REPUBLIC BANCORP INC /KY/ - Quarter Report: 2021 June (Form 10-Q)

1 min

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2021

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

Commission File Number: 0-24649

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)


Kentucky		61-0862051
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

601 West Market Street, Louisville, Kentucky		40202
(Address of principal executive offices)		(Zip Code)

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

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common	RBCAA	The Nasdaq Stock Market

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

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

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


Large accelerated filer ◻	Accelerated filer ⌧	Non-accelerated filer ◻	Smaller reporting company ◻
Emerging growth company ◻

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

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

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of July 31, 2021, was 18,232,767 and 2,166,093.

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.	71

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	115

Item 4.	Controls and Procedures.	115

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	115

Item 1A.	Risk Factors.	116

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	116

Item 6.	Exhibits.	117

	SIGNATURES	118

Table of Contents

GLOSSARY OF TERMS

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


Term		Definition

ACH		Automated Clearing House
ACL		Allowance for Credit Losses
ACLC		Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
ACLL		Allowance for Credit Losses on Loans
ACLS		Allowance for Credit Losses on Securities
AFS		Available for Sale
AOCI		Accumulated Other Comprehensive Income
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Basic EPS		Basic earnings per Class A Common Share
BOLI		Bank Owned Life Insurance
BPO		Brokered Price Opinion
C&D		Construction and Development
C&I		Commercial and Industrial
CARES Act		Coronavirus Aid, Relief, and Economic Security Act
CECL		Current Expected Credit Loss
CMO		Collateralized Mortgage Obligation
Core Bank		The Traditional Banking, Warehouse Lending, and Mortgage Banking reportable segments
COVID-19		Coronavirus Disease of 2019
CRE		Commercial Real Estate
Diluted EPS		Diluted earnings per Class A Common Share
EA		Easy Advance
Economic Aid Act		The Economic Aid to Hard Hit Small Business, Not for Profits and Venues Act
ESPP		Employee Stock Purchase Plan
EVP		Executive Vice President
FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
FFTR		Federal Funds Target Rate
FHLB		Federal Home Loan Bank
FHLMC		Federal Home Loan Mortgage Corporation
FICO		Fair Isaac Corporation
FNMA		Federal National Mortgage Association
FOMC		Federal Open Market Committee
FRB		Federal Reserve Bank
FTE		Full Time Equivalent
FTP		Funds Transfer Pricing
GAAP		Generally Accepted Accounting Principles in the United States
Green Dot		Green Dot Corporation
HEAL		Home Equity Amortizing Loan
HELOC		Home Equity Line of Credit
HTM		Held to Maturity
IRS		Internal Revenue Service
ITM		Interactive Teller Machine
LGD		Loss Given Default
LIBOR		London Interbank Offered Rate
LTV		Loan to Value
MBS		Mortgage Backed Securities
MSRs		Mortgage Servicing Rights
NA		Not Applicable
NM		Not Meaningful
OBS		Off-Balance Sheet
OCI		Other Comprehensive Income
OREO		Other Real Estate Owned
OTTI		Other than Temporary Impairment
PCD		Purchased with Credit Deterioration
PD		Probability of Default
PPP		SBA's Paycheck Protection Program
PPPLF		The FRB's Paycheck Protection Program Liquidity Facility
Prime		The Wall Street Journal Prime Interest Rate
Provision		Provision for Expected Credit Loss Expense
PSU		Performance Stock Unit
QF		Qualitative Factor
R&D		Research and Development
RB&T / the Bank		Republic Bank & Trust Company
RBCT		Republic Bancorp Capital Trust
RCS		Republic Credit Solutions segment
Republic / the Company		Republic Bancorp, Inc.
RPG		Republic Processing Group
RPS		Republic Payment Solutions
RT		Refund Transfer
SBA		U.S. Small Business Administration
SEC		Securities and Exchange Commission
SSUAR		Securities Sold Under Agreements to Repurchase
SVP		Senior Vice President
TDR		Troubled Debt Restructuring
The Captive		Republic Insurance Services, Inc.
TPS		Trust Preferred Securities
TRS		Tax Refund Solutions segment
TRUP		TPS Investment
Warehouse		Warehouse Lending segment

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)


	June 30,		December 31,
	2021		2020
ASSETS

Cash and cash equivalents	$	747,007	$	485,587
Available-for-sale debt securities, at fair value (amortized cost of $515,401 in 2021 and $512,518 in 2020, allowance for credit losses of $0 in 2021 and $0 in 2020)		524,152		523,863
Held-to-maturity debt securities (fair value of $46,968 in 2021 and $54,190 in 2020, allowance for credit losses of $56 in 2021 and $178 in 2020)		46,274		53,324
Equity securities with readily determinable fair value		2,601		3,083
Mortgage loans held for sale, at fair value		32,401		46,867
Consumer loans held for sale, at fair value		13,020		3,298
Consumer loans held for sale, at the lower of cost or fair value		11,412		1,478
Loans for discontinued operations, at the lower of cost or fair value		23		23,765
Loans (loans carried at fair value of $338 in 2021 and $497 in 2020)		4,554,198		4,789,338
Allowance for credit losses		(60,291)		(61,067)
Loans, net		4,493,907		4,728,271
Federal Home Loan Bank stock, at cost		11,670		17,397
Premises and equipment, net		38,682		39,512
Right-of-use assets		40,698		43,345
Goodwill		16,300		16,300
Other real estate owned		1,898		2,499
Bank owned life insurance		99,008		68,018
Other assets and accrued interest receivable		104,257		111,718

TOTAL ASSETS	$	6,183,310	$	6,168,325

LIABILITIES

Deposits:
Noninterest-bearing	$	2,015,449	$	1,871,539
Interest-bearing		2,955,145		2,842,765
Deposits of discontinued operations		46,984		18,877
Total deposits		5,017,578		4,733,181

