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Table of Contents

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, 2024

or

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

Commission File Number: 0-24649

Graphic

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, 2024 was 17,261,545 and 2,150,669.

Table of Contents

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements.

4

Item 2.

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

58

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

92

Item 4.

Controls and Procedures.

92

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings.

92

Item 1A.

Risk Factors.

92

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

93

Item 5.

Other Information.

93

Item 6.

Exhibits.

94

SIGNATURES

95

2

Table of Contents

GLOSSARY OF TERMS

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

Term

   

Definition

ACH

Automated Clearing House

ACL

Allowance for Credit Losses

ACLC

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

ACLL

Allowance for Credit Losses on Loans

ACLS

Allowance for Credit Losses on Securities

AFS

Available for Sale

AOCI

Accumulated Other Comprehensive Income

ASC

Accounting Standards Codification

ASU

Accounting Standards Update

Basic EPS

Basic earnings per Class A Common Share

BOLI

Bank Owned Life Insurance

BPO

Brokered Price Opinion

C&D

Construction and Development

C&I

Commercial and Industrial

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

CBank Agreement

Agreement and Plan of Merger between Republic Bancorp, Inc., CBank, and RB&T

CECL

Current Expected Credit Losses

CMO

Collateralized Mortgage Obligation

Core Bank

The Traditional Banking and Warehouse Lending reportable segments of the Company

COVID

Coronavirus Disease of 2019

CRE

Commercial Real Estate

DDA

Demand Deposit Account

Diluted EPS

Diluted earnings per Class A Common Share

Economic Aid Act

Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act

ERA

Early Season Refund Advance

ESPP

Employee Stock Purchase Plan

EVP

Executive Vice President

FASB

Financial Accounting Standards Board

FDIC

Federal Deposit Insurance Corporation

FFTR

Federal Funds Target Rate

FHLB

Federal Home Loan Bank

FHLMC

Federal Home Loan Mortgage Corporation

FICO

Fair Isaac Corporation

FNMA

Federal National Mortgage Association

FOMC

Federal Open Market Committee

FRB

Federal Reserve Bank

FTE

Full Time Equivalent

FTP

Funds Transfer Pricing

GAAP

Generally Accepted Accounting Principles in the United States

HEAL

Home Equity Amortizing Loan

HELOC

Home Equity Line of Credit

HTM

Held to Maturity

IRS

Internal Revenue Service

ITM

Interactive Teller Machine

LGD

Loss Given Default

LIBOR

London Interbank Offered Rate

LOC

Line of Credit

LOC I

RCS product introduced in 2014 for which the Bank participates out a 90% interest and holds a 10% interest

LOC II

RCS product introduced in 2021 for which the Bank participates out a 95% interest and holds a 5% interest

LTV

Loan to Value

MBS

Mortgage Backed Securities

MSRs

Mortgage Servicing Rights

NA

Not Applicable

NIM

Net Interest Margin

NM

Not Meaningful

OBS

Off-Balance Sheet

OCI

Other Comprehensive Income

OREO

Other Real Estate Owned

OTTI

Other than Temporary Impairment

PCD

Purchased with Credit Deterioration

PD

Probability of Default

PPP

SBA's Paycheck Protection Program

Prime

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

SBA

U.S. Small Business Administration

SEC

Securities and Exchange Commission

SSUAR

Securities Sold Under Agreements to Repurchase

TDR

Troubled Debt Restructuring

The Captive

Republic Insurance Services, Inc.

TRS

Tax Refund Solutions segment

TRUP

Trust Preferred Security Investment

Warehouse

Warehouse Lending segment

3

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (in thousands)

    

March 31, 

    

December 31, 

2024

2023

ASSETS

(Unaudited)

(Audited)

Cash and cash equivalents

$

546,363

$

316,567

Available-for-sale debt securities, at fair value (amortized cost of $614,368 in 2024 and $618,525 in 2023, allowance for credit losses of $0 in 2024 and 2023)

 

587,805

 

591,313

Held-to-maturity debt securities (fair value of $76,119 in 2024 and $76,167 in 2023, allowance for credit losses of $10 in 2024 and $10 in 2023)

 

76,254

 

76,387

Equity securities with readily determinable fair value

235

174

Mortgage loans held for sale, at fair value

 

80,884

 

3,227

Consumer loans held for sale, at fair value

6,093

7,914

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

13,083

16,094

Loans (loans carried at fair value of $0 in 2024 and $0 in 2023)

 

5,224,292

 

5,239,861

Allowance for credit losses

 

(108,702)

 

(82,130)

Loans, net

 

5,115,590

 

5,157,731

Federal Home Loan Bank stock, at cost

 

43,729

 

23,770

Premises and equipment, net

 

33,557

 

33,411

Right-of-use assets

33,210

34,691

Goodwill

 

40,516

 

40,516

Other real estate owned

 

1,486

 

1,370

Bank owned life insurance

 

104,670

 

103,916

Low-income housing tax credit investments

73,621

75,055

Other assets and accrued interest receivable

 

118,496

 

112,755

TOTAL ASSETS

$

6,875,592

$

6,594,891

LIABILITIES

Deposits:

Noninterest-bearing

$

1,359,516

$

1,676,998

Interest-bearing

 

4,061,133

 

3,376,165

Total deposits

 

5,420,649

 

5,053,163

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

 

84,522

 

97,618

Operating lease liabilities

34,076

35,539

Federal Home Loan Bank advances

 

270,000

 

380,000

Low-income housing tax credit obligations

56,093

58,619

Other liabilities and accrued interest payable

 

74,669

 

57,196

Total liabilities

 

5,940,009

 

5,682,135

Commitments and contingent liabilities (Footnote 9)

 

 

STOCKHOLDERS’ EQUITY

Preferred stock, no par value

 

 

Class A Common Stock, no par value, 30,000,000 shares authorized, 17,260,406 shares (2024) and 17,203,355 shares (2023) issued and outstanding; Class B Common Stock, no par value, 5,000,000 shares authorized, 2,150,669 shares (2024) and 2,154,562 shares (2023) issued and outstanding

 

4,578

 

4,553

Additional paid in capital

 

142,091

 

142,124

Retained earnings

 

808,836

 

786,487

Accumulated other comprehensive (loss) income

 

(19,922)

 

(20,408)

Total stockholders’ equity

 

935,583

 

912,756

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

6,875,592

$

6,594,891

See accompanying footnotes to consolidated financial statements.

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Table of Contents

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

Three Months Ended

    

March 31, 

2024

2023

INTEREST INCOME:

Loans, including fees

$

118,907

$

92,609

Taxable investment securities

 

4,452

 

4,603

Federal Home Loan Bank stock and other

 

7,273

 

3,144

Total interest income

 

130,632

 

100,356

INTEREST EXPENSE:

Deposits

 

26,996

 

4,878

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

 

130

 

248

Federal Home Loan Bank advances

 

6,587

 

2,588

Total interest expense

 

33,713

 

7,714

NET INTEREST INCOME

 

96,919

 

92,642

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

 

30,622

 

26,766

NET INTEREST INCOME AFTER PROVISION

 

66,297

 

65,876

NONINTEREST INCOME:

Service charges on deposit accounts

 

3,313

 

3,299

Net refund transfer fees

 

10,820

 

10,807

Mortgage banking income

 

310

 

800

Interchange fee income

 

3,157

 

3,051

Program fees

 

4,179

 

3,241

Increase in cash surrender value of bank owned life insurance

 

754

 

635

Net losses on other real estate owned

 

(53)

 

(53)

Other

 

893

 

901

Total noninterest income

 

23,373

 

22,681

NONINTEREST EXPENSE:

Salaries and employee benefits

 

29,716

 

29,961

Technology, equipment, and communication

 

7,490

 

7,228

Occupancy

 

3,822

 

3,406

Marketing and development

 

1,924

 

1,574

FDIC insurance expense

 

772

 

637

Interchange related expense

 

1,298

 

1,499

Legal and professional fees

1,055

1,061

Merger expense

41

2,073

Other

 

4,853

 

5,004

Total noninterest expense

 

50,971

 

52,443

INCOME BEFORE INCOME TAX EXPENSE

 

38,699

 

36,114

INCOME TAX EXPENSE

 

8,093

 

8,022

NET INCOME

$

30,606

$

28,092

BASIC EARNINGS PER SHARE:

Class A Common Stock

$

1.59

$

1.42

Class B Common Stock

1.44

1.30

DILUTED EARNINGS PER SHARE:

Class A Common Stock

$

1.58

$

1.42

Class B Common Stock

1.43

1.29

See accompanying footnotes to consolidated financial statements.

5

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three Months Ended

March 31, 

2024

    

2023

Net income

$

30,606

$

28,092

OTHER COMPREHENSIVE INCOME (LOSS)

Unrealized gain (loss) on AFS debt securities

 

592

 

5,205

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

 

57

 

5

Total other comprehensive income (loss) before income tax

 

649

 

5,210

Income tax benefit (expense) related to items of other comprehensive income

 

(163)

 

(1,305)

Total other comprehensive income (loss), net of tax

 

486

 

3,905

COMPREHENSIVE INCOME

$

31,092

$

31,997

See accompanying footnotes to consolidated financial statements.

6

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended March 31, 2024

Common Stock

Accumulated

    

Class A

    

Class B

    

    

    

Additional

    

    

    

Other

    

Total

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

(in thousands, except per share data)

Outstanding

Outstanding

Amount

Capital

Earnings

Income (Loss)

Equity

Balance, January 1, 2024

 

17,203

2,155

$

4,553

$

142,124

$

786,487

$

(20,408)

$

912,756

Net income

 

 

 

 

 

30,606

 

 

30,606

Net change in AOCI

 

 

 

 

 

 

486

 

486

Dividends declared on Common Stock:

Class A Shares ($0.407 per share)

 

 

 

 

 

(6,986)

 

 

(6,986)

Class B Shares ($0.370 per share)

 

 

 

 

 

(796)

 

 

(796)

Stock options exercised, net of shares withheld

 

37

 

 

26

 

(689)

 

(437)

 

 

(1,100)

Conversion of Class B to Class A Common Shares

4

 

(4)

 

 

 

 

 

Deferred compensation - Class A Common Stock:

 

Directors

 

 

(1)

 

135

 

 

 

134

Designated key employees

11

 

 

 

167

 

 

 

167

Employee stock purchase plan - Class A Common Stock

4

 

 

1

 

183

 

 

 

184

Stock-based awards - Class A Common Stock:

Performance stock units

 

 

 

 

36

 

 

 

36

Restricted stock

 

1

 

 

(1)

 

(34)

 

(38)

 

 

(73)

Stock options

 

 

 

 

169

 

 

 

169

Balance, March 31, 2024

17,260

2,151

$

4,578

$

142,091

$

808,836

$

(19,922)

$

935,583

Three Months Ended March 31, 2023

Common Stock

Accumulated

    

Class A

    

Class B

    

    

    

Additional

    

    

    

Other

    

Total

Shares

Shares

Paid In

Retained

Comprehensive

Stockholders’

(in thousands, except per share data)

Outstanding

Outstanding

Amount

Capital

Earnings

Income (Loss)

Equity

Balance, January 1, 2023

 

17,585

 

2,160

$

4,648

$

141,694

$

742,250

$

(31,979)

$

856,613

Net income

 

 

 

 

 

28,092

 

 

28,092

Net change in AOCI

 

 

 

 

 

 

3,905

 

3,905

Dividends declared on Common Stock:

Class A Shares ($0.374 per share)

 

 

 

 

 

(6,581)

 

 

(6,581)

Class B Shares ($0.340 per share)

 

 

 

 

 

(734)

 

 

(734)

Stock options exercised, net of shares withheld

 

 

 

 

(84)

 

 

 

(84)

Net change in notes receivable on Class A Common Stock

 

 

 

 

84

 

 

 

84

Deferred compensation - Class A Common Stock:

 

Directors

 

 

 

110

 

 

 

110

Designated key employees

7

 

 

 

221

 

 

 

221

Employee stock purchase plan - Class A Common Stock

4

 

 

 

162

 

 

 

162

Stock-based awards - Class A Common Stock:

Performance stock units

 

 

 

 

39

 

 

 

39

Restricted stock

 

2

 

 

 

173

 

 

 

173

Stock options

 

 

 

 

202

 

 

 

202

Balance, March 31, 2023

 

17,598

 

2,160

$

4,648

$

142,601

$

763,027

$

(28,074)

$

882,202

See accompanying footnotes to consolidated financial statements.

7

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

  

Three Months Ended

March 31, 

    

2024

    

2023

OPERATING ACTIVITIES:

Net income

$

30,606

$

28,092

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

Net amortization on investment securities and low-income housing investments

 

1,555

 

1,438

Net accretion and amortization on loans

 

(639)

 

(618)

Unrealized and realized losses on equity securities with readily determinable fair value

(61)

4

Depreciation of premises and equipment

 

1,944

 

1,594

Amortization of mortgage servicing rights

 

426

 

490

Provision for on-balance sheet exposures

 

30,622

 

26,766

Provision for off-balance sheet exposures

(110)

210

Net gain on sale of mortgage loans held for sale

 

80

 

(420)

Origination of mortgage loans held for sale

 

(27,046)

 

(15,942)

Proceeds from sale of mortgage loans held for sale

 

18,773

 

16,630

Net gain on sale of consumer loans held for sale

(3,405)

(2,534)

Origination of consumer loans held for sale

(188,347)

(207,222)

Proceeds from sale of consumer loans held for sale

196,584

210,199

Writedowns of other real estate owned

 

53

 

52

Deferred compensation expense - Class A Common Stock

 

301

 

331

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

 

160

 

438

Amortization of right-of-use assets

 

1,481

1,544

Accretion of operating lease liabilities

(1,463)

 

(1,550)

Increase in cash surrender value of bank owned life insurance

 

(754)

 

(635)

Net change in other assets and liabilities:

Accrued interest receivable

 

(1,878)

 

(2,502)

Accrued interest payable

 

2,832

 

103

Other assets

 

(5,489)

 

(5,402)

Other liabilities

 

14,999

 

19,670

Net cash provided by operating activities

 

71,224

 

70,736

INVESTING ACTIVITIES:

Net cash proceeds paid in acquisition

 

 

(40,970)

Purchases of available-for-sale debt securities

 

(50,000)

 

(25,000)

Purchases of held-to-maturity debt securities

 

 

(25,000)

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

 

54,220

 

54,066

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

 

133

 

278

Net change in outstanding warehouse lines of credit

 

(123,526)

 

(53,805)

Purchase of correspondent loans, including premiums paid

 

 

(8,731)

Net change in other loans

 

66,188

 

19,670

Net purchases of Federal Home Loan Bank stock

(19,959)

(16,793)

Investments in low-income housing tax partnerships

(2,710)

(1,172)

Net purchases of premises and equipment

 

(2,090)

 

(1,688)

Net cash used in investing activities

 

(77,744)

 

(99,145)

FINANCING ACTIVITIES:

Net change in deposits

 

367,486

 

40,145

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

 

(13,096)

 

(82,544)

Payments of Federal Home Loan Bank advances

 

(110,000)

 

Proceeds from Federal Home Loan Bank advances

 

 

13,000

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

156

138

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

 

(1,100)

 

(84)

Cash dividends paid

 

(7,130)

 

(6,646)

Net cash (used in) provided by financing activities

 

236,316

 

(35,991)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

229,796

 

(64,400)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

316,567

 

313,689

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

546,363

$

249,289

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:

Cash paid during the period for:

Interest

$

30,882

$

7,611

Income taxes

 

570

 

471

SUPPLEMENTAL NONCASH DISCLOSURES:

Mortgage servicing rights capitalized

$

118

$

127

Transfers from loans to real estate acquired in settlement of loans

169

Transfers from loans held for investment to held for sale

69,464

Right-of-use assets recorded

722

See accompanying footnotes to consolidated financial statements.

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –MARCH 31, 2024 and 2023 AND DECEMBER 31, 2023 (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-member financial institution that provides both traditional and non-traditional banking products through five reportable segments using a multitude of delivery channels. While the Bank operates primarily in its geographic market footprint where it has physical locations, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. During the fourth quarter of 2023, the Company dissolved its Captive, a Nevada-based, wholly owned insurance subsidiary of the Company. The Captive provided property and casualty insurance coverage to the Company and the Bank, as well as a group of unrelated third-party insurance captives.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024. For further information, refer to the consolidated financial statements and footnotes thereto included in Republic’s Form 10-K for the year ended December 31, 2023. Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported prior periods’ net income or shareholders’ equity.

