Trager
	By: Steven E. Trager
	Executive Chair (Principal Executive Officer)
	Principal Financial Officer:
Date: May 5, 2023	/s/ Kevin Sipes
	By: Kevin Sipes
	Executive Vice President, Chief Financial
	Officer and Chief Accounting Officer (Principal Financial Officer)

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