Securities sold under agreements to repurchase and other short-term borrowings		142,895		211,026
Operating lease liabilities		41,621		44,340
Federal Home Loan Bank advances		25,000		235,000
Subordinated note		41,240		41,240
Other liabilities and accrued interest payable		69,886		80,215

Total liabilities		5,338,220		5,345,002

Commitments and contingent liabilities (Footnote 9)		—		—

STOCKHOLDERS’ EQUITY

Preferred stock, no par value		—		—
Class A Common Stock and Class B Common Stock, no par value		4,841		4,899
Additional paid in capital		142,884		143,637
Retained earnings		690,802		666,278
Accumulated other comprehensive income		6,563		8,509

Total stockholders’ equity		845,090		823,323

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,183,310	$	6,168,325

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
INTEREST INCOME:

Loans, including fees	$	49,079	$	53,978	$	102,024	$	110,855
Taxable investment securities		1,858		2,712		3,810		5,495
Federal Home Loan Bank stock and other		347		214		732		2,187
Total interest income		51,284		56,904		106,566		118,537

INTEREST EXPENSE:

Deposits		1,324		3,410		2,889		9,422
Securities sold under agreements to repurchase and other short-term borrowings		143		460		279		1,609
Federal Reserve Payment Protection Plan Liquidity Facility		—		105		—		105
Federal Home Loan Bank advances		10		822		41		2,470
Subordinated note		169		295		341		647
Total interest expense		1,646		5,092		3,550		14,253

NET INTEREST INCOME		49,638		51,812		103,016		104,284

Provision for expected credit loss expense		1,450		2,086		828		9,713

NET INTEREST INCOME AFTER PROVISION		48,188		49,726		102,188		94,571

NONINTEREST INCOME:

Service charges on deposit accounts		3,071		2,451		5,944		5,587
Mortgage banking income		4,182		8,398		11,375		13,193
Interchange fee income		3,368		2,725		6,339		5,219
Program fees		3,549		1,138		5,774		3,762
Increase in cash surrender value of bank owned life insurance		600		395		990		784
Net gains (losses) on other real estate owned		(44)		1		(55)		4
Other		1,035		575		1,635		1,812
Total noninterest income		15,761		15,683		32,002		30,361

NONINTEREST EXPENSE:

Salaries and employee benefits		26,106		25,106		53,522		50,198
Technology, equipment, and communication		7,321		6,804		14,253		13,564
Occupancy		3,250		3,302		6,809		6,518
Marketing and development		1,120		969		1,851		1,710
FDIC insurance expense		418		299		714		299
Bank franchise tax expense		452		911		777		1,693
Interchange related expense		1,288		1,173		2,432		2,249
Other real estate owned and other repossession expense		2		21		(32)		39
Legal and professional fees		448		1,003		1,601		2,097
Other		2,885		3,613		5,472		6,943
Total noninterest expense		43,290		43,201		87,399		85,310

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE		20,659		22,208		46,791		39,622
INCOME TAX EXPENSE		4,157		4,453		9,963		7,553
INCOME FROM CONTINUING OPERATIONS		16,502		17,755		36,828		32,069
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations before income taxes		9,902		(2,611)		17,514		13,553
Income tax expense (benefit)		2,482		(660)		4,367		3,121
Income (loss) from discontinued operations, net of tax		7,420		(1,951)		13,147		10,432

NET INCOME	$	23,922	$	15,804	$	49,975	$	42,501

BASIC EARNINGS PER SHARE:
Class A Common Stock - continuing operations	$	0.80	$	0.86	$	1.79	$	1.54
Class A Common Stock - discontinued operations		0.36		(0.09)		0.63		0.50
Class A Common Stock	$	1.16	$	0.77	$	2.42	$	2.04

Class B Common Stock - continuing operations	$	0.73	$	0.78	$	1.62	$	1.40
Class B Common Stock - discontinued operations		0.32		(0.09)		0.58		0.46
Class B Common Stock	$	1.05	$	0.69	$	2.20	$	1.86

DILUTED EARNINGS PER SHARE:
Class A Common Stock - continuing operations	$	0.80	$	0.86	$	1.78	$	1.54
Class A Common Stock - discontinued operations		0.36		(0.10)		0.63		0.50
Class A Common Stock	$	1.16	$	0.76	$	2.41	$	2.04

Class B Common Stock - continuing operations	$	0.73	$	0.78	$	1.61	$	1.40
Class B Common Stock - discontinued operations		0.32		(0.09)		0.58		0.45
Class B Common Stock	$	1.05	$	0.69	$	2.19	$	1.85

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

Net income	$	23,922	$	15,804	$	49,975	$	42,501

OTHER COMPREHENSIVE INCOME (LOSS)

Change in fair value of derivatives used for cash flow hedges		—		(10)		—		(171)
Reclassification amount for net derivative losses realized in income		—		79		—		108
Change in unrealized gains and losses on AFS debt securities		(614)		1,099		(2,643)		8,876
Change in unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings		34		(108)		49		(107)
Total other comprehensive income (loss) before income tax		(580)		1,060		(2,594)		8,706
Tax effect		145		(265)		648		(2,178)
Total other comprehensive income (loss), net of tax		(435)		795		(1,946)		6,528

COMPREHENSIVE INCOME	$	23,487	$	16,599	$	48,029	$	49,029

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


	Three Months Ended June 30, 2021

	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity

Balance, April 1, 2021	18,628	2,198	$	4,884	$	143,563	$	682,264	$	6,998	$	837,709