BUSINESS SEGMENT COMPOSITION

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

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

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Table of Contents

Core Bank

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

Kentucky — 29

Metropolitan Louisville — 19

Central Kentucky — 6

Georgetown — 1

Lexington — 5

Northern Kentucky (Metropolitan Cincinnati) — 4

Bellevue— 1

Covington — 1

Crestview Hills — 1

Florence — 1

Indiana — 3

Southern Indiana (Metropolitan Louisville) — 3

Floyds Knobs — 1

Jeffersonville — 1

New Albany — 1

Florida — 7

Metropolitan Tampa — 7

Ohio — 4

Metropolitan Cincinnati — 4

Tennessee — 4

Metropolitan Nashville — 4

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

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

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

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

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

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Republic Processing Group

Tax Refund Solutions segment — Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). The majority of all the business generated by the TRS business occurs during the first half of each year. During the second half of each year, TRS generates limited revenue and incurs costs preparing for the next year’s tax season. During December 2023, TRS originated $103 million of ERAs related to tax returns that were anticipated to be filed during the first quarter 2024 tax filing season. Of these ERAs, $11 million remained outstanding as of March 31, 2024. During the second half of each year, TRS generates limited revenue and incurs costs preparing for the next year’s tax filing season.

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

The RA credit product is a loan made in conjunction with the filing of a taxpayer’s federal tax return, which allows the taxpayer to borrow funds as an advance of a portion of their tax refund. The RA product had the following features during the first quarters of 2024 and 2023:

Offered only during the first two months of each year;
The taxpayer was given the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $6,500;
No requirement that the taxpayer pays for another bank product, such as an RT;
Multiple disbursement methods were available with most Tax Providers, including direct deposit, prepaid card, or check, based on the taxpayer-customer’s election;
Repayment of the RA to the Bank is deducted from the taxpayer’s tax refund proceeds; and
If an insufficient refund to repay the RA occurs:
othere is no recourse to the taxpayer, 
ono negative credit reporting on the taxpayer, and
ono collection efforts against the taxpayer.

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

Only offered during December and the up-coming January in connection with the upcoming first quarter tax business for each period;
The taxpayer had the option to choose from multiple loan tiers, subject to underwriting, up to a maximum advance amount of $1,000;
No requirement that the taxpayer pays for another bank product, such as an RT;
Multiple disbursement methods available with most Tax Providers, including direct deposit or prepaid card, based on the taxpayer-customer’s election;
Repayment of the ERA to the Bank deducted from the taxpayer’s tax refund proceeds; and
If an insufficient refund to repay the ERA, including the failure to file a final federal tax return through a Republic Tax Provider:
ono recourse to the taxpayer, 
ono negative credit reporting on the taxpayer, and
ono collection efforts against the taxpayer.

The Company reports fees paid for the RAs, including ERAs, as interest income on loans. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. RAs, including ERAs that were originated related

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to the first quarter 2023 tax filing season were repaid, on average, within 32 days after the taxpayer’s tax return was submitted to the applicable taxing authority. RAs do not have a contractual due date, but as it did during 2023, the Company will consider an RA delinquent in 2024 if it remains unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority.

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

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

Issuing Solutions:

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

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

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

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

Money Movement:

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

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

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

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

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

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

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

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

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

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

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

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

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

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Recently Adopted Accounting Standards

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

Method of

Financial

ASU. No.

    

Topic

    

Nature of Update

    

Date Adopted

    

Adoption

    

Statement Impact

2022-03

Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to
Contractual Sale Restrictions

This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

January 1, 2024

Prospectively

Immaterial

2023-02

Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)

This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

January 1, 2024

Prospectively

Immaterial

2023-01

Leases (Topic 842): Common Control Arrangements

This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions).

January 1, 2024

Prospectively

Immaterial

Accounting Standards Update

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

Date Adoption

Adoption

Expected

ASU. No.

Topic

Nature of Update

Required

Method

Financial Impact

2024-02

Codification Improvements—Amendments to Remove References to the Concepts Statements

This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas.

January 1, 2025

Prospectively

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

2023-09

Income Taxes (Topic 740): Improvements to Income Tax Disclosures

Among other things, these amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate).

January 1, 2025

Prospectively

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

2023-07

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

October 1, 2024

Retrospectively

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

2023-03

Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock (SEC Update)

This ASU amends the FASB Accounting Standards Codification™ for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.

Upon addition to the FASB Codification.

Prospectively

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

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2. ACQUISITION OF CBANK

OVERVIEW

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

ACQUISITION SUMMARY

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

March 15, 2023

As Previously Reported

As Recasted

    

As Recorded

    

Fair Value

    

Recast

    

As Recorded

Years Ended December 31, (in thousands)

by CBank

Adjustments

Adjustments

by Republic

Assets acquired:

Cash and cash equivalents

$

10,030

$

$

$

10,030

Investment securities

 

16,463

 

(4)

a

 

(65)

a

 

16,394

Loans

 

221,707

 

(4,219)

b

 

(150)

b

 

217,338

Allowance for loan and lease losses

(2,953)

1,353

c

1,391

c, j

(209)

Loans, net

 

218,754

 

(2,866)

 

1,241

 

217,129

Goodwill

954

(954)

d

Core deposit intangible

2,844

e

2,844

Premises and equipment, net

 

162

 

35

f

 

(24)

f

 

173

Other assets and accrued interest receivable

 

7,067

 

(320)

g

 

 

6,747

Total assets acquired

$

253,430

$

(1,265)

$

1,152

$

253,317

Liabilities assumed:

Deposits:

Noninterest-bearing

$

42,160

$

$

$

42,160

Interest-bearing

 

179,487

 

31

h

 

 

179,518

Total deposits

 

221,647

 

31

 

 

221,678

Other liabilities and accrued interest payable

 

4,709

 

96

i

 

50

i

 

4,855

Total liabilities assumed

 

226,356

 

127

 

50

 

226,533

Net assets acquired

$

27,074

$

(1,392)

$

1,102

26,784

Cash consideration paid

 

(51,000)

Goodwill

$

24,216

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Explanation of fair value and recast adjustments:

a.Adjustment reflects the fair value adjustment based on the Company’s evaluation of the investment securities.
b.Adjustments to loans to reflect estimated fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.
c.Adjustments to the Allowance reflect the fair value adjustment to eliminate the acquiree’s recorded allowance for loan losses and other fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.
d.Adjustment reflects the fair value adjustment to eliminate the recorded goodwill.
e.Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.
f.Adjustment reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment, net.
g.Adjustment reflects the fair value adjustment based on the Company’s evaluation of the other assets and accrued interest receivable.
h.Adjustment reflects the fair value adjustment based on the Company’s evaluation of the assumed time deposits.
i.Adjustment reflects the fair value adjustment based on the Company’s evaluation of the other liabilities and accrued interest payable.
j.Adjustment reflects a change in estimated fair value based upon further evaluation of PCD loans, including cash payments received subsequent to the date of acquisition.

Goodwill of approximately $24 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the CBank acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to the Company’s Traditional Banking segment and is expected to be deductible for tax purposes.

3. INVESTMENT SECURITIES

Available-for-Sale Debt Securities

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

    

    

Gross

    

Gross

    

Allowance

 

    

Amortized

Unrealized

Unrealized

for

 

Fair

March 31, 2024 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

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

$

426,414

$

$

(13,289)

$

$

413,125

Private label mortgage-backed security

 

385

 

1,387

 

 

 

1,772

Mortgage-backed securities - residential

 

159,666

 

106

 

(13,950)

 

 

145,822

Collateralized mortgage obligations

 

22,077

 

39

 

(1,076)

 

 

21,040

Corporate bonds

 

2,011

 

8

 

 

 

2,019

Trust preferred security

 

3,815

 

212

 

 

 

4,027

Total available-for-sale debt securities

$

614,368

$

1,752

$

(28,315)

$

$

587,805

    

    

Gross

    

Gross

    

Allowance

 

    

Amortized

Unrealized

Unrealized

for

 

Fair

December 31, 2023 (in thousands)

Cost

Gains

Losses

Credit Losses

 

Value

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

$

421,576

$

$

(14,543)

$

$

407,033

Private label mortgage-backed security

 

443

 

1,330

 

 

 

1,773

Mortgage-backed securities - residential

 

167,996

 

176

 

(13,462)

 

 

154,710

Collateralized mortgage obligations

 

22,698

 

36

 

(1,075)

 

 

21,659

Corporate bonds

 

2,012

 

8

 

 

 

2,020

Trust preferred security

 

3,800

 

318

 

 

 

4,118

Total available-for-sale debt securities

$

618,525

$

1,868

$

(29,080)

$

$

591,313

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Held-to-Maturity Debt Securities

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

    

    

    

Gross

    

Gross

    

    

    

Allowance

Amortized

Unrecognized

Unrecognized

Fair

for

March 31, 2024 (in thousands)

Cost

Gains

Losses

Value

Credit Losses

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

$

65,000

$

$

(116)

$

64,884

$

Mortgage-backed securities - residential

24

24

Collateralized mortgage obligations

 

6,251

 

45

 

(104)

 

6,192

 

Corporate bonds

 

4,989

 

30

 

 

5,019

 

(10)

Obligations of state and political subdivisions

Total held-to-maturity debt securities

$

76,264

$

75

$

(220)

$

76,119

$

(10)

    

    

    

Gross

    

Gross

    

    

    

Allowance

Amortized

Unrecognized

Unrecognized

Fair

for

December 31, 2023 (in thousands)

Cost

Gains

Losses

Value

Credit Losses

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

$

65,000

$

$

(163)

$

64,837

$

Mortgage-backed securities - residential

25

25

Collateralized mortgage obligations

 

6,386

 

48

 

(121)

 

6,313

 

Corporate bonds

 

4,986

 

6

 

 

4,992

 

(10)

Obligations of state and political subdivisions

Total held-to-maturity debt securities

$

76,397

$

54

$

(284)

$

76,167

$

(10)

Sales of Available-for-Sale Debt Securities

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

Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity as of March 31, 2024 follow. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.

Available-for-Sale

Held-to-Maturity

Debt Securities

Debt Securities

    

Amortized

    

Fair

    

Amortized

    

Fair

March 31, 2024 (in thousands)

Cost

Value

Cost

Value

Due in one year or less

$

191,117

$

189,114

$

50,000

$

49,897

Due from one year to five years

 

237,308

 

226,030

 

19,989

 

20,006

Due from five years to ten years

 

 

 

 

Due beyond ten years

 

3,815

 

4,027

 

 

Private label mortgage-backed security

 

385

 

1,772

 

 

Mortgage-backed securities - residential

 

159,666

 

145,822

 

24

 

24

Collateralized mortgage obligations

 

22,077

 

21,040

 

6,251

 

6,192

Total debt securities

$

614,368

$

587,805

$

76,264

$

76,119

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Unrealized-Loss Analysis on Debt Securities

The following tables summarize AFS debt securities in an unrealized loss position for which an ACLS had not been recorded as of March 31, 2024 and December 31, 2023, aggregated by investment category and length of time in a continuous unrealized loss position:

Less than 12 months

12 months or more

Total

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

March 31, 2024 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

Available-for-sale debt securities:

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

$

61,177

$

(430)

$

351,949

$

(12,859)

$

413,126

$

(13,289)

Mortgage-backed securities - residential

9,818

(194)

129,370

(13,756)

139,188

(13,950)

Collateralized mortgage obligations

1,608

(72)

16,765

(1,004)

18,373

(1,076)

Trust preferred security

 

 

 

 

 

Total available-for-sale debt securities

$

72,603

$

(696)

$

498,084

$

(27,619)

$

570,687

$

(28,315)

Less than 12 months

12 months or more

Total

 

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

 

December 31, 2023 (in thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

 

Available-for-sale debt securities:

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

$

26,707

$

(84)

$

380,326

$

(14,459)

$

407,033

$

(14,543)

Mortgage-backed securities - residential

1,911

(23)

136,180

(13,439)

138,091

(13,462)

Collateralized mortgage obligations

1,668

(52)

17,239

(1,023)

18,907

(1,075)

Trust preferred security

 

 

 

 

 

Total available-for-sale debt securities

$

30,286

$

(159)

$

533,745

$

(28,921)

$

564,031

$

(29,080)

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

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

As of March 31, 2024 and December 31, 2023, there were no holdings of debt securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Private Label Mortgage-Backed Security

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

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

Mortgage-Backed Securities and Collateralized Mortgage Obligations

As of March 31, 2024, with the exception of the $1.8 million private label mortgage-backed security, all other mortgage-backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily FHLMC and FNMA. As of March 31, 2024 and December 31, 2023, there were gross unrealized losses of $15.0 million and $14.5 million related to AFS mortgage-backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management believes the unrealized losses detailed above do not require an allowance for credit losses relating to these securities to be recognized.

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

The table below presents a roll-forward for the three months ended March 31, 2024 and 2023 of the ACLS on AFS and HTM debt securities:

ACLS Roll-forward

Three Months Ended March 31, 

2024

2023

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Available-for-Sale Securities:

Corporate Bonds

$

$

$

$

$

$

$

3

$

$

$

3

Held-to-Maturity Securities:

Corporate Bonds

10

10

10

10

Total

$

10

$

$

$

$

10

$

10

$

3

$

$

$

13

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

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

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

Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet and is excluded from the ACLS. Accrued interest on AFS debt securities totaled $2 million and $2 million as of March 31, 2024 and December 31, 2023. Accrued interest receivable on HTM debt securities totaled $837,000 and $384,000 as of March 31, 2024 and December 31, 2023.

Pledged Debt Securities

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

(in thousands)

    

March 31, 2024

    

December 31, 2023

 

Amortized cost

$

87,238

$

106,169

Fair value

86,171

99,530

Carrying amount

 

86,178

 

99,530

Equity Securities

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

    

    

Gross

    

Gross

    

    

 

Amortized

Unrealized

Unrealized

Fair

 

March 31, 2024 (in thousands)

Cost

Gains

Losses

Value

 

Freddie Mac preferred stock

$

$

235

$

$

235

Total equity securities with readily determinable fair values

$

$

235

$

$

235

    

    

Gross

    

Gross

    

    

 

Amortized

Unrealized

Unrealized

Fair

 

December 31, 2023 (in thousands)

Cost

Gains

Losses

Value

 

Freddie Mac preferred stock

$

$

174

$

$

174

Total equity securities with readily determinable fair values

$

$

174

$

$

174

19

Table of Contents

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

Gains (Losses) Recognized on Equity Securities

Three Months Ended March 31, 2024

    

Three Months Ended March 31, 2023

(in thousands)

Realized

Unrealized

Total

Realized

Unrealized

Total

Freddie Mac preferred stock

$

$

61

$

61

$

$

(4)

$

(4)

Total equity securities with readily determinable fair value

$

$

61

$

61

$

$

(4)

$

(4)

20

Table of Contents

4. LOANS HELD FOR SALE

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

Mortgage Loans Held for Sale, at Fair Value

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

Consumer Loans Held for Sale, at Fair Value

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

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

    

Three Months Ended

March 31, 

(in thousands)

2024

    

2023

Balance, beginning of period

$

7,914

$

4,706

Origination of consumer loans held for sale

 

35,159

 

22,797

Proceeds from the sale of consumer loans held for sale

 

(38,011)

 

(23,560)

Net gain on sale of consumer loans held for sale

 

1,031

 

745

Balance, end of period

$

6,093

$

4,688

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

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

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

    

Three Months Ended

    

March 31, 

(in thousands)

2024

    

2023

Balance, beginning of period

$

16,094

$

13,169

Origination of consumer loans held for sale

 

153,188

 

184,425

Proceeds from the sale of consumer loans held for sale

 

(158,573)

 

(186,639)

Net gain on sale of consumer loans held for sale

 

2,374

 

1,789

Balance, end of period

$

13,083

$

12,744

21

Table of Contents

5. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:

(in thousands)

   

March 31, 2024

    

December 31, 2023

 

Traditional Banking:

Residential real estate:

Owner-occupied

$

1,064,071

$

1,144,684

Nonowner-occupied

 

342,481

 

345,965

Commercial real estate (1)

 

1,800,801

 

1,785,289

Construction & land development

 

237,998

 

217,338

Commercial & industrial

 

453,971

 

464,078

Lease financing receivables

 

88,272

 

88,591

Aircraft

246,060

250,051

Home equity

 

309,083

 

295,133

Consumer:

Credit cards

 

16,858

 

16,654

Overdrafts

 

629

 

694

Automobile loans

 

2,054

 

2,664

Other consumer

 

11,372

 

7,428

Total Traditional Banking

4,573,650

4,618,569

Warehouse lines of credit*

 

463,249

 

339,723

Total Core Banking

5,036,899

4,958,292

Republic Processing Group*:

 

Tax Refund Solutions:

Refund Advances

52,101

103,115

Other TRS commercial & industrial loans

5,396

46,092

Republic Credit Solutions

129,896

 

132,362

Total Republic Processing Group

187,393

281,569

Total loans**

 

5,224,292

 

5,239,861

Allowance for credit losses

 

(108,702)

 

(82,130)

Total loans, net

$

5,115,590

$

5,157,731

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

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

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

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

(in thousands)

    

March 31, 2024

    

December 31, 2023

 

Contractually receivable

$

5,231,943

$

5,246,621

Unearned income

 

(2,830)

 

(2,556)

Unamortized premiums

 

257

 

1,060

Unaccreted discounts

 

(2,264)

 

(2,533)

Other net unamortized deferred origination (fees) and costs

 

(2,814)

 

(2,731)

Carrying value of loans

$

5,224,292

$

5,239,861

22

Table of Contents

Credit Quality Indicators

The following tables include loans by segment, risk category, and, for non-revolving loans, origination year. Loan segments and risk categories as of March 31, 2024 remain unchanged from those defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Regarding origination year, loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a loan modification (formerly TDR). Loan extensions and renewals classified as loan modifications (formerly TDRs) generally receive no change in origination date upon extension or renewal.