Net income	—	—		—		—		23,922		—		23,922
Net change in accumulated other comprehensive income	—	—		—		—		—		(435)		(435)
Dividends declared on Common Stock:
Class A Shares ($0.308 per share)	—	—		—		—		(5,680)		—		(5,680)
Class B Shares ($0.280 per share)	—	—		—		—		(608)		—		(608)
Stock options exercised, net of shares withheld	12	—		5		(54)		—		—		(49)
Conversion of Class B to Class A Common Shares	32	(32)		—		—		—		—		—
Repurchase of Class A Common Stock	(255)	—		(51)		(1,614)		(9,096)		—		(10,761)
Net change in notes receivable on Class A Common Stock	—	—		—		(44)		—		—		(44)
Deferred compensation - Class A Common Stock:
Directors	—	—		—		95		—		—		95
Designated key employees	—	—		—		167		—		—		167
Employee stock purchase plan - Class A Common Stock	4	—		1		162		—		—		163
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		33		—		—		33
Restricted stock	—	—		2		409		—		—		411
Stock options	—	—		—		167		—		—		167

Balance, June 30, 2021	18,421	2,166	$	4,841	$	142,884	$	690,802	$	6,563	$	845,090


	Three Months Ended June 30, 2020

	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity

Balance, April 1, 2020	18,687	2,200	$	4,890	$	141,928	$	628,397	$	8,831	$	784,046

Net income	—	—		—		—		15,804		—		15,804
Net change in accumulated other comprehensive income	—	—		—		—		—		795		795
Dividends declared on Common Stock:
Class A Shares ($0.286 per share)	—	—		—		—		(5,347)		—		(5,347)
Class B Shares ($0.260 per share)	—	—		—		—		(572)		—		(572)
Stock options exercised, net of shares withheld	17	—		7		291		—		—		298
Repurchase of Class A Common Stock	—	—		—		—		—		—		—
Conversion of Class B to Class A Common Shares	—	—		—		—		—		—		—
Net change in notes receivable on Class A Common Stock	—	—		—		84		—		—		84
Deferred compensation - Class A Common Stock:
Directors	—	—		—		71		—		—		71
Designated key employees	—	—		—		134		—		—		134
Employee stock purchase plan - Class A Common Stock	4	—		1		135		—		—		136
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		—		—		—		—
Restricted stock	—	—		—		60		—		—		60
Stock options	—	—		—		110		—		—		110

Balance, June 30, 2020	18,708	2,200	$	4,898	$	142,813	$	638,282	$	9,626	$	795,619

Table of Contents


	Six Months Ended June 30, 2021
	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity

Balance, January 1, 2021	18,697	2,199	$	4,899	$	143,637	$	666,278	$	8,509	$	823,323

Net income	—	—		—		—		49,975		—		49,975
Net change in accumulated other comprehensive income	—	—		—		—		—		(1,946)		(1,946)
Dividends declared on Common Stock:
Class A Shares ($0.616 per share)	—	—		—		—		(11,423)		—		(11,423)
Class B Shares ($0.560 per share)	—	—		—		—		(1,224)		—		(1,224)
Stock options exercised, net of shares withheld	28	—		13		(155)		—		—		(142)
Conversion of Class B to Class A Common Shares	33	(33)		—		—		—		—		—
Repurchase of Class A Common Stock	(362)	—		(75)		(2,350)		(12,804)		—		(15,229)
Net change in notes receivable on Class A Common Stock	—	—		—		50		—		—		50
Deferred compensation - Class A Common Stock:
Directors	4	—		—		209		—		—		209
Designated key employees	—	—		—		303		—		—		303
Employee stock purchase plan - Class A Common Stock	7	—		2		316		—		—		318
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		65		—		—		65
Restricted stock	14	—		2		519		—		—		521
Stock options	—	—		—		290		—		—		290

Balance, June 30, 2021	18,421	2,166	$	4,841	$	142,884	$	690,802	$	6,563	$	845,090


	Six Months Ended June 30, 2020
	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity

Balance, January 1, 2020	18,737	2,206	$	4,907	$	142,068	$	614,171	$	3,098	$	764,244

Adjustment for adoption of ASU 2016-13	—	—		—		—		(4,291)		—		(4,291)
Net income	—	—		—		—		42,501		—		42,501
Net change in accumulated other comprehensive income	—	—		—		—		—		6,528		6,528
Dividends declared on Common Stock:
Class A Shares ($0.572 per share)	—	—		—		—		(10,705)		—		(10,705)
Class B Shares ($0.520 per share)	—	—		—		—		(1,144)		—		(1,144)
Stock options exercised, net of shares withheld	19	—		8		248		—		—		256
Repurchase of Class A Common Stock	6	(6)		—		—		—		—		—
Conversion of Class B to Class A Common Shares	(86)	—		(20)		(582)		(2,250)		—		(2,852)
Net change in notes receivable on Class A Common Stock	—	—		—		114		—		—		114
Deferred compensation - Class A Common Stock:
Directors	4	—		—		150		—		—		150
Designated key employees	—	—		—		277		—		—		277
Employee stock purchase plan - Class A Common Stock	9	—		2		289		—		—		291
Stock-based awards - Class A Common Stock:
Performance stock units	18	—		—		(200)		—		—		(200)
Restricted stock	1	—		1		247		—		—		248
Stock options	—	—		—		202		—		—		202

Balance, June 30, 2020	18,708	2,200	$	4,898	$	142,813	$	638,282	$	9,626	$	795,619

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six Months Ended
	June 30,
	2021		2020
OPERATING ACTIVITIES:
Net income	$	49,975	$	42,501
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization on investment securities		589		732
Net accretion on loans and amortization of core deposit intangible and operating lease components		(10,894)		(2,383)
Unrealized losses on equity securities with readily determinable fair value		482		173
Depreciation of premises and equipment		4,515		5,041
Amortization of mortgage servicing rights		1,735		1,593
Impairment of mortgage servicing rights		(500)		100
Provision for on-balance sheet exposures for continuing operations		828		9,713
Provision for on-balance sheet exposures for discontinued operations		10,111		19,581
Provision for off-balance sheet exposures		(55)		180
Net gain on sale of mortgage loans held for sale		(11,009)		(13,504)
Origination of mortgage loans held for sale		(354,764)		(343,941)
Proceeds from sale of mortgage loans held for sale		380,239		336,641
Net gain on sale of consumer loans held for sale		(4,121)		(3,006)
Origination of consumer loans held for sale		(304,045)		(282,612)
Proceeds from sale of consumer loans held for sale		288,510		284,898
Net gain realized on sale of other real estate owned		(51)		(4)
Writedowns of other real estate owned		105		—
Deferred compensation expense - Class A Common Stock		512		427
Stock-based awards and ESPP expense - Class A Common Stock		923		250
Net gain on sale of bank premises and equipment		(399)		(353)
Increase in cash surrender value of bank owned life insurance		(990)		(784)
Net change in other assets and liabilities:
Accrued interest receivable		2,450		1,765
Accrued interest payable		(131)		(1,685)
Other assets		(1,372)		(4,465)
Other liabilities		(5,036)		(9,486)
Net cash provided by operating activities		47,607		41,372

INVESTING ACTIVITIES:
Purchases of available-for-sale debt securities		(111,664)		(138,894)
Proceeds from calls, maturities and paydowns of available-for-sale debt securities		108,201		131,323
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities		7,162		6,628
Net change in outstanding warehouse lines of credit		122,641		(312,321)
Net change in other loans from continuing operations		111,754		(356,159)
Net change in loans from discontinued operations		23,719		14,076
Proceeds from redemption of Federal Home Loan Bank stock		5,727		14,202
Purchase of Federal Home Loan Bank stock		—		(9,000)
Proceeds from sales of other real estate owned		611		32
Proceeds from sale of bank premises and equipment		637		894
Purchase of bank owned life insurance		(30,000)		—
Net purchases of premises and equipment		(3,923)		(2,139)
Net cash provided by (used in) investing activities		234,865		(651,358)

FINANCING ACTIVITIES:
Net change in deposits from continuing operations		256,290		1,199,967
Net change in deposits from discontinued operations		28,107		32,110
Net change in securities sold under agreements to repurchase and other short-term borrowings		(68,131)		9,780
Net change in Federal Reserve Payment Protection Plan Lending Facility borrowings		—		169,209
Payments of Federal Home Loan Bank advances		(235,000)		(1,037,500)
Proceeds from Federal Home Loan Bank advances		25,000		425,000
Repurchase of Class A Common Stock		(15,229)		(2,852)
Net proceeds from Class A Common Stock purchased through employee stock purchase plan		272		291
Net proceeds from option exercises and equity awards vested - Class A Common Stock		(142)		256
Cash dividends paid		(12,219)		(11,383)
Net cash (used in) provided by financing activities		(21,052)		784,878

NET CHANGE IN CASH AND CASH EQUIVALENTS		261,420		174,892
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		485,587		385,303
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	747,007	$	560,195

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	3,419	$	14,992
Income taxes		13,466		10,008

SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers from loans to real estate acquired in settlement of loans	$	64	$	2,109
Transfers from loans held for investment to held for sale		23		23,765
Unfunded commitments in low-income-housing investments		—		10,000
Right-of-use assets recorded		—		2,151
Allowance for credit losses recorded upon adoption of ASC 326		—		7,241

See accompanying footnotes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –JUNE 30, 2021 and 2020 AND DECEMBER 31, 2020 (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information, refer to the consolidated financial statements and footnotes thereto included in Republic’s Form 10-K for the year ended December 31, 2020.

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

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

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

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

●

Footnote 4 “Loans and Allowance for Credit Losses”

●

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

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Core Bank

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

●

Kentucky — 28

●

Metropolitan Louisville — 18

●

Central Kentucky — 7

●

Georgetown — 1

●

Lexington — 5

●

Shelbyville — 1

●

Northern Kentucky — 3

●

Covington — 1

●

Crestview Hills — 1

●

Florence — 1

●

Southern Indiana — 3

●

Floyds Knobs — 1

●

Jeffersonville — 1

●

New Albany — 1

●

Metropolitan Tampa, Florida — 7

●

Metropolitan Cincinnati, Ohio — 2

●

Metropolitan Nashville, Tennessee — 2

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

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

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

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

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

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

Republic Processing Group

Tax Refund Solutions segment — On May 13, 2021, the Bank entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Green Dot to sell substantially all of the assets and operations of the Bank’s Tax Refund Solutions business (the “Sale Transaction”).

As a result of the Purchase Agreement, the results of operations for the Company and its TRS segment are presented within this filing to reflect continuing versus discontinued operations. TRS’s continuing operations include its immaterial RPS division and certain overhead costs previously allocated to TRS that will remain with the Bank. Discontinued operations are those sold to Green Dot.

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

Republic Payment Solutions division — RPS is currently managed and operated within the TRS segment’s continuing operations. The RPS division offers general-purpose reloadable prepaid cards as an issuing bank through third-party service providers. For the projected near-term, as the prepaid card program matures, the operating results of the RPS division are expected to be immaterial to the Company’s overall results of operations and will be reported as part of the TRS segment’s continuing operations. The RPS division will not be considered a separate reportable segment until such time, if any, that it meets quantitative reporting thresholds.

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

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

●

RCS line-of-credit products – Using separate third-party service providers, the Bank originates two line-of-credit products to generally subprime borrowers in multiple states. The first of these two products (the “LOC I”) has been originated by the Bank since 2014. The second (the “LOC II”) was introduced in January 2021.

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

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.

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

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Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this product.