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year

Amortized

Converted

As of March 31, 2024

2024

2023

2022

2021

2020

Prior

Cost Basis

to Term

Total

Residential real estate owner-occupied:

Risk Rating

Pass or not rated

$

20,990

$

257,598

$

199,426

$

171,956

$

164,679

$

223,861

$

$

2,434

$

1,040,944

Special Mention

5,757

5,757

Substandard

240

3,609

1,763

1,476

10,282

17,370

Doubtful

Total

$

20,990

$

257,838

$

203,035

$

173,719

$

166,155

$

239,900

$

$

2,434

$

1,064,071

YTD Gross Charge-offs

$

$

$

$

13

$

$

$

$

$

13

Residential real estate nonowner-occupied:

Risk Rating

Pass or not rated

$

2,567

$

57,493

$

63,182

$

74,295

$

65,051

$

70,075

$

$

7,636

$

340,299

Special Mention

169

1,928

25

2,122

Substandard

60

60

Doubtful

Total

$

2,567

$

57,662

$

65,110

$

74,295

$

65,051

$

70,160

$

$

7,636

$

342,481

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

Commercial real estate:

Risk Rating

Pass or not rated

$

38,884

$

217,232

$

350,566

$

295,191

$

330,055

$

347,829

$

35,856

$

148,684

$

1,764,297

Special Mention

4,860

5,809

23,247

1,770

35,686

Substandard

7

640

171

818

Doubtful

Total

$

38,884

$

217,232

$

350,573

$

300,051

$

336,504

$

371,247

$

37,626

$

148,684

$

1,800,801

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

Construction and land development:

Risk Rating

Pass or not rated

$

5,061

$

79,899

$

117,704

$

22,655

$

2,689

$

5,217

$

385

$

4,388

$

237,998

Special Mention

Substandard

Doubtful

Total

$

5,061

$

79,899

$

117,704

$

22,655

$

2,689

$

5,217

$

385

$

4,388

$

237,998

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

Commercial and industrial:

Risk Rating

Pass or not rated

$

15,456

$

100,658

$

76,782

$

64,531

$

33,713

$

32,042

$

115,105

$

3,793

$

442,080

Special Mention

138

5,397

1,290

1,347

2,737

187

11,096

Substandard

85

2

340

25

343

795

Doubtful

Total

$

15,456

$

100,796

$

82,264

$

65,823

$

35,060

$

35,119

$

115,317

$

4,136

$

453,971

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

Lease financing receivables:

Risk Rating

Pass or not rated

$

7,362

$

42,950

$

21,864

$

9,023

$

3,979

$

2,117

$

$

$

87,295

Special Mention

412

28

108

156

17

721

Substandard

187

38

31

256

Doubtful

Total

$

7,362

$

43,362

$

22,079

$

9,169

$

4,135

$

2,165

$

$

$

88,272

YTD Gross Charge-offs

$

$

24

$

$

$

$

$

$

$

24

Aircraft:

Risk Rating

Pass or not rated

$

8,049

$

93,208

$

55,071

$

42,213

$

27,419

$

20,100

$

$

$

246,060

Special Mention

Substandard

Doubtful

Total

$

8,049

$

93,208

$

55,071

$

42,213

$

27,419

$

20,100

$

$

$

246,060

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

Home equity:

Risk Rating

Pass or not rated

$

$

$

$

$

$

$

306,523

$

$

306,523

Special Mention

250

250

Substandard

2,310

2,310

Doubtful

Total

$

$

$

$

$

$

$

309,083

$

$

309,083

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

23

Table of Contents

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year (Continued)

Amortized

Converted

As of March 31, 2024

2024

2023

2022

2021

2020

Prior

Cost Basis

to Term

Total

Consumer:

Risk Rating

Pass or not rated

$

3,331

$

4,554

$

1,124

$

144

$

54

$

2,888

$

18,807

$

$

30,902

Special Mention

Substandard

11

11

Doubtful

Total

$

3,331

$

4,554

$

1,124

$

144

$

54

$

2,899

$

18,807

$

$

30,913

YTD Gross Charge-offs

$

$

$

$

$

$

$

345

$

$

345

Warehouse:

Risk Rating

Pass or not rated

$

$

$

$

$

$

$

463,249

$

$

463,249

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

$

463,249

$

$

463,249

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

TRS:

Risk Rating

Pass or not rated

$

41,099

$

16,398

$

$

$

$

$

$

$

57,497

Special Mention

Substandard

Doubtful

Total

$

41,099

$

16,398

$

$

$

$

$

$

$

57,497

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

RCS:

Risk Rating

Pass or not rated

$

8,836

$

23,834

$

5,546

$

452

$

1,209

$

35,351

$

52,483

$

$

127,711

Special Mention

Substandard

2,185

2,185

Doubtful

Total

$

8,836

$

23,834

$

5,546

$

452

$

1,209

$

35,351

$

54,668

$

$

129,896

YTD Gross Charge-offs

$

$

$

$

$

$

$

4,545

$

$

4,545

Grand Total:

Risk Rating

Pass or not rated

$

151,635

$

893,824

$

891,265

$

680,460

$

628,848

$

739,480

$

992,408

$

166,935

$

5,144,855

Special Mention

719

7,353

6,258

7,312

31,783

2,207

55,632

Substandard

240

3,888

1,803

2,116

10,895

4,520

343

23,805

Doubtful

Grand Total

$

151,635

$

894,783

$

902,506

$

688,521

$

638,276

$

782,158

$

999,135

$

167,278

$

5,224,292

YTD Gross Charge-offs

$

$

24

$

$

13

$

$

$

4,890

$

$

4,927

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year

Amortized

Converted

As of December 31, 2023

2023

2022

2021

2020

2019

Prior

Cost Basis

to Term

Total

Residential real estate owner-occupied:

Risk Rating

Pass or not rated

$

346,195

$

200,715

$

175,030

$

167,493

$

59,982

$

170,402

$

$

2,474

$

1,122,291

Special Mention

41

6,309

6,350

Substandard

2,526

1,885

1,226

1,040

9,366

16,043

Doubtful

Total

$

346,236

$

203,241

$

176,915

$

168,719

$

61,022

$

186,077

$

$

2,474

$

1,144,684

YTD Gross Charge-offs

$

$

10

$

16

$

$

$

$

$

$

26

Residential real estate nonowner-occupied:

Risk Rating

Pass or not rated

$

63,405

$

69,827

$

82,814

$

47,395

$

28,416

$

44,280

$

$

7,597

$

343,734

Special Mention

170

1,971

26

2,167

Substandard

16

48

64

Doubtful

Total

$

63,575

$

71,798

$

82,830

$

47,395

$

28,416

$

44,354

$

$

7,597

$

345,965

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

Commercial real estate:

Risk Rating

Pass or not rated

$

342,658

$

439,643

$

351,600

$

174,093

$

84,457

$

179,849

$

32,491

$

143,670

$

1,748,461

Special Mention

23,852

1,020

374

3,668

5,330

1,716

35,960

Substandard

868

868

Doubtful

Total

$

366,510

$

440,663

$

351,974

$

174,093

$

88,125

$

186,047

$

34,207

$

143,670

$

1,785,289

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

Construction and land development:

Risk Rating

Pass or not rated

$

107,827

$

89,106

$

16,936

$

297

$

125

$

125

$

225

$

2,697

$

217,338

Special Mention

Substandard

Doubtful

Total

$

107,827

$

89,106

$

16,936

$

297

$

125

$

125

$

225

$

2,697

$

217,338

YTD Gross Charge-offs

24

Table of Contents

Revolving Loans

Revolving Loans

(in thousands)

Term Loans Amortized Cost Basis by Origination Year (Continued)

Amortized

Converted

As of December 31, 2023

2023

2022

2021

2020

2019

Prior

Cost Basis

to Term

Total

Commercial and industrial:

Risk Rating

Pass or not rated

$

140,753

$

87,497

$

70,149

$

13,150

$

10,175

$

10,782

$

120,069

$

3,968

$

456,543

Special Mention

349

423

3,473

1,476

542

6,263

Substandard

49

36

3

339

25

820

1,272

Doubtful

Total

$

141,151

$

87,956

$

73,625

$

13,150

$

10,514

$

12,258

$

120,636

$

4,788

$

464,078

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

Lease financing receivables:

Risk Rating

Pass or not rated

$

45,824

$

23,956

$

10,265

$

4,571

$

2,344

$

545

$

$

$

87,505

Special Mention

429

30

162

183

27

88

919

Substandard

102

65

167

Doubtful

Total

$

46,253

$

24,088

$

10,427

$

4,754

$

2,371

$

698

$

$

$

88,591

YTD Gross Charge-offs

$

20

$

113

$

$

$

$

8

$

$

$

141

Aircraft:

Risk Rating

Pass or not rated

$

97,761

$

55,896

$

44,721

$

30,628

$

14,195

$

6,850

$

$

$

250,051

Special Mention

Substandard

Doubtful

Total

$

97,761

$

55,896

$

44,721

$

30,628

$

14,195

$

6,850

$

$

$

250,051

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

Home equity:

Risk Rating

Pass or not rated

$

$

$

$

$

$

$

292,890

$

$

292,890

Special Mention

235

235

Substandard

2,008

2,008

Doubtful

Total

$

$

$

$

$

$

$

295,133

$

$

295,133

YTD Gross Charge-offs

$

$

$

$

$

$

$

2

$

$

2

Consumer:

Risk Rating

Pass or not rated

$

3,947

$

1,194

$

181

$

74

$

1,186

$

2,234

$

18,611

$

$

27,427

Special Mention

Substandard

1

12

13

Doubtful

Total

$

3,947

$

1,194

$

181

$

74

$

1,187

$

2,246

$

18,611

$

$

27,440

YTD Gross Charge-offs

$

9

$

11

$

8

$

$

$

7

$

1,147

$

$

1,182

Warehouse:

Risk Rating

Pass or not rated

$

$

$

$

$

$

$

339,723

$

$

339,723

Special Mention

Substandard

Doubtful

Total

$

$

$

$

$

$

$

339,723

$

$

339,723

YTD Gross Charge-offs

$

$

$

$

$

$

$

$

$

TRS:

Risk Rating

Pass or not rated (1)

$

149,207

$

$

$

$

$

$

$

$

149,207

Special Mention

Substandard

Doubtful

Total (1)

$

149,207

$

$

$

$

$

$

$

$

149,207

YTD Gross Charge-offs (1)

$

20,418

$

5,533

$

$

$

$

$

$

$

25,951

RCS:

Risk Rating

Pass or not rated

$

30,607

$

7,203

$

579

$

454

$

996

$

36,372

$

54,634

$

$

130,845

Special Mention

Substandard

1,517

1,517

Doubtful

Total

$

30,607

$

7,203

$

579

$

454

$

996

$

36,372

$

56,151

$

$

132,362

YTD Gross Charge-offs

$

$

$

$

$

$

$

13,912

$

$

13,912

Grand Total:

Risk Rating

Pass or not rated

$

1,328,184

$

975,037

$

752,275

$

438,155

$

201,876

$

451,439

$

858,643

$

160,406

$

5,166,015

Special Mention

24,841

3,444

4,009

183

3,695

13,229

2,493

51,894

Substandard

49

2,664

1,904

1,226

1,380

10,359

3,550

820

21,952

Doubtful

Grand Total

$

1,353,074

$

981,145

$

758,188

$

439,564

$

206,951

$

475,027

$

864,686

$

161,226

$

5,239,861

YTD Gross Charge-offs

$

20,447

$

5,667

$

24

$

$

$

15

$

15,061

$

$

41,214

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

25

Table of Contents

Allowance for Credit Losses on Loans

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

ACLL Roll-forward

Three Months Ended March 31, 

2024

2023

Beginning

Charge-

Ending

Beginning

CBank

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Adjustment*

Provision

offs

Recoveries

Balance

Traditional Banking:

Residential real estate:

Owner-occupied

$

10,337

$

(800)

$

(13)

$

58

$

9,582

$

8,909

$

$

(120)

$

(6)

$

15

$

8,798

Nonowner-occupied

3,047

3

1

3,051

2,831

64

2,895

Commercial real estate

25,830

145

20

25,995

23,739

1,041

47

24,827

Construction & land development

6,060

640

6,700

4,123

329

4,452

Commercial & industrial

4,236

(79)

1

4,158

3,976

1,008

602

90

5,676

Lease financing receivables

1,061

22

(24)

13

1,072

110

592

648

1,350

Aircraft

625

(10)

615

449

12

461

Home equity

5,501

247

1

5,749

4,628

31

1

4,660

Consumer:

Credit cards

1,074

83

(81)

11

1,087

996

112

(40)

12

1,080

Overdrafts

694

27

(238)

80

563

726

52

(247)

64

595

Automobile loans

32

(10)

2

24

87

(16)

(7)

2

66

Other consumer

501

90

(26)

15

580

135

229

(31)

23

356

Total Traditional Banking

58,998

358

(382)

202

59,176

50,709

1,600

2,984

(331)

254

55,216

Warehouse lines of credit

847

309

1,156

1,009

135

1,144

Total Core Banking

59,845

667

(382)

202

60,332

51,718

1,600

3,119

(331)

254

56,360

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

3,929

25,718

275

29,922

3,797

21,715

285

25,797

Other TRS commercial & industrial loans

61

56

30

147

91

93

184

Republic Credit Solutions

18,295

4,181

(4,545)

370

18,301

14,807

1,839

(3,099)

233

13,780

Total Republic Processing Group

22,285

29,955

(4,545)

675

48,370

18,695

23,647

(3,099)

518

39,761

Total

$

82,130

$

30,622

$

(4,927)

$

877

$

108,702

$

70,413

$

1,600

$

26,766

$

(3,430)

$

772

$

96,121

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

The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of March 31, 2024 was primarily based on a static pool analysis of each of the Company’s loan pools using the Company’s loss experience from 2013 through 2023, supplemented by qualitative factor adjustments for current and forecasted conditions. The Company employs one-year forecasts of unemployment and CRE values within its ACLL model, with reversion to long-term averages following the forecasted period. The cumulative loss rate within the Company’s ACLL also includes estimated losses based on an individual evaluation of loans which are either collateral dependent or which do not share risk characteristics with pooled loans, e.g., Loan Modifications.

26

Table of Contents

Nonperforming Loans and Nonperforming Assets

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

(dollars in thousands)

    

March 31, 2024

    

December 31, 2023

    

Loans on nonaccrual status*

$

19,258

$

19,150

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

 

2,116

 

1,468

Total nonperforming loans

 

21,374

 

20,618

Other real estate owned

 

1,486

 

1,370

Total nonperforming assets

$

22,860

$

21,988

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans

 

0.41

%  

 

0.39

%

Nonperforming assets to total loans (including OREO)

 

0.44

 

0.42

Nonperforming assets to total assets

 

0.33

 

0.33

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans

 

0.38

%  

 

0.39

%

Nonperforming assets to total loans (including OREO)

 

0.41

 

0.41

Nonperforming assets to total assets

 

0.33

 

0.35

*

Loans on nonaccrual status include collateral-dependent loans.

**

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

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

Past Due 90-Days-or-More

Nonaccrual

and Still Accruing Interest*

(in thousands)

    

March 31, 2024

    

December 31, 2023

  

  

March 31, 2024

    

December 31, 2023

Traditional Banking:

Residential real estate:

Owner-occupied

$

15,533

$

15,056

$

$

Nonowner-occupied

 

60

 

64

 

 

Commercial real estate

 

795

 

850

 

 

Construction & land development

 

 

 

 

Commercial & industrial

 

744

 

1,221

 

 

Lease financing receivables

 

15

 

 

 

Aircraft

Home equity

 

2,103

 

1,948

 

 

Consumer:

Credit cards

 

 

 

 

Overdrafts

 

 

 

 

Automobile loans

 

8

 

10

 

 

Other consumer

 

 

1

 

 

Total Traditional Banking

19,258

19,150

Warehouse lines of credit

 

 

 

 

Total Core Banking

19,258

19,150

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

Other TRS commercial & industrial loans

 

 

 

 

Republic Credit Solutions

2,116

1,468

Total Republic Processing Group

2,116

1,468

Total

$

19,258

$

19,150

$

2,116

$

1,468

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

27

Table of Contents

Three Months Ended

As of March 31, 2024

March 31, 2024

    

Nonaccrual

    

Nonaccrual

    

Total

Interest Income

Loans with

Loans without

Nonaccrual

Recognized

(in thousands)

ACLL

ACLL

Loans

on Nonaccrual Loans*

Residential real estate:

Owner-occupied

$

303

$

15,230

$

15,533

$

246

Nonowner-occupied

 

19

41

60

15

Commercial real estate

 

795

795

42

Construction & land development

 

Commercial & industrial

 

744

744

Lease financing receivables

 

15

15

Aircraft

Home equity

 

2,103

2,103

49

Consumer

6

2

8

Total

$

1,882

$

17,376

$

19,258

$

352

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

Three Months Ended

As of December 31, 2023

March 31, 2023

    

Nonaccrual

    

Nonaccrual

    

Total

Interest Income

Loans with

Loans without

Nonaccrual

Recognized

(in thousands)

ACLL

ACLL

Loans

on Nonaccrual Loans*

Residential real estate:

Owner-occupied

$

376

$

14,680

$

15,056

$

181

Nonowner-occupied

 

20

44

64

1

Commercial real estate

 

850

850

23

Construction & land development

 

Commercial & industrial

 

1,221

1,221

Lease financing receivables

 

Aircraft

Home equity

 

1,948

1,948

23

Consumer

8

3

11

3

Total

$

2,475

$

16,675

$

19,150

$

231

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

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

28

Table of Contents

Delinquent Loans

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

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

    

 

March 31, 2024

Days

Days

Days

Total

Total

 

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Traditional Banking:

Residential real estate:

Owner-occupied

$

2,861

$

1,453

$

1,507

$

5,821

$

1,058,250

$

1,064,071

Nonowner-occupied

 

 

 

 

 

342,481

 

342,481

Commercial real estate

 

 

 

 

 

1,800,801

 

1,800,801

Construction & land development

 

 

 

 

 

237,998

 

237,998

Commercial & industrial

 

2

 

 

744

 

746

 

453,225

 

453,971

Lease financing receivables

 

7

 

 

15

 

22

 

88,250

 

88,272

Aircraft

246,060

246,060

Home equity

 

464

 

309

 

217

 

990

 

308,093

 

309,083

Consumer:

Credit cards

 

22

 

13

 

 

35

 

16,823

 

16,858

Overdrafts

 

114

 

4

 

 

118

 

511

 

629

Automobile loans

 

 

 

2

 

2

 

2,052

 

2,054

Other consumer

 

52

 

10

 

 

62

 

11,310

 

11,372

Total Traditional Banking

3,522

1,789

2,485

7,796

4,565,854

4,573,650

Warehouse lines of credit

 

 

 

 

 

463,249

 

463,249

Total Core Banking

3,522

1,789

2,485

7,796

5,029,103

5,036,899

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

 

 

 

 

52,101

 

52,101

Other TRS commercial & industrial loans

 

283

 

 

 

283

 

5,113

 

5,396

Republic Credit Solutions

8,211

 

3,006

 

2,116

 

13,333

 

116,563

 

129,896

Total Republic Processing Group

8,494

3,006

2,116

13,616

173,777

187,393

Total

$

12,016

$

4,795

$

4,601

$

21,412

$

5,202,880

$

5,224,292

Delinquency ratio***

 

0.23

%  

 

0.09

%  

 

0.09

%  

 

0.41

%  

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

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

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

29

Table of Contents

    

30 - 59

    

60 - 89

    

90 or More

    

    

    

    

    

    

 

December 31, 2023

Days

Days

Days

Total

Total

 

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

 

Traditional Banking:

Residential real estate:

Owner-occupied

$

3,396

$

769

$

1,638

$

5,803

$

1,138,881

$

1,144,684

Nonowner-occupied

 

 

 

 

 

345,965

 

345,965

Commercial real estate

 

 

 

 

 

1,785,289

 

1,785,289

Construction & land development

 

 

 

 

 

217,338

 

217,338

Commercial & industrial

 

140

 

36

 

1,184

 

1,360

 

462,718

 

464,078

Lease financing receivables

 

18

 

 

 

18

 

88,573

 

88,591

Aircraft

250,051

250,051

Home equity

 

417

 

96

 

254

 

767

 

294,366

 

295,133

Consumer:

Credit cards

 

31

 

4

 

 

35

 

16,619

 

16,654

Overdrafts

 

129

 

1

 

1

 

131

 

563

 

694

Automobile loans

 

 

 

2

 

2

 

2,662

 

2,664

Other consumer

 

53

 

7

 

 

60

 

7,368

 

7,428

Total Traditional Banking

4,184

913

3,079

8,176

4,610,393

4,618,569

Warehouse lines of credit

 

 

 

 

 

339,723

 

339,723

Total Core Banking

4,184

913

3,079

8,176

4,950,116

4,958,292

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

 

 

 

 

103,115

 

103,115

Other TRS commercial & industrial loans

 

 

 

 

 

46,092

 

46,092

Republic Credit Solutions

9,387

 

3,061

 

1,468

 

13,916

 

118,446

 

132,362

Total Republic Processing Group

9,387

3,061

1,468

13,916

267,653

281,569

Total

$

13,571

$

3,974

$

4,547

$

22,092

$

5,217,769

$

5,239,861

Delinquency ratio***

 

0.25

%  

 

0.08

%  

 

0.09

%  

 

0.42

%  

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

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

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

30

Table of Contents

Collateral-Dependent Loans

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

March 31, 2024

December 31, 2023

Secured

    

Secured

Secured

    

Secured

by Real

by Personal

by Real

by Personal

(in thousands)

Estate

Property

Estate

Property

Traditional Banking:

Residential real estate:

Owner-occupied

$

17,287

$

$

18,602

$

Nonowner-occupied

 

60

 

 

64

 

Commercial real estate

 

820

 

 

870

 

Construction & land development

 

 

 

 

Commercial & industrial

 

795

 

 

1,273

 

Lease financing receivables

 

 

256

 

 

108

Aircraft

 

 

Home equity

 

2,310

 

 

2,008

 

Consumer

 

11

 

13

Total Traditional Banking

$

21,272

$

267

$

22,817

$

121

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

Loan Modification Disclosures Pursuant to ASU 2022-02

The following tables show the amortized cost of loans and leases as of the identified period that were both experiencing financial difficulty and modified during the three months prior, segregated by portfolio segment and type of modification. The following tables shows the amortized cost of loans and leases modified by type.

Amortized Cost Basis of Modified Financing Receivables

Three Months Ended March 31, 2024

(dollars in thousands)

Loans (#)

Rate Reduction ($)

Loans (#)

Term Extension ($)

Loans (#)

Principal Deferral ($)

Residential real estate:

Owner-occupied

$

$

$

Nonowner-occupied

Home equity

Republic Processing Group

349

75

Total Loan Modifications

$

$

349

$

75

Amortized Cost Basis of Modified Financing Receivables

Three Months Ended March 31, 2023

(dollars in thousands)

Loans (#)

Rate Reduction ($)

Loans (#)

Term Extension ($)

Loans (#)

Principal Deferral ($)

Residential real estate:

Owner-occupied

$

2

$

265

4

$

344

Home equity

1

72

Republic Processing Group

537

105

Total Loan Modifications

$

2

$

265

542

$

521

Total Loan Modification by Type

Three Months Ended March 31, 2024

Accruing

Nonaccruing

(dollars in thousands)

Loans (#)

Recorded investment ($)

Loans (#)

Recorded investment ($)

Term extension

$

$

Principal deferral

349

75

Total Loan Modifications

349

$

75

$

31

Table of Contents

Total Loan Modification by Type

Three Months Ended March 31, 2023

Accruing

Nonaccruing

(dollars in thousands)

Loans (#)

Recorded investment ($)

Loans (#)

Recorded investment ($)

Term extension

$

2

$

265

Principal deferral

537

105

5

416

Total Loan Modifications

537

$

105

7

$

681

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

Accruing Loan Modifications

Three Months Ended March 31, 2024

% of Total

Amortized

of Financing

(dollars in thousands)

Loans

Cost Basis

Receivable

Republic Processing Group

349

$

75

0.04

%

Total Accruing Loan Modifications

349

$

75

NM

Nonaccruing Loan Modifications

Three Months Ended March 31, 2024

% of Total

Amortized

of Financing

(dollars in thousands)

Loans

Cost Basis

Receivable

Residential real estate:

Owner-occupied

$

%

Home equity

Total Nonaccruing Loan Modifications

$

Three Months Ended March 31, 2023

% of Total

Amortized

of Financing

(dollars in thousands)

Loans

Cost Basis

Receivable

Republic Processing Group

537

$

105

0.07

%

Total Accruing Loan Modifications

537

$

105

NM

Three Months Ended March 31, 2023

% of Total

Amortized

of Financing

(dollars in thousands)

Loans

Cost Basis

Receivable

Residential real estate:

Owner-occupied

6

$

609

0.06

%

Home equity

1

72

0.03

Total Nonaccruing Loan Modifications

7

$

681

0.01

There were no commitments to lend additional amounts to the borrowers included in the previous table. The financial impact of loan modifications was not material for the three months ended March 31, 2024 or March 31, 2023.

32

Table of Contents

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the identified period.

Accruing Loan Modifications

At March 31, 2024

30-89 Days

90+ Days

(in thousands)

Current

Past Due

Past Due

Residential real estate:

Owner occupied

$

475

$

$

Republic Processing Group

75

$

$

Total accruing loan modifications to borrowers experiencing financial difficulty in which modifications were made in the twelve months ended March 31, 2024

$

550

$

$

Nonaccruing Loan Modifications

At March 31, 2024

30-89 Days

90+ Days

(in thousands)

Current

Past Due

Past Due

Residential real estate:

Owner-occupied

$

267

$

$

109

Home equity

617

25

Total nonaccruing loan modifications to borrowers experiencing financial difficulty in which modifications were made in the twelve months ended March 31, 2024

$

884

$

$

134

Accruing Loan Modifications

At March 31, 2023

30-89 Days

90+ Days

(in thousands)

Current

Past Due

Past Due

Residential real estate:

Owner occupied

$

$

$

Republic Processing Group

105

$

$

Total accruing loan modifications to borrowers experiencing financial difficulty in which modifications were made in the twelve months ended March 31, 2023

$

105

$

$

Nonaccruing Loan Modifications

At March 31, 2023

30-89 Days

90+ Days

(in thousands)

Current

Past Due

Past Due

Residential real estate:

Owner-occupied

$

609

$

$

Home equity

72

Total nonaccruing loan modifications to borrowers experiencing financial difficulty in which modifications were made in the twelve months ended March 31, 2023

$

681

$

$

There were no modified loans and leases that had a payment default during the three months ended March 31, 2024 or March 31, 2023 that were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

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

33

Table of Contents

Foreclosures

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

(in thousands)

March 31, 2024

December 31, 2023

 

Commercial real estate

$

1,486

$

1,370

Total other real estate owned

$

1,486

 

$

1,370

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

(in thousands)

    

March 31, 2024

    

December 31, 2023

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

 

$

1,746

 

$

1,556

Refund Advances

The Company’s TRS segment offered (i) its RA product during the first two months of 2024, along with its ERA product during December 2023 and the first two weeks of 2024 and (ii) its RA product during the first two months of 2023, along with its ERA product during December 2022 and the first two weeks of 2023. The ERA originations during December 2023 and the first two weeks of 2024 were made in relation to estimated tax returns that were anticipated to be filed during the first quarter 2024 tax season, while the ERA originations during December 2022 and the first two weeks of 2023 were made in relation to estimated tax returns that were anticipated to be filed during the first quarter 2023 tax season. Each year, all unpaid RAs, including ERAs, are charged off by June 30th, and each quarter thereafter, any credits to the Provision for RAs, including ERAs, match the recovery of previously charged-off accounts.

Information regarding RAs follows:

Three Months Ended

    

March 31, 

(dollars in thousands)

    

2024

  

2023

Refund Advances originated

 

$

771,091

$

737,047

Net charge to the Provision for RAs, including ERAs

 

25,718

21,715

Provision as a percentage of RAs, including ERAs, originated

3.34

%  

2.95

%  

Refund Advances net charge-offs (recoveries)

 

$

(275)

$

(285)

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

(0.04)

%  

(0.04)

%  

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Table of Contents

6. DEPOSITS

The composition of the deposit portfolio follows:

(in thousands)

    

March 31, 2024

    

December 31, 2023

 

Core Bank:

Demand

$

1,179,771

$

1,158,051

Money market accounts

 

1,078,549

 

1,007,356

Savings

 

355,260

 

263,238

Reciprocal money market

 

221,779

 

188,078

Individual retirement accounts (1)

 

34,208

 

33,793

Time deposits, $250 and over (1)

 

113,096

 

101,787

Other certificates of deposit (1)

 

239,258

 

225,614

Reciprocal time deposits (1)

 

90,857

 

90,857

Wholesale brokered deposits (1)

349,298

88,767

Total Core Bank interest-bearing deposits

 

3,662,076

 

3,157,541

Total Core Bank noninterest-bearing deposits

1,180,237

1,239,466

Total Core Bank deposits

4,842,313

4,397,007

Republic Processing Group:

Wholesale brokered deposits (1)

199,960

Interest-bearing prepaid card deposits

379,677

Money market accounts

19,380

18,664

Total RPG interest-bearing deposits

399,057

218,624

Noninterest-bearing prepaid card deposits

318,769

Other noninterest-bearing deposits

179,279

118,763

Total RPG noninterest-bearing deposits

179,279

437,532

Total RPG deposits

578,336

656,156

Total deposits

$

5,420,649

$

5,053,163

(1)Includes time deposit.

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Table of Contents

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

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

As of March 31, 2024 and December 31, 2023, all securities sold under agreements to repurchase had overnight maturities. Additional information regarding securities sold under agreements to repurchase follows:

(dollars in thousands)

    

March 31, 2024

  

  

December 31, 2023

    

Outstanding balance at end of period

$

84,522

$

97,618

Weighted average interest rate at end of period

 

0.59

%  

 

0.50

%  

Fair value of securities pledged:

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

$

86,171

$

99,530

Total securities pledged

$

86,171

$

99,530

Three Months Ended

March 31, 

(dollars in thousands)

  

2024

  

  

2023

Average outstanding balance during the period

$

102,592

 

$

202,910

Weighted average interest rate during the period

0.51

%  

0.49

%  

Maximum outstanding at any month end during the period

$

113,281

 

$

224,067

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Table of Contents

8. FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:

(in thousands)

    

March 31, 2024

    

December 31, 2023

 

Overnight advances

$

$

110,000

Fixed interest rate advances

 

270,000

 

270,000

Total FHLB advances

$

270,000

$

380,000

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. FHLB advances are collateralized by a blanket pledge of eligible real estate loans. As of March 31, 2024 and December 31, 2023, Republic had available borrowing capacity of $1.0 billion and $730 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $100 million available through various other financial institutions as of March 31, 2024 and December 31, 2023.