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

●

RCS installment loan product – In December 2019, through RCS, the Bank began offering installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. The same third-party service provider for RCS’s LOC II is the third-party service provider for the installment loans. This third-party service provider is subject to the Bank’s oversight and supervision and provides the Bank with marketing services and loan servicing for these RCS installment loans. The Bank is the lender for these RCS installment loans and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this RCS installment loan product. Currently, all loan balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intention to sell these loans to its third-party service provider generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

●

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

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

Recently Adopted Accounting Standards

The following ASUs were adopted by the Company during the six months ended June 30, 2021:


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

2020-10	Codification Improvements	This ASU affects a wide variety of Topics in the Codification. More specifically, this ASU, among other things, contains amendments that improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50). Many of the amendments arose because the FASB provided an option to give certain information either on the face of the financial statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section (Section 45) of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). Those amendments are not expected to change current practice.	January 1, 2021	Prospectively	Immaterial

2021-01	Reference Rate Reform (Topic 848): Scope	This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.	January 7, 2021	Prospectively	Immaterial

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Accounting Standards Update

There following ASU was issued prior to June 30, 2021 and is not yet effective for the Company’s financial statements.


			Date Adoption	Adoption	Expected
ASU. No.	Topic	Nature of Update	Required	Method	Financial Impact
2021-04	Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options	This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) How an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) How an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) How an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange.	January 1, 2022	Prospectively	Immaterial

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2. INVESTMENT SECURITIES

Available-for-Sale Debt Securities

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


			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
June 30, 2021 (in thousands)	Cost		Gains		Losses		Credit Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	234,990	$	961	$	(631)	$	—	$	235,320
Private label mortgage-backed security		1,525		1,299		—		—		2,824
Mortgage-backed securities - residential		226,336		6,250		(24)		—		232,562
Collateralized mortgage obligations		38,893		751		(7)		—		39,637
Corporate bonds		10,000		109		—		—		10,109
Trust preferred security		3,657		43		—		—		3,700
Total available-for-sale debt securities	$	515,401	$	9,413	$	(662)	$	—	$	524,152


			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
December 31, 2020 (in thousands)	Cost		Gains		Losses		Credit Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	245,204	$	1,730	$	(25)	$	—	$	246,909
Private label mortgage-backed security		1,707		1,250		—		—		2,957
Mortgage-backed securities - residential		203,786		7,419		(3)		—		211,202
Collateralized mortgage obligations		48,190		772		(10)		—		48,952
Corporate bonds		10,000		43		—		—		10,043
Trust preferred security		3,631		169		—		—		3,800
Total available-for-sale debt securities	$	512,518	$	11,383	$	(38)	$	—	$	523,863

Held-to-Maturity Debt Securities

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


			Gross		Gross				Allowance
	Carrying		Unrecognized		Unrecognized		Fair		for
June 30, 2021 (in thousands)	Value		Gains		Losses		Value		Credit Losses

Mortgage-backed securities - residential	$	86	$	5	$	—	$	91	$	—
Collateralized mortgage obligations		10,912		182		—		11,094		—
Corporate bonds		34,976		445		—		35,421		(56)
Obligations of state and political subdivisions		356		6		—		362		—
Total held-to-maturity debt securities	$	46,330	$	638	$	—	$	46,968	$	(56)


			Gross		Gross				Allowance
	Carrying		Unrecognized		Unrecognized		Fair		for
December 31, 2020 (in thousands)	Value		Gains		Losses		Value		Credit Losses

Mortgage-backed securities - residential	$	99	$	5	$	—	$	104	$	—
Collateralized mortgage obligations		13,061		176		—		13,237		—
Corporate bonds		39,986		499		—		40,485		(178)
Obligations of state and political subdivisions		356		8		—		364		—
Total held-to-maturity debt securities	$	53,502	$	688	$	—	$	54,190	$	(178)

Sales of Available-for-Sale Debt Securities

During the three and six months ended June 30, 2021 and 2020, there were no material gains or losses on sales or calls of AFS debt securities.

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Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity as of June 30, 2021 follow. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.


	Available-for-Sale				Held-to-Maturity
	Debt Securities				Debt Securities
	Amortized		Fair		Carrying		Fair
June 30, 2021 (in thousands)	Cost		Value		Value		Value

Due in one year or less	$	14,980	$	15,037	$	110	$	111
Due from one year to five years		210,010		210,372		35,222		35,672
Due from five years to ten years		20,000		20,020		—		—
Due beyond ten years		3,657		3,700		—		—
Private label mortgage-backed security		1,525		2,824		—		—
Mortgage-backed securities - residential		226,336		232,562		86		91
Collateralized mortgage obligations		38,893		39,637		10,912		11,094
Total debt securities	$	515,401	$	524,152	$	46,330	$	46,968

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


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
June 30, 2021 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	139,184	$	(631)	$	—	$	—	$	139,184	$	(631)
Mortgage-backed securities - residential		20,727		(24)		—		—		20,727		(24)
Collateralized mortgage obligations		2,178		(7)		—		—		2,178		(7)
Total available-for-sale debt securities	$	162,089	$	(662)	$	—	$	—	$	162,089	$	(662)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2020 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	59,971	$	(25)	$	—	$	—	$	59,971	$	(25)
Mortgage-backed securities - residential		1,068		(3)		—		—		1,068		(3)
Collateralized mortgage obligations		2,788		(10)		—		—		2,788		(10)
Total available-for-sale debt securities	$	63,827	$	(38)	$	—	$	—	$	63,827	$	(38)

As of June 30, 2021, the Bank’s security portfolio consisted of 173 securities, 25 of which were in an unrealized loss position.

As of December 31, 2020, the Bank’s security portfolio consisted of 173 securities, 19 of which were in an unrealized loss position.

As of June 30, 2021 and December 31, 2020, 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.