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

    

    

    

Weighted

 

Average

 

Year (dollars in thousands)

Principal

Rate

 

2024

 

$

%

2025

 

 

2026

 

30,000

 

4.82

2027

80,000

 

4.01

2028

 

160,000

 

4.39

Total

$

270,000

 

4.33

%

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

Three Months Ended

March 31, 

(dollars in thousands)

    

2024

    

2023

    

Average outstanding balance during the period

 

$

266,209

 

$

225,344

 

Weighted average interest rate during the period

5.44

%

4.43

%

Maximum outstanding at any month end during the period

 

$

760,000

 

$

485,000

 

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

(in thousands)

    

March 31, 2024

    

December 31, 2023

 

First-lien, single family residential real estate

$

1,250,774

$

1,345,752

Home equity lines of credit

 

268,442

 

266,389

Multi-family commercial real estate

 

133,908

 

133,565

Commercial real estate

377,934

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Table of Contents

9. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

Commitments to Extend Credit

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

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

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

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

(in thousands)

    

March 31, 2024

    

December 31, 2023

Unused warehouse lines of credit

$

469,751

$

623,277

Unused home equity lines of credit

 

460,311

 

446,006

Unused loan commitments - other

 

1,146,352

 

1,159,284

Standby letters of credit

 

11,091

 

11,012

FHLB letter of credit

 

 

Total commitments

$

2,087,505

$

2,239,579

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

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

ACLC Roll-forward

Three Months Ended March 31, 

2024

2023

Beginning

Charge-

Ending

Beginning

Charge-

Ending

(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Provision

offs

Recoveries

Balance

Loan Commitments

Unused warehouse lines of credit

$

116

$

(8)

$

$

$

108

$

190

$

8

$

$

$

198

Unused home equity lines of credit

55

31

86

332

9

341

Unused construction lines of credit

820

(179)

641

384

163

547

Unused loan commitments - other

349

46

395

344

30

374

Total

$

1,340

$

(110)

$

$

$

1,230

$

1,250

$

210

$

$

$

1,460

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

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Table of Contents

10. FAIR VALUE

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

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

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

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

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

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

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

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

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

The Company acquired its TRUP investment in 2015 and considered the most recent bid price for the same instrument to approximate market value as of March 31, 2024. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

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

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

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

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

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

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Table of Contents

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

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

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

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

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

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

40

Table of Contents

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below. Information as of March 31, 2024 is presented net of any applicable ACL.

Fair Value Measurements at 

 

March 31, 2024 Using:

 

    

Quoted Prices in

    

Significant

    

    

    

    

 

Active Markets

Other

Significant

 

for Identical

Observable

Unobservable

Total

 

Assets

Inputs

Inputs

Fair

 

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

 

Financial assets:

Available-for-sale debt securities:

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

$

148,755

$

264,370

$

$

413,125

Private label mortgage-backed security

 

 

 

1,772

 

1,772

Mortgage-backed securities - residential

 

 

145,822

 

 

145,822

Collateralized mortgage obligations

 

 

21,040

 

 

21,040

Corporate bonds

2,019

2,019

Trust preferred security

 

 

 

4,027

 

4,027

Total available-for-sale debt securities

$

148,755

$

433,251

$

5,799

$

587,805

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

235

$

$

235

Total equity securities with readily determinable fair value

$

$

235

$

$

235

Mortgage loans held for sale

$

$

80,884

$

$

80,884

Consumer loans held for sale

6,093

6,093

Rate lock commitments

 

 

466

 

 

466

Interest rate swap agreements

7,870

7,870

Financial liabilities:

Mandatory forward contracts

$

$

77

$

$

77

Interest rate swap agreements

7,870

7,870

Fair Value Measurements at

 

December 31, 2023 Using:

 

    

Quoted Prices in

    

Significant

    

    

    

    

 

Active Markets

Other

Significant

 

for Identical

Observable

Unobservable

Total

 

Assets

Inputs

Inputs

Fair

 

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

 

Financial assets:

Available-for-sale debt securities:

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

$

177,784

$

229,249

$

$

407,033

Private label mortgage-backed security

 

 

 

1,773

 

1,773

Mortgage-backed securities - residential

 

 

154,710

 

 

154,710

Collateralized mortgage obligations

 

 

21,659

 

 

21,659

Corporate bonds

2,020

2,020

Trust preferred security

 

 

 

4,118

 

4,118

Total available-for-sale debt securities

$

177,784

$

407,638

$

5,891

$

591,313

Equity securities with readily determinable fair value:

Freddie Mac preferred stock

$

$

174

$

$

174

Total equity securities with readily determinable fair value

$

$

174

$

$

174

Mortgage loans held for sale

$

$

3,227

$

$

3,227

Consumer loans held for sale

7,914

7,914

Rate lock commitments

 

 

243

 

 

243

Interest rate swap agreements

 

 

8,933

 

 

8,933

Financial liabilities:

Mandatory forward contracts

$

$

61

$

$

61

Interest rate swap agreements

8,933

 

8,933

41

Table of Contents

All transfers between levels are generally recognized at the end of each quarter. There were no transfers into or out of Level 1, 2, or 3 assets during the three months ended March 31, 2024 and 2023.

Private Label Mortgage-Backed Security

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

  

Three Months Ended

March 31, 

(in thousands)

2024

2023

    

Balance, beginning of period

$

1,773

$

2,127

Total gains or losses included in earnings:

Net change in unrealized gain (loss)

 

57

 

5

Principal paydowns

 

(58)

 

(122)

Balance, end of period

$

1,772

$

2,010

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

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

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

    

Fair

    

Valuation

    

    

    

 

March 31, 2024 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage-backed security

$

1,772

 

Discounted cash flow

 

(1) Constant prepayment rate

 

3.9% - 4.6%

 

(2) Probability of default

 

1.8% - 9.4%

 

(3) Loss severity

 

22% - 35%

    

Fair

    

Valuation

    

    

    

 

December 31, 2023 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

 

Private label mortgage-backed security

$

1,773

 

Discounted cash flow

 

(1) Constant prepayment rate

 

3.9% - 4.5%

 

(2) Probability of default

 

1.8% - 9.4%

 

(3) Loss severity

 

25% - 35%

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Table of Contents

Trust Preferred Security

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

    

Three Months Ended

March 31, 

(in thousands)

2024

2023

Balance, beginning of period

$

4,118

$

3,855

Total gains or losses included in earnings:

Discount accretion

15

14

Net change in unrealized gain (loss)

 

(106)

 

132

Balance, end of period

$

4,027

$

4,001

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

Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2024 and December 31, 2023.

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

(in thousands)

    

March 31, 2024

    

December 31, 2023

 

Aggregate fair value

$

80,884

$

3,227

Contractual balance

 

80,681

 

3,168

Unrealized gain

 

203

 

59

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

Three Months Ended

    

March 31, 

(in thousands)

    

2024

    

2023

Interest income

$

86

$

61

Change in fair value

 

145

 

(8)

Total included in earnings

$

231

$

53

Consumer Loans Held for Sale

RCS carries loans originated through its installment loan program at fair value. Interest income is recorded based on the contractual terms of the loan and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2024 and December 31, 2023.

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

43

Table of Contents

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

    

Fair

    

Valuation

    

    

    

March 31, 2024 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$

6,093

 

Contract Terms

 

(1) Net Premium

 

0.15%

 

(2) Discounted Sales

 

10.00%

    

Fair

    

Valuation

    

    

    

December 31, 2023 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

$

7,914

 

Contract Terms

 

(1) Net Premium

 

0.15%

 

(2) Discounted Sales

 

10.00%

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

(in thousands)

    

March 31, 2024

    

December 31, 2023

Aggregate fair value

$

6,093

$

7,914

Contractual balance

 

6,129

 

7,964

Unrealized loss

 

(36)

 

(50)

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

Three Months Ended

March 31, 

(in thousands)

    

2024

    

2023

Interest income

$

1,173

$

765

Change in fair value

 

14

 

3

Total included in earnings

$

1,187

$

768

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Table of Contents

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

Fair Value Measurements at

March 31, 2024 Using:

    

Quoted Prices in

    

Significant

    

    

    

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Total

Assets

Inputs

Inputs

Fair

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

Other real estate owned:

Commercial real estate

$

$

$

1,486

$

1,486

Total other real estate owned

$

$

$

1,486

$

1,486

Fair Value Measurements at

December 31, 2023 Using:

    

Quoted Prices in

    

Significant

    

    

    

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Total

Assets

Inputs

Inputs

Fair

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

Collateral-dependent loans:

Residential real estate:

Owner-occupied

$

$

$

1,580

$

1,580

Commercial real estate

 

 

 

795

 

795

Home equity

 

 

 

104

 

104

Total collateral-dependent loans*

$

$

$

2,479

$

2,479

Other real estate owned:

Residential real estate

$

$

$

1,370

$

1,370

Total other real estate owned

$

$

$

1,370

$

1,370

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

    

    

    

    

    

    

    

Range

Fair

Valuation

Unobservable

(Weighted

March 31, 2024 (dollars in thousands)

Value

Technique

Inputs

Average)

Other real estate owned - commercial real estate

$

1,486

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

39% (39%)

    

    

    

    

    

    

    

Range

Fair

Valuation

Unobservable

(Weighted

December 31, 2023 (dollars in thousands)

Value

Technique

Inputs

Average)

Collateral-dependent loans - residential real estate owner-occupied

$

1,580

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

0% - 27% (4%)

Collateral-dependent loans - commercial real estate

$

795

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

11% (11%)

Collateral-dependent loans - home equity

$

104

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

5% (5%)

Other real estate owned - commercial real estate

$

1,370

 

Sales comparison approach

 

Adjustments determined for differences between comparable sales

 

39% (39%)

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Table of Contents

Collateral-Dependent Loans

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

Collateral-dependent loans are as follows:

Three Months Ended

March 31, 

(in thousands)

    

2024

    

2023

Provision on collateral-dependent loans

$

(7)

$

(19)

Other Real Estate Owned

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

    

(in thousands)

March 31, 2024

    

December 31, 2023

    

Other real estate owned carried at fair value

$

1,486

$

1,370

Total carrying value of other real estate owned

$

1,486

$

1,370

Three Months Ended

    

March 31, 

(in thousands)

    

2024

    

2023

Other real estate owned write-downs during the period

$

53

$

52

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

Fair Value Measurements at

 

March 31, 2024:

 

    

    

    

    

    

    

    

    

Total

 

Carrying

Fair

 

(in thousands)

Value

Level 1

Level 2

Level 3

Value

 

Assets:

Cash and cash equivalents

$

546,363

$

546,363

$

$

$

546,363

Available-for-sale debt securities

 

587,805

 

148,755

 

433,251

 

5,799

 

587,805

Held-to-maturity debt securities

 

76,254

 

 

76,119

 

 

76,119

Equity securities with readily determinable fair values

235

235

235

Mortgage loans held for sale, at fair value

 

80,884

 

 

80,884

 

 

80,884

Consumer loans held for sale, at fair value

6,093

6,093

6,093

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

13,083

13,083

13,083

Loans, net

 

5,115,590

 

 

 

4,843,728

 

4,843,728

Federal Home Loan Bank stock

 

43,729

 

 

 

 

NA

Accrued interest receivable

 

20,325

 

 

4,111

 

16,214

 

20,325

Mortgage servicing rights

7,102

16,054

16,054

Rate lock commitments

466

466

466

Interest rate swap agreements

7,870

7,870

7,870

Liabilities:

Noninterest-bearing deposits

$

1,359,516

$

$

1,359,516

$

$

1,359,516

Transaction deposits

 

3,583,714

 

 

3,583,714

 

 

3,583,714

Time deposits

 

477,419

 

 

473,818

 

 

473,818

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

 

86,171

 

 

86,171

 

 

86,171

Federal Home Loan Bank advances

 

270,000

 

 

270,565

 

 

270,565

Accrued interest payable

 

6,905

 

 

6,905

 

 

6,905

Rate lock commitments

466

466

466

Mandatory forward contracts

(77)

(77)

(77)

Interest rate swap agreements

7,870

7,870

7,870

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Fair Value Measurements at

 

December 31, 2023:

 

    

    

    

    

    

    

    

    

    

Total

 

Carrying

Fair

 

(in thousands)

Value

Level 1

Level 2

Level 3

Value

 

Assets:

Cash and cash equivalents

$

316,567

$

316,567

$

$

$

316,567

Available-for-sale debt securities

 

 

 

 

 

Held-to-maturity debt securities

 

76,387

 

 

76,167

 

 

76,167

Equity securities with readily determinable fair values

174

Mortgage loans held for sale, at fair value

 

3,227

 

 

3,227

 

 

3,227

Consumer loans held for sale, at fair value

7,914

7,914

7,914

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

16,094

16,094

16,094

Loans, net

 

5,157,731

 

 

 

4,874,974

 

4,874,974

Federal Home Loan Bank stock

 

23,770

 

 

 

 

NA

Accrued interest receivable

 

18,447

 

 

4,097

 

14,350

 

18,447

Mortgage servicing rights

7,411

16,054

16,054

Rate lock commitments

243

243

243

Interest rate swap agreements

8,933

8,933

8,933

Liabilities:

Noninterest-bearing deposits

$

1,676,998

$

$

1,676,998

$

$

1,676,998

Transaction deposits

 

2,924,114

 

 

2,924,114

 

 

2,924,114

Time deposits

 

452,051

 

 

446,218

 

 

446,218

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

 

 

 

 

 

Federal Home Loan Bank advances

 

380,000

 

 

382,062

 

 

382,062

Accrued interest payable

 

4,073

 

 

4,073

 

 

4,073

Rate lock commitments

 

243

243

243

Mandatory forward contracts

61

61

61

Interest rate swap agreements

8,933

8,933

8,933

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11. MORTGAGE BANKING ACTIVITIES

Mortgage banking activities primarily include residential mortgage originations and servicing.

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

    

Three Months Ended

    

March 31, 

(in thousands)

2024

    

2023

Balance, beginning of period

$

3,227

$

1,302

Origination of mortgage loans held for sale

 

27,046

 

15,942

Transferred from held for investment to held for sale

69,464

Proceeds from the sale of mortgage loans held for sale

 

(18,773)

 

(16,630)

Net gain (loss) on mortgage loans held for sale

 

(80)

 

420

Balance, end of period

$

80,884

$

1,034

The following table presents the components of Mortgage banking income:

    

    

Three Months Ended

March 31, 

(in thousands)

2024

    

2023

Net gain realized on sale of mortgage loans held for sale

$

565

$

248

Net loss realized on fair value adjustment for correspondent loans reclassified to held for sale

(997)

Net change in fair value recognized on loans held for sale

 

145

 

(8)

Net change in fair value recognized on rate lock loan commitments

 

223

 

94

Net change in fair value recognized on forward contracts

 

(16)

 

86

Net gain (loss) recognized

 

(80)

 

420

Loan servicing income

 

816

 

870

Amortization of mortgage servicing rights

 

(426)

 

(490)

Change in mortgage servicing rights valuation allowance

 

 

Net servicing income recognized

 

390

 

380

Total mortgage banking income

$

310

$

800

Activity for capitalized mortgage servicing rights was as follows:

Three Months Ended

March 31, 

(in thousands)

    

2024

    

2023

Balance, beginning of period

$

7,411

$

8,769

Additions

 

118

 

127

Amortized to expense

 

(426)

 

(490)

Change in valuation allowance

 

 

Balance, end of period

$

7,103

$

8,406

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

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Other information relating to mortgage servicing rights follows:

(dollars in thousands)

    

March 31, 2024

  

  

December 31, 2023

 

Fair value of mortgage servicing rights portfolio

$

16,704

$

16,054

Monthly weighted average prepayment rate of unpaid principal balance*

 

124

%

 

128

%

Discount rate

10.09

%

10.26

%

Weighted average foreclosure rate

0.16

%

0.16

%

Weighted average life in years

 

7.58

 

7.52

*

Rates are applied to individual tranches with similar characteristics.