Mortgage-Backed Securities and Collateralized Mortgage Obligations

As of June 30, 2021, with the exception of the $2.8 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 the FHLMC and FNMA. As of June 30, 2021 and December 31, 2020, there were gross unrealized losses of $31,000 and $13,000 related to AFS mortgage-backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to have OTTI.

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Trust Preferred Security

During 2015, the Parent Company purchased a $3 million floating rate TRUP at a price of 68% of par. The coupon on this security is based on the 3-month LIBOR rate plus 159 basis points. The Company performed an initial analysis prior to acquisition and performs ongoing analysis of the credit risk of the underlying borrower in relation to its TRUP.

Private Label Mortgage-Backed Security

The Bank owns one private label mortgage-backed security with a total carrying value of $2.8 million as of June 30, 2021. This security is mostly backed by “Alternative A” first lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach, in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

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

Rollforward of the Allowance for Credit Losses on Debt Securities

The tables below present a rollforward for the three and six months ended June 30, 2021 and 2020 of the ACLS on AFS and HTM debt securities:


	ACLS Rollforward
	Three Months Ended June 30,
	2021										2020
	Beginning				Charge-				Ending			Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance			Balance		Provision		offs		Recoveries		Balance

Available-for-Sale Securities:
Corporate Bonds	$	—	$	—	$	—	$	—	$	—		$	126	$	—	$	—	$	—	$	126
Held-to-Maturity Securities:
Corporate Bonds		103		(47)		—		—		56			171		(24)		—		—		147

Total	$	103	$	(47)	$	—	$	—	$	56		$	297	$	(24)	$	—	$	—	$	273

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


	ACLS Rollforward
	Six Months Ended June 30,
	2021										2020
	Beginning				Charge-				Ending		Beginning		ASC 326				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Adoption		Provision		offs		Recoveries		Balance

Available-for-Sale Securities:
Corporate Bonds	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	126	$	—	$	—	$	126
Held-to-Maturity Securities:
Corporate Bonds		178		(122)		—		—		56		—		51		96		—		—		147

Total	$	178	$	(122)	$	—	$	—	$	56	$	—	$	51	$	222	$	—	$	—	$	273

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

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There were no HTM debt securities on nonaccrual or past due over 89 days as of June 30, 2021 and December 31, 2020. All of the Company’s HTM corporate bonds were rated investment grade as of June 30, 2021 and December 31, 2020.

There were no HTM debt securities considered collateral dependent as of June 30, 2021 and December 31, 2020.

Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet and is excluded from the ACLS. Accrued interest on AFS debt securities totaled $1 million and $1 million as of June 30, 2021 and December 31, 2020. Accrued interest receivable on HTM debt securities totaled $93,000 and $110,000 as of June 30, 2021 and December 31, 2020.

Pledged Debt Securities

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


(in thousands)	June 30, 2021		December 31, 2020

Carrying amount	$	290,473	$	303,535
Fair value		290,556		303,611

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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
June 30, 2021 (in thousands)	Cost		Gains		Losses		Value

Freddie Mac preferred stock	$	—	$	116	$	—	$	116
Community Reinvestment Act mutual fund		2,500		—		(15)		2,485
Total equity securities with readily determinable fair values	$	2,500	$	116	$	(15)	$	2,601


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020 (in thousands)	Cost		Gains		Losses		Value

Freddie Mac preferred stock	$	—	$	560	$	—	$	560
Community Reinvestment Act mutual fund		2,500		23		—		2,523
Total equity securities with readily determinable fair values	$	2,500	$	583	$	—	$	3,083

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 June 30, 2021						Three Months Ended June 30, 2020
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total

Freddie Mac preferred stock	$	—	$	(223)	$	(223)	$	—	$	191	$	191
Community Reinvestment Act mutual fund		—		2		2		—		16		16
Total equity securities with readily determinable fair value	$	—	$	(221)	$	(221)	$	—	$	207	$	207


	Gains (Losses) Recognized on Equity Securities
	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total

Freddie Mac preferred stock	$	—	$	(444)	$	(444)	$	—	$	(229)	$	(229)
Community Reinvestment Act mutual fund		—		(38)		(38)		—		56		56
Total equity securities with readily determinable fair value	$	—	$	(482)	$	(482)	$	—	$	(173)	$	(173)

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3. LOANS HELD FOR SALE

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

Mortgage Loans Held for Sale, at Fair Value

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

Consumer Loans Held for Sale, at Fair Value

In December 2019, the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Balance, beginning of period	$	3,970	$	3,431	$	3,298	$	598
Origination of consumer loans held for sale		49,607		555		68,697		47,741
Proceeds from the sale of consumer loans held for sale		(41,974)		(3,963)		(60,904)		(49,691)
Net gain on sale of consumer loans held for sale		1,417		141		1,929		1,516
Balance, end of period	$	13,020	$	164	$	13,020	$	164

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

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

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Balance, beginning of period	$	11,701	$	12,089	$	1,478	$	11,646
Origination of consumer loans held for sale		137,164		86,936		235,348		234,871
Proceeds from the sale of consumer loans held for sale		(138,852)		(86,796)		(227,606)		(235,207)
Net gain on sale of consumer loans held for sale		1,399		571		2,192		1,490
Balance, end of period	$	11,412	$	12,800	$	11,412	$	12,800

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4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:


(in thousands)	June 30, 2021		December 31, 2020

Traditional Banking:
Residential real estate:
Owner occupied	$	852,947	$	879,800
Nonowner occupied		289,290		264,780
Commercial real estate		1,389,003		1,349,085
Construction & land development		95,180		98,674
Commercial & industrial		330,302		325,596
Paycheck Protection Program		250,933		392,319
Lease financing receivables		9,249		10,130
Aircraft		121,112		101,375
Home equity		217,621		240,640
Consumer:
Credit cards		14,754		14,196
Overdrafts		717		587
Automobile loans		21,190		30,300
Other consumer		6,796		8,167
Total Traditional Banking		3,599,094		3,715,649
Warehouse lines of credit*		840,155		962,796
Total Core Banking		4,439,249		4,678,445