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

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

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

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

March 31, 2024

    

December 31, 2023

Notional

Notional

(in thousands)

Amount

    

Fair Value

Amount

    

Fair Value

Included in Mortgage loans held for sale:

Mortgage loans held for sale, at fair value

$

80,681

$

80,884

$

3,168

$

3,227

Included in other assets:

Rate lock loan commitments

$

16,380

$

466

$

9,275

$

243

Included in other liabilities:

Mandatory forward contracts

$

22,317

$

77

$

9,092

$

61

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12. INTEREST RATE SWAPS

Non-hedge Interest Rate Swaps

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

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

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

    

March 31, 2024

December 31, 2023

Notional

Notional

(in thousands)

    

Bank Position

Amount

    

Fair Value

    

Amount

    

Fair Value

Interest rate swaps with Bank clients - Assets

 

Pay variable/receive fixed

 

$

131,515

$

1,602

 

$

120,442

 

$

4,066

Interest rate swaps with Bank clients - Liabilities

 

Pay variable/receive fixed

 

100,463

 

(6,311)

 

95,820

(4,867)

Interest rate swaps with Bank clients - Total

 

Pay variable/receive fixed

 

$

231,978

 

$

(4,709)

 

$

216,262

 

$

(801)

Offsetting interest rate swaps with institutional swap dealer - Assets

Pay fixed/receive variable

100,463

6,311

95,820

4,867

Offsetting interest rate swaps with institutional swap dealer - Liabilities

Pay fixed/receive variable

131,515

(1,602)

120,442

(4,066)

Offsetting interest rate swaps with institutional swap dealer - Total

Pay fixed/receive variable

$

231,978

 

$

4,709

 

$

216,262

 

$

801

Total

 

$

463,956

$

 

$

432,524

$

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

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13. EARNINGS PER SHARE

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

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

Three Months Ended

March 31, 

Years Ended December 31, (in thousands, except per share data)

    

2024

    

2023

    

Net income

$

30,606

$

28,092

Dividends declared on Common Stock:

Class A Shares

(6,986)

(6,581)

Class B Shares

(796)

(734)

Undistributed net income for basic earnings per share

22,824

20,777

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

(36)

(21)

Undistributed net income for diluted earnings per share

$

22,788

$

20,756

Weighted average shares outstanding:

Class A Shares

 

17,456

 

17,776

Class B Shares

2,151

2,159

Effect of dilutive securities on Class A Shares outstanding

 

87

 

55

Weighted average shares outstanding including dilutive securities

 

19,694

 

19,990

Basic earnings per share:

Class A Common Stock:

Per share dividends distributed

$

0.41

$

0.37

Undistributed earnings per share*

1.18

1.05

Total basic earnings per share - Class A Common Stock

$

1.59

$

1.42

Class B Common Stock:

Per share dividends distributed

$

0.37

$

0.34

Undistributed earnings per share*

1.07

0.96

Total basic earnings per share - Class B Common Stock

$

1.44

$

1.30

Diluted earnings per share:

Class A Common Stock:

Per share dividends distributed

$

0.41

$

0.37

Undistributed earnings per share*

1.17

1.05

Total diluted earnings per share - Class A Common Stock

$

1.58

$

1.42

Class B Common Stock:

Per share dividends distributed

$

0.37

$

0.34

Undistributed earnings per share*

1.06

0.95

Total diluted earnings per share - Class B Common Stock

$

1.43

$

1.29

*

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

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Table of Contents

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

Three Months Ended

March 31, 

    

2024

    

2023

Antidilutive stock options

 

52,781

245,898

Average antidilutive stock options

 

52,781

245,898

14. OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:

    

Three Months Ended

March 31, 

(in thousands)

    

2024

    

2023

Available-for-Sale Debt Securities:

Unrealized gain (loss) on AFS debt securities

$

592

$

5,205

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

 

57

 

5

Net gains (losses)

 

649

 

5,210

Income tax benefit (expense) related to items of other comprehensive income

 

(163)

 

(1,305)

Net of tax

$

486

$

3,905

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

    

    

2024

    

 

(in thousands)

December 31, 2023

Change

March 31, 2024

 

Unrealized gain (loss) on AFS debt securities

$

(21,409)

$

429

$

(20,980)

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

 

1,001

 

57

 

1,058

Total unrealized gain (loss)

$

(20,408)

$

486

$

(19,922)

    

    

2023

    

 

(in thousands)

December 31, 2022

Change

March 31, 2023

 

Unrealized gain (loss) on AFS debt securities

$

(32,934)

$

3,900

$

(29,034)

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

 

955

 

5

 

960

Total unrealized gain (loss)

$

(31,979)

$

3,905

$

(28,074)

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15. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

Three Months Ended March 31, 2024

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Republic

Traditional

Warehouse

Core

Refund

Payment

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Solutions

Solutions

Solutions

RPG

Company

 

Net interest income (1)

$

48,259

$

2,257

   

$

50,516

$

30,910

$

3,508

$

11,985

$

46,403

$

96,919

Noninterest income:

Service charges on deposit accounts

3,299

13

3,312

1

1

3,313

Net refund transfer fees

 

 

 

 

10,820

 

 

 

10,820

 

10,820

Mortgage banking income (1)

 

310

 

 

310

 

 

 

 

 

310

Interchange fee income

3,117

3,117

39

1

40

3,157

Program fees (1)

773

3,406

4,179

4,179

Increase in cash surrender value of BOLI (1)

754

754

754

Net losses on OREO

(53)

(53)

(53)

Other

 

869

 

 

869

 

24

 

 

 

24

 

893

Total noninterest income

 

8,296

 

13

 

8,309

 

10,883

 

774

 

3,407

 

15,064

 

23,373

Total net revenue

$

56,555

$

2,270

$

58,825

$

41,793

$

4,282

$

15,392

$

61,467

$

120,292

Net-revenue concentration (2)

46

%  

2

%  

48

%  

35

%  

4

%  

13

%  

52

%  

100

%  

Three Months Ended March 31, 2023

 

Core Banking

Republic Processing Group

 

Total

Tax

Republic

Republic

Traditional

Warehouse

Core

Refund

Payment

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Solutions

Solutions

Solutions

RPG

Company

 

Net interest income (1)

$

50,168

$

2,087

   

$

52,255

$

28,307

$

3,458

$

8,622

$

40,387

$

92,642

Noninterest income:

Service charges on deposit accounts

3,288

11

3,299

3,299

Net refund transfer fees

 

 

 

 

10,807

 

 

 

10,807

 

10,807

Mortgage banking income (1)

 

800

 

 

800

 

 

 

 

 

800

Interchange fee income

3,006

3,006

44

1

45

3,051

Program fees (1)

707

2,534

3,241

3,241

Increase in cash surrender value of BOLI (1)

635

635

635

Net losses on OREO

(53)

(53)

(53)

Other

 

795

 

 

795

 

71

 

10

 

25

 

106

 

901

Total noninterest income

 

8,471

 

11

 

8,482

 

10,922

 

718

 

2,559

 

14,199

 

22,681

Total net revenue

$

58,639

$

2,098

$

60,737

$

39,229

$

4,176

$

11,181

$

54,586

$

115,323

Net-revenue concentration (2)

50

%  

2

%  

52

%  

34

%  

4

%  

10

%  

48

%  

100

%  

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

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

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

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

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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.

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16. SEGMENT INFORMATION

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

As of March 31, 2024, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending, TRS, RPS, and RCS. Management considers the first two segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last three segments collectively constitute RPG operations.

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

Reportable Segment:

Nature of Operations:

Primary Drivers of Net Revenue:

Core Banking:

Traditional Banking

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

Loans, investments, and deposits

Warehouse Lending

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

Mortgage warehouse lines of credit

Republic Processing Group:

Tax Refund Solutions

TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax refunds through Refund Transfer products. TRS products are primarily provided to clients outside of the Bank’s market footprint.

Loans and refund transfers

Republic Payment Solutions

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

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 2023 Annual Report on Form 10-K. Republic evaluates segment performance using operating income. The Company allocates goodwill to the Traditional Banking segment. Republic generally allocates income taxes based on income before income tax expense unless reasonable and specific segment allocations can be made. The Company makes transactions among reportable segments at carrying value.

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Segment information follows:

Three Months Ended March 31, 2024

 

Core Banking

Republic Processing Group

 

    

    

    

    

Total

    

    

Tax

Republic

Republic

    

    

 

Traditional

Warehouse

Core

Refund

Payment

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Solutions

Solutions

Solutions

RPG

Company

 

Net interest income

$

48,259

$

2,257

$

50,516

$

30,910

$

3,508

$

11,985

$

46,403

$

96,919

Provision for expected credit loss expense

 

358

 

309

 

667

 

25,774

 

 

4,181

 

29,955

 

30,622

Net refund transfer fees

 

 

 

 

10,820

 

 

 

10,820

 

10,820

Mortgage banking income

 

310

 

 

310

 

 

 

 

 

310

Program fees

773

3,406

4,179

4,179

Other noninterest income

 

7,986

 

13

 

7,999

 

63

 

1

 

1

 

65

 

8,064

Total noninterest income

 

8,296

 

13

 

8,309

 

10,883

 

774

 

3,407

 

15,064

 

23,373

Total noninterest expense

 

41,394

 

878

 

42,272

 

4,512

 

954

 

3,233

 

8,699

 

50,971

Income (loss) before income tax expense

 

14,803

 

1,083

 

15,886

 

11,507

 

3,328

 

7,978

 

22,813

 

38,699

Income tax expense (benefit)

2,520

244

2,764

2,714

761

1,854

5,329

8,093

Net income (loss)

$

12,283

$

839

$

13,122

$

8,793

$

2,567

$

6,124

$

17,484

$

30,606

Period-end assets

$

5,766,166

$

463,664

$

6,229,830

$

106,401

$

406,847

$

132,514

$

645,762

$

6,875,592

Net interest margin

 

3.33

%  

 

2.67

%  

 

3.30

%  

 

NM

 

5.07

%  

 

NM

 

NM

 

5.87

%  

Net-revenue concentration*

46

%  

2

%  

48

%  

35

%

4

%  

13

%  

52

%  

100

%  

Three Months Ended March 31, 2023

 

Core Banking

Republic Processing Group

 

    

    

    

    

Total

    

    

Tax

Republic

Republic

    

    

 

Traditional

Warehouse

Core

Refund

Payment

Credit

Total

Total

 

(dollars in thousands)

Banking

Lending

Banking

Solutions

Solutions

Solutions

RPG

Company

 

Net interest income

$

50,168

$

2,087

$

52,255

$

28,307

$

3,458

$

8,622

$

40,387

$

92,642

Provision for expected credit loss expense

 

2,984

 

135

 

3,119

 

21,808

 

 

1,839

 

23,647

 

26,766

Net refund transfer fees

 

 

 

 

10,807

 

 

 

10,807

 

10,807

Mortgage banking income

 

800

 

 

800

 

 

 

 

 

800

Program fees

707

2,534

3,241

3,241

Other noninterest income

 

7,671

 

11

 

7,682

 

115

 

11

 

25

 

151

 

7,833

Total noninterest income

 

8,471

 

11

 

8,482

 

10,922

 

718

 

2,559

 

14,199

 

22,681

Total noninterest expense

 

43,406

 

968

 

44,374

 

4,782

 

866

 

2,421

 

8,069

 

52,443

Income before income tax expense

 

12,249

 

995

 

13,244

 

12,639

 

3,310

 

6,921

 

22,870

 

36,114

Income tax expense

 

2,713

 

223

 

2,936

 

2,806

 

735

 

1,545

 

5,086

 

8,022

Net income

$

9,536

$

772

$

10,308

$

9,833

$

2,575

$

5,376

$

17,784

$

28,092

Period-end assets

$

4,987,423

$

458,675

$

5,446,098

$

95,462

$

415,688

$

116,843

$

627,993

$

6,074,091

Net interest margin

 

4.07

%  

 

2.53

%  

 

3.98

%  

 

NM

 

3.84

%  

 

NM

 

NM

 

6.52

%  

Net-revenue concentration*

50

%  

2

%  

52

%  

34

%

4

%  

10

%  

48

%  

100

%  

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

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

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

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

Broadly speaking, forward-looking statements include:

the potential impact of inflation on Company operations;
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 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;
future acquisitions;
integrations of acquired businesses;
changes in technology;

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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 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 cybersecurity 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, 2023 and Part II Item 1A “Risk Factors” of the current filing.

Accounting Standards Update

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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

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

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

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

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

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

BUSINESS SEGMENT COMPOSITION

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

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

(I)Traditional Banking segment

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

Kentucky — 29

Metropolitan Louisville — 19

Central Kentucky — 6

Georgetown — 1

Lexington — 5

Northern Kentucky (Metropolitan Cincinnati) — 4

Bellevue— 1

Covington — 1

Crestview Hills — 1

Florence — 1

Indiana — 3

Southern Indiana (Metropolitan Louisville) — 3

Floyds Knobs — 1

Jeffersonville — 1

New Albany — 1

Florida — 7

Metropolitan Tampa — 7

Ohio — 4

Metropolitan Cincinnati — 4

Tennessee — 4

Metropolitan Nashville — 4

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

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

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

Mortgage banking — Mortgage banking activities primarily include 15-, 20- and 30-year fixed-term single-family, first-lien residential real estate loans that are originated and sold into the secondary market, primarily to the FHLMC and the FNMA. The Bank typically retains servicing on loans sold into the secondary market. Administration of loans with servicing retained by the

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Bank includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors. The Bank receives fees for performing these standard servicing functions.

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

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

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

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

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

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

Aircraft LendingAircraft 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

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the Correspondent Lending channel will be amortized into interest income on the level-yield method over the expected life of the loan. Loans acquired through the Correspondent Lending channel are generally made to borrowers outside of the Bank’s historical market footprint.

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

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

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

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

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

(II)  Warehouse Lending segment

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

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

(III)  Tax Refund Solutions segment

Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). The majority of all the business generated by the TRS business occurs during the first half of each year. During the second half of each year, TRS generates limited revenue and incurs costs preparing for the next year’s tax season. During December 2023, TRS originated $103 million of ERAs related to tax returns that were anticipated to be filed during the first quarter 2024 tax filing season. Of these ERAs, $11 million remained outstanding as of March 31, 2024.

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

The RA credit product is a loan made in conjunction with the filing of a taxpayer’s federal tax return, which allows the taxpayer to borrow funds as an advance of a portion of their tax refund. The RA product had the following features during the first quarters of 2024 and 2023:

Offered only during the first two months of each year;
The taxpayer was given the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $6,500;
No requirement that the taxpayer pays for another bank product, such as an RT;

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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:
othere is no recourse to the taxpayer, 
ono negative credit reporting on the taxpayer, and
ono collection efforts against the taxpayer.

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

Only offered during December and the up-coming January in connection with the upcoming first quarter tax business for each period;
The taxpayer had the option to choose from multiple loan tiers, subject to underwriting, up to a maximum advance amount of $1,000;
No requirement that the taxpayer pays for another bank product, such as an RT;
Multiple disbursement methods available with most Tax Providers, including direct deposit or prepaid card, based on the taxpayer-customer’s election;
Repayment of the ERA to the Bank deducted from the taxpayer’s tax refund proceeds; and
If an insufficient refund to repay the ERA, including the failure to file a final federal tax return through a Republic Tax Provider:
ono recourse to the taxpayer, 
ono negative credit reporting on the taxpayer, and
ono collection efforts against the taxpayer.

The Company reports fees paid for the RAs, including ERAs, as interest income on loans. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. RAs, including ERAs that were originated related to the first quarter 2023 tax filing season were repaid, on average, within 32 days after the taxpayer’s tax return was submitted to the applicable taxing authority. RAs do not have a contractual due date, but as it did during 2023, the Company will consider an RA delinquent in 2024 if it remains unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority.

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

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

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

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

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(IV) Republic Payment Solutions segment

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

Issuing Solutions:

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

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

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

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

Money Movement:

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

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

 (V) Republic Credit Solutions segment

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

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

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

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

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

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

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

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

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

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

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

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

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

The following are general highlights by reportable segment:

Traditional Banking segment

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

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

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

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

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

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

Total nonperforming loans to total loans for the Traditional Banking segment was 0.42% as of March 31, 2024 compared to 0.41% as of December 31, 2023.