*Republic Processing Group:**
Tax Refund Solutions:
Easy Advances		—		—
Other TRS loans		—		—
Republic Credit Solutions		114,949		110,893
Total Republic Processing Group		114,949		110,893

Total loans**		4,554,198		4,789,338
Allowance for credit losses		(60,291)		(61,067)

Total loans, net	$	4,493,907	$	4,728,271

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

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

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


(in thousands)	June 30, 2021		December 31, 2020

Contractually receivable	$	4,563,887	$	4,797,297
Unearned income		(605)		(708)
Unamortized premiums		157		216
Unaccreted discounts		(751)		(988)
PPP net unamortized deferred origination fees and costs		(9,092)		(8,564)
Other net unamortized deferred origination fees and costs		602		2,085
Carrying value of loans	$	4,554,198	$	4,789,338

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Paycheck Protection Program

The CARES Act was enacted in March 2020 and provided for the SBA’s PPP, which allowed the Bank to lend to its qualifying small business clients to assist them in their efforts to meet their cash-flow needs during the COVID-19 pandemic. The Economic Aid Act was enacted in December 2020 and provided for a second round of PPP loans. PPP loans are fully backed by the SBA and may be entirely forgiven if the loan client uses loan funds for qualifying reasons. As of June 30, 2021, net PPP loans of $251 million remained on the Bank’s balance sheet, including $53 million in loan balances originated during 2020, $207 million in loan balances originated during 2021, and $9 million of unaccreted PPP lender fees reported as a credit offset to these originated balances. Unaccreted PPP lender fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated.

To provide liquidity to banks administering the SBA’s PPP, the FRB created the PPPLF, a lending facility secured by the PPP loans of the participating banks. As of June 30, 2021, the Bank had no outstanding borrowings from the FRB under the PPPLF.

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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 June 30, 2021 remain unchanged from those defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Regarding origination year, loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a TDR. Loan extensions and renewals classified as TDRs generally receive no change in origination date upon extension or renewal.


											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year										Amortized		Converted
As of June 30, 2021	2021		2020		2019		2018		Prior		Cost Basis		to Term		Total

Residential real estate owner occupied:
Risk Rating
Pass or not rated	$	158,794	$	247,851	$	106,615	$	64,317	$	250,163	$	—	$	—	$	827,740
Special Mention		—		—		356		38		9,191		—		—		9,585
Substandard		259		375		1,467		738		12,783		—		—		15,622
Doubtful		—		—		—		—		—		—		—		—
Total	$	159,053	$	248,226	$	108,438	$	65,093	$	272,137	$	—	$	—	$	852,947

Residential real estate nonowner occupied:
Risk Rating
Pass or not rated	$	53,047	$	74,453	$	54,409	$	35,378	$	68,253	$	—	$	3,607	$	289,147
Special Mention		—		—		—		—		41		—		—		41
Substandard		—		—		—		—		102		—		—		102
Doubtful		—		—		—		—		—		—		—		—
Total	$	53,047	$	74,453	$	54,409	$	35,378	$	68,396	$	—	$	3,607	$	289,290

Commercial real estate:
Risk Rating
Pass or not rated	$	253,854	$	281,420	$	192,636	$	117,084	$	383,009	$	—	$	74,195	$	1,302,198
Special Mention		12,243		2,423		30,212		11,659		21,185		—		—		77,722
Substandard		—		2,591		274		—		3,983		—		2,235		9,083
Doubtful		—		—		—		—		—		—		—		—
Total	$	266,097	$	286,434	$	223,122	$	128,743	$	408,177	$	—	$	76,430	$	1,389,003

Construction and land development:
Risk Rating
Pass or not rated	$	38,559	$	42,695	$	7,282	$	2,837	$	1,126	$	—	$	—	$	92,499
Special Mention		—		310		2,371		—		—		—		—		2,681
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	38,559	$	43,005	$	9,653	$	2,837	$	1,126	$	—	$	—	$	95,180

Commercial and industrial:
Risk Rating
Pass or not rated	$	85,744	$	64,779	$	73,627	$	24,849	$	55,200	$	—	$	2,233	$	306,432
Special Mention		15,819		4,985		800		52		2,177		—		—		23,833
Substandard		—		37		—		—		—		—		—		37
Doubtful		—		—		—		—		—		—		—		—
Total	$	101,563	$	69,801	$	74,427	$	24,901	$	57,377	$	—	$	2,233	$	330,302

Paycheck Protection Program:
Risk Rating
Pass or not rated	$	198,598	$	52,335	$	—	$	—	$	—	$	—	$	—	$	250,933
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	198,598	$	52,335	$	—	$	—	$	—	$	—	$	—	$	250,933

Lease financing receivables:
Risk Rating
Pass or not rated	$	1,210	$	858	$	2,828	$	1,878	$	2,475	$	—	$	—	$	9,249
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	1,210	$	858	$	2,828	$	1,878	$	2,475	$	—	$	—	$	9,249

Aircraft:
Risk Rating
Pass or not rated	$	33,028	$	48,802	$	26,463	$	10,977	$	1,842	$	—	$	—	$	121,112
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	33,028	$	48,802	$	26,463	$	10,977	$	1,842	$	—	$	—	$	121,112

Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	215,580	$	—	$	215,580
Special Mention		—		—		—		—		—		126		—		126
Substandard		—		—		—		—		—		1,915		—		1,915
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	217,621	$	—	$	217,621