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

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

Warehouse Lending segment

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

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

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

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

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

Tax Refund Solutions segment

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

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

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

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

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

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

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

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

Republic Payment Solutions segment

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

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

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

Noninterest expense was $954,000 for the first quarter of 2024 and compared to $866,000 for the first quarter of 2023.

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Republic Credit Solutions segment

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

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

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

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

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

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

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

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

Net Interest Income

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

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

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

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

Increase to

FFTR

Date

the FFTR

after Increase

March 17, 2022

0.25

%  

0.50

%  

May 5, 2022

0.50

1.00

June 16, 2022

0.75

1.75

July 27, 2022

0.75

2.50

September 21, 2022

0.75

3.25

November 2, 2022

0.75

4.00

December 15, 2022

0.50

4.50

February 2, 2023

0.25

4.75

March 23, 2023

0.25

5.00

May 4, 2023

0.25

5.25

July 26, 2023

0.25

5.50

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

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

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

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

Traditional Banking segment

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

The primary driver of this decrease in net interest income and net interest margin at the Traditional Bank was an on-going shift in funding mix away from noninterest-bearing deposit balances into higher-costing, interest-bearing deposits and FHLB borrowings. As a continuance in trend from 2023, the Traditional Bank’s average noninterest-bearing deposits decreased from $1.6 billion during the first quarter of 2023 to $1.2 billion for the first quarter of 2024. In addition to this change in funding mix, the Traditional Bank’s cost

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of interest-bearing liabilities increased 230 basis points from the first quarter of 2023 to the first quarter of 2024, notably more than the 88-basis-point increase to its yield on interest-earning assets for the same periods.

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

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

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

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

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

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

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

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

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

Warehouse Lending segment

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

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Tax Refund Solutions segment

Net interest income within the TRS segment was up $2.6 million from the first quarter of 2023 to the first quarter of 2024

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

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

Republic Payment Solutions

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

Republic Credit Solutions segment

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

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

Table 2 — Total Company Average Balance Sheets and Interest Rates

Three Months Ended March 31, 2024

Three Months Ended March 31, 2023

Average

    

    

Average

    

Average

    

    

Average

    

(dollars in thousands)

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS

Interest-earning assets:

Federal funds sold and other interest-earning deposits

$

454,426

$

6,289

 

5.57

%  

  

$

241,211

$

2,700

 

4.48

%  

Investment securities, including FHLB stock (a)

732,678

5,436

 

2.98

773,172

5,047

 

2.61

TRS Refund Advance loans (b)

287,806

34,652

48.42

249,378

31,405

50.37

RCS LOC products (b)

41,339

11,372

110.64

31,086

7,962

102.45

Other RPG loans (c) (f)

 

149,818

3,295

 

8.85

 

141,975

2,625

 

7.40

Outstanding Warehouse lines of credit (d) (f)

340,433

6,753

7.98

329,716

5,720

6.94

All other Core Bank loans (e) (f)

 

4,634,948

62,835

 

5.45

 

3,913,388

44,897

 

4.59

Total interest-earning assets

 

6,641,448

 

130,632

 

7.91

 

5,679,926

 

100,356

 

7.07

Allowance for credit loss

 

(96,446)

 

(83,195)

Noninterest-earning assets:

Noninterest-earning cash and cash equivalents

 

280,618

 

295,905

Premises and equipment, net

 

33,889

 

32,232

Bank owned life insurance

 

104,305

 

102,004

Other assets (a)

 

255,758

 

186,169

Total assets

$

7,219,572

$

6,213,041

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:

Transaction accounts

$

1,833,566

$

5,729

 

1.26

%  

$

1,644,777

$

1,742

 

0.42

%  

Money market accounts

 

1,066,046

8,807

 

3.32

 

748,623

2,106

 

1.13

Time deposits

 

373,240

3,581

 

3.86

 

225,847

859

 

1.52

Reciprocal money market and time deposits

310,898

3,232

4.18

43,852

171

1.56

Brokered deposits

 

421,096

5,647

 

5.39

 

 

Total interest-bearing deposits

 

4,004,846

 

26,996

 

2.71

 

2,663,099

 

4,878

 

0.73

SSUARs and other short-term borrowings

 

102,592

 

130

 

0.51

 

202,910

 

248

 

0.49

Federal Reserve PPP Liquidity Facility

 

 

 

 

 

Federal Home Loan Bank advances and other long-term borrowings

 

536,209

 

6,587

 

4.94

 

245,344

 

2,588

 

4.22

Total interest-bearing liabilities

 

4,643,647

 

33,713

 

2.92

 

3,111,353

 

7,714

 

0.99

Noninterest-bearing liabilities and Stockholders’ equity:

Noninterest-bearing deposits

 

1,490,048

 

2,089,162

Other liabilities

 

152,835

 

133,321

Stockholders’ equity

 

933,042

 

879,205

Total liabilities and stock-holders’ equity

$

7,219,572

$

6,213,041

Net interest income

$

96,919

$

92,642

Net interest spread

 

4.99

%  

 

6.08

%  

Net interest margin

 

5.87

%  

 

6.52

%  

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

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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, 2024

Compared to

Three Months Ended March 31, 2023

Total Net

Increase / (Decrease) Due to

(in thousands)

    

Change

    

Volume

    

Rate

    

Interest income:

Federal funds sold and other interest-earning deposits

$

3,589

$

2,832

$

757

Investment securities, including FHLB stock

389

(274)

663

TRS Refund Advance loans

3,247

4,674

(1,427)

RCS LOC products

3,410

2,564

846

Other RPG loans

 

670

 

167

 

503

Outstanding Warehouse lines of credit

1,033

190

843

All other Core Bank loans

 

17,938

 

9,033

 

8,905

Net change in interest income

 

30,276

 

19,186

 

11,090

Interest expense:

Transaction accounts

 

3,945

 

222

 

3,723

Money market accounts

 

6,702

 

1,203

 

5,499

Time deposits

 

2,721

 

818

 

1,903

Reciprocal money market and time deposits

3,061

 

2,404

 

657

Brokered deposits

5,647

5,647

 

SSUARs and other short-term borrowings

 

(76)

 

(116)

 

40

Federal Home Loan Bank advances

 

3,999

 

3,512

 

487

Subordinated note

Net change in interest expense

 

25,999

 

13,690

 

12,309

Net change in net interest income

$

4,277

$

5,496

$

(1,219)

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Provision

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

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

Traditional Banking segment

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

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

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

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

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

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

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

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

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

Warehouse Lending segment

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

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

Tax Refund Solutions segment

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

In addition to an increase in RA volume driving higher estimated loan losses during the quarter, the increase in Provision from the first quarter of 2023 to the first quarter of 2024 primarily occurred because payments received from the U.S. Treasury to fund federal tax

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refunds through March 31, 2024 lagged the payments received through March 31, 2023. As a result, TRS recorded a charge to the Provision for RAs, including ERAs, of $26.0 million, or 3.37% of its $771 million in RAs originated during the first quarter of 2024 compared to a net charge to the Provision of $22.0 million, or 2.98% of its $737 million of RAs originated during the first quarter of 2023.

RAs related to a first quarter tax filing season are only originated during December of the previous year and the first two months of the current year. As is the case each year as of March 31st, 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 31st estimate based on actual paydowns received from the U.S. Treasury during the second quarter. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are recorded as recoveries of previously charged-off loans. TRS’s loss rate as of June 30, 2023 was 3.22% of total originations and it finished 2023 with a RA loss rate of 2.84% of total RAs originated.

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

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

Republic Credit Solutions segment

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

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

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

Table 4 — RCS Provision by Product

Three Months Ended Mar. 31,

(dollars in thousands)

2024

2023

$ Change

% Change

Product:

Lines of credit

$

4,185

$

1,825

$

2,360

129

%

Healthcare receivables

(4)

14

(18)

(129)

Total

$

4,181

$

1,839

$

2,342

127

%

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Table 5 — Summary of Loan and Lease Loss Experience

Three Months Ended

March 31, 

(dollars in thousands)

2024

    

2023

ACLL at beginning of period

$

82,130

$

70,413

CBank Initial Recognition of ACLL and Fair Value Adjustment

1,600

Charge-offs:

Traditional Banking:

Residential real estate

(13)

 

(6)

Commercial real estate

 

 

Construction & land development

 

 

Commercial & industrial

 

 

Lease financing receivables

 

(24)

 

Home equity

 

 

Consumer

(345)

(325)

Total Traditional Banking

(382)

(331)

Warehouse lines of credit

 

 

Total Core Banking

(382)

(331)

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

 

Refund Anticipation Loans

Other TRS commercial & industrial loans

 

Republic Credit Solutions

(4,545)

 

(3,099)

Total Republic Processing Group

(4,545)

(3,099)

Total charge-offs

 

(4,927)

 

(3,430)

Recoveries:

Traditional Banking:

Residential real estate

59

15

Commercial real estate

 

20

 

47

Construction & land development

 

 

Commercial & industrial

 

1

 

90

Lease financing receivables

 

13

 

Home equity

 

1

 

1

Consumer

108

101

Total Traditional Banking

202

254

Warehouse lines of credit

 

 

Total Core Banking

202

254

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

275

 

285

Refund Anticipation Loans

Other TRS commercial & industrial loans

30

 

Republic Credit Solutions

370

 

233

Total Republic Processing Group

675

518

Total recoveries

 

877

 

772

Net loan charge-offs

 

(4,050)

 

(2,658)

Provision - Core Banking

 

667

 

3,119

Provision - RPG

 

29,955

 

23,647

Total Provision

 

30,622

 

26,766

ACLL at end of period

$

108,702

$

96,121

Credit Quality Ratios - Total Company:

ACLL to total loans

 

2.08

%  

 

2.01

%  

ACLL to nonperforming loans

 

509

 

579

Net loan charge-offs to average loans

 

0.30

 

0.23

Credit Quality Ratios - Core Banking:

ACLL to total loans

 

1.20

%  

 

1.22

%  

ACLL to nonperforming loans

 

313

 

356

Net loan charge-offs to average loans

0.01

0.01

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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, 

2024

2023

Traditional Banking:

Residential real estate:

Owner-occupied

(0.02)

%  

%  

Nonowner-occupied

Commercial real estate

(0.01)

Construction & land development

Commercial & industrial

(0.09)

Lease financing receivables

0.05

Aircraft

Home equity

Consumer:

Credit cards

1.54

0.65

Overdrafts

79.01

95.97

Automobile loans

(0.49)

0.40

Other consumer

0.48

0.84

Total Traditional Banking

0.02

0.01

Warehouse lines of credit

Total Core Banking

0.01

0.01

Republic Processing Group:

Tax Refund Solutions:

Refund Advances*

NM

NM

Other TRS commercial & industrial loans

NM

NM

Republic Credit Solutions

12.21

10.14

Total Republic Processing Group

3.25

2.45

Total

0.30

%  

0.23

%  

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

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

Noninterest Income

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

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

Traditional Banking segment

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

Mortgage banking activities and the associated revenue from those activities was generally more favorable during first quarter of 2024 compared to the first quarter of 2023. During the last half of March 2024, however, Management decided to sell $69 million of correspondent loans that were previously classified as held for investment. As a result of this decision, the Company reclassified these

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loans into the mortgage loans held-for-sale category on the balance sheet and recorded a $1.0 million fair value impairment charge within mortgage banking income in order to write these loans down to their estimated net realizable value.

As it relates to the Company’s standard, recurring mortgage banking activities, which excludes the $1.0 million charge recorded for the reclassification of correspondent loans into the loans held for sale, Mortgage Banking income increased from $800,000 during the first quarter of 2023 to $1.3 million for the first quarter of 2024. For the first quarter of 2024, the Bank sold $18.8 million in secondary market loans and achieved an average cash-gain-as-a-percent-of-loans-sold during the quarter of 2.97%, while during the first quarter of 2023, the Bank sold $16.6 million in secondary market loans and achieved an average cash-gain-as-a-percent-of-loans-sold during the quarter of 1.74%.

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

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

Tax Refund Solutions segment

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

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

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Republic Credit Solutions segment

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

The following table presents RCS program fees by product:

Table 7 — RCS Program Fees by Product

Three Months Ended Mar. 31,

(dollars in thousands)

2024

2023

$ Change

% Change

Product:

Lines of credit

$

2,326

$

1,740

$

586

34

%

Healthcare receivables

47

49

(2)

(4)

Installment loans*

1,033

745

288

39

Total

$

3,406

$

2,534

$

872

34

%

*

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

Noninterest Expense

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

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

Traditional Banking segment

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

Republic Credit Solutions

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

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COMPARISON OF FINANCIAL CONDITION AS OF MARCH 31, 2024 AND DECEMBER 31, 2023

Cash and Cash Equivalents

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

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

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

Investment Securities

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

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Table 8 — Loan Portfolio Composition

(dollars in thousands)

    

    

March 31, 2024

    

December 31, 2023

$ Change

% Change

Traditional Banking:

Residential real estate:

Owner-occupied

$

1,064,071

$

1,144,684

$

(80,613)

(7)

%  

Nonowner-occupied

 

342,481

 

345,965

 

(3,484)

(1)

Commercial real estate (1)

 

1,800,801

 

1,785,289

 

15,512

1

Construction & land development

 

237,998

 

217,338

 

20,660

10

Commercial & industrial

 

453,971

 

464,078

 

(10,107)

(2)

Lease financing receivables

 

88,272

 

88,591

 

(319)

(0)

Aircraft

 

246,060

 

250,051

 

(3,991)

(2)

Home equity

 

309,083

 

295,133

 

13,950

5

Consumer:

Credit cards

16,858

 

16,654

 

204

1

Overdrafts

629

 

694

 

(65)

(9)

Automobile loans

2,054

 

2,664

 

(610)

(23)

Other consumer

11,372

 

7,428

 

3,944

53

Total Traditional Banking

4,573,650

4,618,569

(44,919)

(1)

Warehouse lines of credit*

 

463,249

 

339,723

 

123,526

36

Total Core Banking

5,036,899

4,958,292

78,607

2

Republic Processing Group*:

Tax Refund Solutions:

 

 

 

Refund Advances

 

52,101

 

103,115

 

(51,014)

(49)

Other TRS commercial & industrial loans

5,396

46,092

(40,696)

(88)

Republic Credit Solutions

 

129,896

 

132,362

 

(2,466)

(2)

Total Republic Processing Group

 

187,393

 

281,569

 

(94,176)

(33)

Total loans**

5,224,292

5,239,861

(15,569)

(0)

Allowance for credit losses

 

(108,702)

 

(82,130)

 

(26,572)

32

Total loans, net

$

5,115,590

$

5,157,731

$

(42,141)

(1)

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

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

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

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

Traditional Banking segment

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

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

Warehouse Lending segment

Outstanding Warehouse period-end balances increased $124 million from December 31, 2023 to March 31, 2024. Due to the volatility and seasonality of the mortgage market, it is difficult to project future outstanding balances of Warehouse lines of credit. The growth of the Bank’s Warehouse Lending business greatly depends on the overall mortgage market and typically follows industry

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trends. Since its entrance into this business during 2011, the Bank has experienced volatility in the Warehouse portfolio consistent with overall demand for mortgage products. Weighted average quarterly usage rates on the Bank’s Warehouse lines have ranged from a low of 31% during the first quarter of 2023 to a high of 71% during the fourth quarter of 2019. On an annual basis, weighted-average usage rates on the Bank’s Warehouse lines have ranged from a low of 39% during 2022 to a high of 66% during 2020.

Tax Refund Solutions segment

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

Allowance for Credit Losses

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

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

Traditional Banking segment

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

Warehouse Lending segment

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

Tax Refund Solutions segment

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

RAs are only originated during December of the previous year and the first two months of the current year related to the first quarter tax season of a year. As is the case each year as of March 31st, 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 31st estimate based on actual paydowns received during the second quarter. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are recorded as recoveries of previously charged-off loans.

Republic Credit Solutions segment

The RCS ACLL was $18.3 million as of March 31, 2024 compared to $18.3 million as of December 31, 2023. RCS maintained ACLLs for two distinct credit products offered as of March 31, 2024, including its line-of-credit products and its healthcare-

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receivables products. As of March 31, 2024, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables products to as high as 53.64% for its line-of-credit products. The lower reserve percentage of 0.25% was provided for RCS’s healthcare receivables, as such receivables have recourse back to the third-party providers.

Asset Quality

Classified and Special Mention Loans

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

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

Table 9 — Classified and Special Mention Loans

(dollars in thousands)

    

March 31, 2024

    

December 31, 2023

$ Change

% Change

Loss

$

$

$

%

Doubtful

 

 

Substandard

 

22,193

 

20,253

1,940

10

PCD - Substandard

 

1,612

 

1,699

(87)

(5)

Total Classified Loans

 

23,805

 

21,952

1,853

8

Special Mention

 

55,194

 

51,447

3,747

7

PCD - Special Mention

 

438

 

447

(9)

(2)

Total Special Mention Loans

 

55,632

 

51,894

3,738

7

Total Classified and Special Mention Loans

$

79,437

$

73,846

$

5,591

8

%

Nonperforming Loans

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

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

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

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Table 10 — Nonperforming Loans and Nonperforming Assets Summary

(dollars in thousands)

    

March 31, 2024

    

December 31, 2023

    

Loans on nonaccrual status*

$

19,258

$

19,150

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

 

2,116

 

1,468

Total nonperforming loans

 

21,374

 

20,618

Other real estate owned

 

1,486

 

1,370

Total nonperforming assets

$

22,860

$

21,988

Credit Quality Ratios - Total Company:

ACLL to total loans

2.08

%  

1.57

%

Nonaccrual loans to total loans

0.37

0.37

ACLL to nonaccrual loans

564

429

Nonperforming loans to total loans

 

0.41

 

0.39

Nonperforming assets to total loans (including OREO)

 

0.44

 

0.42

Nonperforming assets to total assets

 

0.33

 

0.33

Credit Quality Ratios - Core Bank:

ACLL to total loans

 

1.20

%  

1.21

%

Nonaccrual loans to total loans

0.38

0.39

ACLL to nonaccrual loans

313

313

Nonperforming loans to total loans

 

0.38

0.39

Nonperforming assets to total loans (including OREO)

 

0.41

 

0.41

Nonperforming assets to total assets

 

0.33

 

0.35

*

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

**

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

Table 11 — Nonperforming Loan Composition

March 31, 2024

December 31, 2023

Percent of

Percent of

   

Total

Total

(dollars in thousands)

Balance

Loan Class

Balance

Loan Class

   

Traditional Banking:

Residential real estate:

   

Owner-occupied

   

$

15,533

1.46

%  

  

$

15,056

1.32

%  

Nonowner-occupied

 

   

 

60

0.02

 

64

0.02

Commercial real estate

 

   

 

795

0.04

 

850

0.05

Construction & land development

 

   

 

 

Commercial & industrial

 

   

 

744

0.16

 

1,221

0.26

Lease financing receivables

 

   

 

15

0.02

 

Aircraft

 

Home equity

 

   

 

2,103

0.68

  

 

1,948

0.66

Consumer:

   

Credit cards

Overdrafts

Automobile loans

8

0.39

10

0.38

Other consumer

1

0.01

Total Traditional Banking

19,258

0.42

19,150

0.41

Warehouse lines of credit

 

   

 

 

Total Core Banking

19,258

0.38

19,150

0.39

Republic Processing Group:

Tax Refund Solutions:

 

   

 

 

Refund Advances

 

   

 

 

Other TRS commercial & industrial loans

Republic Credit Solutions

 

   

 

2,116

1.63

 

1,468

1.11

Total Republic Processing Group

   

 

2,116

1.13

 

1,468

0.52

   

Total nonperforming loans

   

$

21,374

0.41

%  

$

20,618

0.39

%  

   

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Table 12 — Stratification of Nonperforming Loans

Number of Nonperforming Loans and Recorded Investment

 

    

    

    

    

Balance

    

    

    

    

 

March 31, 2024

Balance

> $100 &

Balance 

Total

 

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

 

 

 

 

Traditional Banking:

Residential real estate:

Owner-occupied

 

133

$

4,979

 

46

$

7,341

 

3

$

3,213

 

182

$

15,533

Nonowner-occupied

 

3

 

60

 

 

 

 

 

3

 

60

Commercial real estate

 

 

 

1

 

180

 

1

 

615

 

2

 

795

Construction & land development

 

 

 

 

 

 

 

 

Commercial & industrial

 

2

 

61

 

2

 

683

 

 

 

4

 

744

Lease financing receivables

 

1

 

15

 

 

 

 

 

1

 

15

Aircraft

 

 

 

 

 

 

 

Home equity

 

42

 

1,408

 

3

 

695

 

 

 

45

 

2,103

Consumer:

Credit cards

 

 

 

 

 

 

 

 

Overdrafts

 

 

 

 

 

 

 

Automobile loans

2

 

8

 

 

 

 

 

2

 

8

Other consumer

 

 

Total Traditional Banking

183

6,531

52

8,899

4

3,828

239

19,258

Warehouse lines of credit

 

 

 

 

 

 

 

 

Total Core Banking

183

6,531

52

8,899

4

3,828

239

19,258

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

 

Other TRS commercial & industrial loans

 

Republic Credit Solutions

NM

NM

2,116

NM

 

2,116

Total Republic Processing Group

NM

2,116

NM

2,116

Total

 

183

$

6,531

 

52

$

8,899

 

4

$

5,944

 

239

$

21,374

Number of Nonperforming Loans and Recorded Investment

 

    

    

    

    

Balance

    

    

    

    

 

December 31, 2023

Balance

> $100 &

Balance 

Total

 

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

 

Traditional Banking:

Residential real estate:

Owner-occupied

 

125

$

4,569

 

45

$

7,200

 

3

$

3,287

 

173

$

15,056

Nonowner-occupied

 

3

 

64

 

 

 

 

 

3

 

64

Commercial real estate

 

 

 

1

 

191

 

1

 

659

 

2

 

850

Construction & land development

 

 

 

 

 

 

 

 

Commercial & industrial

 

2

 

61

 

1

 

339

 

1

 

821

 

4

 

1,221

Lease financing receivables

 

 

 

 

 

 

 

 

Aircraft

 

 

 

 

 

 

 

Home equity

 

36

 

1,236

 

3

 

712

 

 

 

39

 

1,948

Consumer:

Credit cards

 

 

 

 

 

 

 

 

Overdrafts

 

 

 

 

 

 

 

Automobile loans

3

 

10

 

 

 

 

 

3

 

10

Other consumer

1

1

 

1

 

1

Total Traditional Banking

170

5,941

50

8,442

5

4,767

225

19,150

Warehouse lines of credit

 

 

 

 

 

 

 

 

Total Core Banking

170

5,941

50

8,442

5

4,767

225

19,150

Republic Processing Group:

Tax Refund Solutions:

Refund Advances

 

Other TRS commercial & industrial loans

 

Republic Credit Solutions

NM

NM

1,468

NM

 

1,468

Total Republic Processing Group

NM

1,468

NM

1,468

Total

 

170

$

5,941

 

50

$

8,442

 

5

$

6,235

 

225

$

20,618

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Table 13 — Roll-forward of Nonperforming Loans

    

Three Months Ended

March 31, 

(in thousands)

2024

2023

Nonperforming loans at the beginning of the period

$

20,618

$

16,318

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

 

1,791

 

2,669

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

 

(686)

 

(2,015)

Principal balance paydowns of loans nonperforming at both period ends

(1,012)

(383)

Net change in principal balance of other nonperforming loans*

 

663

 

21

Nonperforming loans at the end of the period

$

21,374

$

16,610

*

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)

    

2024

    

2023

Loans charged off

$

(13)

$

Loans transferred to OREO

 

(169)

 

Loan payoffs and paydowns

 

(154)

 

(770)

Loans returned to accrual status

 

(350)

 

(1,245)

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

$

(686)

$

(2,015)

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

Delinquent Loans

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

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Table 15 — Delinquent Loan Composition* 

March 31, 2024

December 31, 2023

Percent of

Percent of

Total

Total

(dollars in thousands)

    

Balance

Loan Class

Balance

Loan Class

Traditional Banking:

Residential real estate:

Owner-occupied

   

$

5,821

0.55

%  

   

$

5,803

0.51

%  

Nonowner-occupied

   

 

   

 

Commercial real estate

   

 

   

 

Construction & land development

   

 

   

 

Commercial & industrial

   

 

746

0.16

   

 

1,360

0.29

Lease financing receivables

22

0.02

18

0.02

Aircraft

Home equity

990

0.32

767

0.26

Consumer:

Credit cards

35

0.21

35

0.21

Overdrafts

118

18.76

131

18.88

Automobile loans

2

0.10

2

0.08

Other consumer

62

0.55

60

0.81

Total Traditional Banking

7,796

0.17

8,176

0.18

Warehouse lines of credit

Total Core Banking

7,796

0.15

8,176

0.16

Republic Processing Group:

   

 

Tax Refund Solutions:

   

 

Refund Advances

   

 

   

 

Other TRS commercial & industrial loans

   

 

283

5.24

   

 

Republic Credit Solutions

   

 

13,333

10.26

   

 

13,916

10.51

Total Republic Processing Group

   

 

13,616

7.27

   

 

13,916

4.94

   

   

Total delinquent loans

   

$

21,412

0.41

%  

   

$

22,092

0.42

%  

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

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Table 16 — Roll-forward of Delinquent Loans

Three Months Ended

March 31, 

(in thousands)

    

2024

    

2023

Delinquent loans at the beginning of the period

$

22,092

$

15,260

Loans that became delinquent during the period - Refund Advances*

18,450

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

 

2,499

 

2,675

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

 

(2,250)

 

(3,094)

Principal balance paydowns of loans delinquent at both period ends

(598)

(31)

Net change in principal balance of other delinquent loans*

 

(331)

 

2,864

Delinquent loans at the end of period

$

21,412

$

36,124

*

RAs do not have a contractual due date but the Company considered a RA delinquent in 2023, and will do so again in 2024, 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)

    

2024

    

2023

Loans charged off

$

(15)

$

(1)

Loans transferred to OREO

 

(169)

 

Loan payoffs and paydowns

 

(89)

 

(510)

Loans paid current

 

(1,977)

 

(2,583)

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

$

(2,250)

$

(3,094)

Deposits

Table 18 — Deposit Composition

(in thousands)

March 31, 2024

    

December 31, 2023

$ Change

% Change

Core Bank:

Demand

$

1,179,771

$

1,158,051

$

21,720

2

%

Money market accounts

 

1,078,549

 

1,007,356

71,193

7

Savings

 

355,260

 

263,238

92,022

35

Reciprocal money market

 

221,779

 

188,078

33,701

18

Individual retirement accounts (1)

 

34,208

 

33,793

415

1

Time deposits, $250 and over (1)

 

113,096

 

101,787

11,309

11

Other certificates of deposit (1)

 

239,258

 

225,614

13,644

6

Reciprocal time deposits (1)

90,857

90,857

Wholesale brokered deposits (1)

 

349,298

 

88,767

260,531

293

Total Core Bank interest-bearing deposits

3,662,076

3,157,541

504,535

16

Total Core Bank noninterest-bearing deposits

 

1,180,237

 

1,239,466

(59,229)

(5)

Total Core Bank deposits

 

4,842,313

 

4,397,007

445,306

10

Republic Processing Group:

Wholesale brokered deposits (1)

199,960

(199,960)

(100)

Interest-bearing prepaid card deposits

379,677

379,677

Money market accounts

19,380

18,664

716

4

Total RPG interest-bearing deposits

399,057

218,624

180,433

83

Noninterest-bearing prepaid card deposits

318,769

(318,769)

(100)

Other noninterest-bearing deposits

179,279

118,763

60,516

51

Total RPG noninterest-bearing deposits

179,279

437,532

(258,253)

(59)

Total RPG deposits

578,336

656,156

(77,820)

(12)

Total deposits

$

5,420,649

$

5,053,163

$

367,486

7

%

(1)Includes time deposit

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Table of Contents

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

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

RPG Deposits

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

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

Federal Home Loan Bank Advances

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

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

Interest Rate Swaps

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

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

Liquidity

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

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Table 19 — Liquid Assets and Borrowing Capacity

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

(in thousands)

    

March 31, 2024

    

December 31, 2023

Cash and cash equivalents

$

546,363

$

316,567

Unencumbered debt securities

 

501,634

 

491,783

Total liquid assets

1,047,997

808,350

Available borrowing capacity with the FHLB

 

1,007,633

 

730,265

Available borrowing capacity through unsecured credit lines

 

100,000

 

100,000

Total available borrowing capacity

1,107,633

830,265

Total liquid assets and available borrowing capacity

$

2,155,630

$

1,638,615

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

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

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

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

Capital

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

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

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

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part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors.

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

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

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

Table 20 — Capital Ratios (1)

As of March 31, 2024

As of December 31, 2023

(dollars in thousands)

    

Amount

    

Ratio

Amount

    

Ratio

Total capital to risk-weighted assets

Republic Bancorp, Inc.

$

989,290

 

16.44

%  

$

968,844

 

16.10

%

Republic Bank & Trust Company

 

949,574

 

15.88

 

931,923

 

15.50

Common equity tier 1 capital to risk-weighted assets

Republic Bancorp, Inc.

$

914,053

 

15.19

%  

$

893,658

 

14.85

%

Republic Bank & Trust Company

 

874,421

 

14.62

 

856,744

 

14.25

Tier 1 (core) capital to risk-weighted assets

Republic Bancorp, Inc.

$

914,053

 

15.19

%  

$

893,658

 

14.85

%

Republic Bank & Trust Company

 

874,421

 

14.62

 

856,744

 

14.25

Tier 1 leverage capital to average assets

Republic Bancorp, Inc.

$

914,053

 

12.73

%  

$

893,658

 

13.89

%

Republic Bank & Trust Company

 

874,421

 

12.15

 

856,744

 

13.25

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

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Asset/Liability Management and Market Risk

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

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

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

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

Table 21 — Bank Interest Rate Sensitivity

Change in Rates

-400

    

-300

    

-200

    

-100

    

+100

    

+200

    

+300

    

+400

    

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

Basis Points

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

2.1

%  

0.2

%  

(4.3)

%  

(2.6)

%  

1.2

%  

0.7

%  

0.9

%

1.2

%

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

6.4

%  

5.0

%  

0.1

%  

0.2

%  

(1.0)

%  

(2.1)

%  

(3.1)

%

(4.1)

%

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

In the down rate scenarios, the Company’s interest rate risk position notably deteriorated as the higher interest-earning cash balances that benefited net interest income in the up-rate scenarios are projected to cause similar corresponding declines to net interest income in the down-rate rate scenarios. In addition, the Company’s projected net interest income in down-rate scenarios was also negatively impacted by revisions to the Bank’s deposit beta assumptions, as these assumptions were lowered, meaning deposit costs would remain higher, due to the Bank’s current competitive environment for deposits.

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For additional discussion regarding the Bank’s net interest income, see the sections titled “Net Interest Income” in this section of the filing under “RESULTS OF OPERATIONS (Three months ended March 31, 2024 Compared to Three months ended March 31, 2023.”)

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4.Controls and Procedures.

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

PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

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

Item 1A.Risk Factors.

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

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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 2024 are included in the following table:

Total Number of

Maximum Number

 

Shares Purchased

of Shares that May

 

as Part of Publicly

Yet Be Purchased

 

Total Number of

Average Price

Announced Plans

Under the Plan

 

Period

    

Shares Purchased

    

Paid Per Share

    

or Programs

    

or Programs

  

January 1 - January 31

 

 

$

 

434,410

February 1 - February 29

 

 

 

434,410

March 1 - March 31

 

 

 

434,410

Total

 

 

$

 

 

434,410

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

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

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

Item 5.Other Information.

Rule 10b5-1 Trading Plans

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

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Item 6.Exhibits.

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

Exhibit Number

Description of Exhibit

10.1

Early Termination Agreement for lease between Jaytee-Springhurst, LLC, and Republic Bank & Trust Company, dated March 15, 2024, relating to 9600 Brownsboro Road, Louisville, KY

31.1

Certification of Principal Executive Officer pursuant to the 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, 2024 and December 31, 2023, (ii) Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2024 and 2023, (iii) Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023, (iv) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 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 9, 2024

     

     

/s/ Steven E. Trager

By: Steven E. Trager

Executive Chair and Chief Executive Officer

Principal Financial Officer:

Date: May 9, 2024

/s/ Kevin Sipes

By: Kevin Sipes

Executive Vice President, Chief Financial

Officer and Chief Accounting Officer

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