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											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted
As of June 30, 2021	2021		2020		2019		2018		Prior		Cost Basis		to Term		Total

Consumer:
Risk Rating
Pass or not rated	$	612	$	996	$	11,259	$	6,273	$	10,027	$	13,870	$	—	$	43,037
Special Mention		—		—		—		—		2		—		—		2
Substandard		—		—		27		52		339		—		—		418
Doubtful		—		—		—		—		—		—		—		—
Total	$	612	$	996	$	11,286	$	6,325	$	10,368	$	13,870	$	—	$	43,457

Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	840,155	$	—	$	840,155
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	840,155	$	—	$	840,155

TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

RCS:
Risk Rating
Pass or not rated	$	21,973	$	13,817	$	3,446	$	1,401	$	17,648	$	55,627	$	—	$	113,912
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		1,037		—		1,037
Doubtful		—		—		—		—		—		—		—		—
Total	$	21,973	$	13,817	$	3,446	$	1,401	$	17,648	$	56,664	$	—	$	114,949

Grand Total:
Risk Rating
Pass or not rated	$	845,419	$	828,006	$	478,565	$	264,994	$	789,743	$	1,125,232	$	80,035	$	4,411,994
Special Mention		28,062		7,718		33,739		11,749		32,596		126		—		113,990
Substandard		259		3,003		1,768		790		17,207		2,952		2,235		28,214
Doubtful		—		—		—		—		—		—		—		—
Grand Total	$	873,740	$	838,727	$	514,072	$	277,533	$	839,546	$	1,128,310	$	82,270	$	4,554,198


											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year										Amortized		Converted
As of December 31, 2020	2020		2019		2018		2017		Prior		Cost Basis		to Term		Total

Residential real estate owner occupied:
Risk Rating
Pass or not rated	$	268,313	$	132,018	$	82,754	$	67,430	$	301,366	$	—	$	—	$	851,881
Special Mention		—		364		42		1,610		8,730		—		—		10,746
Substandard		394		1,423		1,331		614		13,411		—		—		17,173
Doubtful		—		—		—		—		—		—		—		—
Total	$	268,707	$	133,805	$	84,127	$	69,654	$	323,507	$	—	$	—	$	879,800

Residential real estate nonowner occupied:
Risk Rating
Pass or not rated	$	73,291	$	63,102	$	43,610	$	45,759	$	38,316	$	—	$	621	$	264,699
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		81		—		—		81
Doubtful		—		—		—		—		—		—		—		—
Total	$	73,291	$	63,102	$	43,610	$	45,759	$	38,397	$	—	$	621	$	264,780

Commercial real estate:
Risk Rating
Pass or not rated	$	315,550	$	258,251	$	166,542	$	171,207	$	315,336	$	—	$	55,949	$	1,282,835
Special Mention		3,397		30,969		236		11,355		9,659		—		—		55,616
Substandard		2,596		349		—		987		3,899		—		2,803		10,634
Doubtful		—		—		—		—		—		—		—		—
Total	$	321,543	$	289,569	$	166,778	$	183,549	$	328,894	$	—	$	58,752	$	1,349,085

Construction and land development:
Risk Rating
Pass or not rated	$	53,972	$	31,756	$	7,840	$	701	$	1,964	$	—	$	—	$	96,233
Special Mention		—		2,397		—		—		—		—		—		2,397
Substandard		—		44		—		—		—		—		—		44
Doubtful		—		—		—		—		—		—		—		—
Total	$	53,972	$	34,197	$	7,840	$	701	$	1,964	$	—	$	—	$	98,674

Commercial and industrial:
Risk Rating
Pass or not rated	$	105,985	$	84,575	$	33,391	$	32,303	$	46,697	$	—	$	1,040	$	303,991
Special Mention		18,195		800		—		—		2,215		—		—		21,210
Substandard		383		12		—		—		—		—		—		395
Doubtful		—		—		—		—		—		—		—		—
Total	$	124,563	$	85,387	$	33,391	$	32,303	$	48,912	$	—	$	1,040	$	325,596

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											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted
As of December 31, 2020	2020		2019		2018		2017		Prior		Cost Basis		to Term		Total

Paycheck Protection Program:
Risk Rating
Pass or not rated	$	392,319	$	—	$	—	$	—	$	—	$	—	$	—	$	392,319
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	392,319	$	—	$	—	$	—	$	—	$	—	$	—	$	392,319

Lease financing receivables:
Risk Rating
Pass or not rated	$	1,117	$	3,663	$	1,814	$	2,847	$	689	$	—	$	—	$	10,130
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	1,117	$	3,663	$	1,814	$	2,847	$	689	$	—	$	—	$	10,130

Aircraft:
Risk Rating
Pass or not rated	$	55,823	$	30,529	$	13,804	$	1,219	$	—	$	—	$	—	$	101,375
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	55,823	$	30,529	$	13,804	$	1,219	$	—	$	—	$	—	$	101,375

Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	237,633	$	—	$	237,633
Special Mention		—		—		—		—		—		127		—		127
Substandard		—		—		—		—		—		2,880		—		2,880
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	240,640	$	—	$	240,640
Consumer:
Risk Rating
Pass or not rated	$	425	$	13,636	$	8,563	$	7,125	$	8,648	$	14,321	$	—	$	52,718
Special Mention		—		—		—		—		5		—		—		5
Substandard		—		32		49		229		212		5		—		527
Doubtful		—		—		—		—		—		—		—		—
Total	$	425	$	13,668	$	8,612	$	7,354	$	8,865	$	14,326	$	—	$	53,250

Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	962,796	$	—	$	962,796
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	962,796	$	—	$	962,796

TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

RCS:
Risk Rating
Pass or not rated	$	27,683	$	5,704	$	2,485	$	1,232	$	19,095	$	54,348	$	—	$	110,547
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		346		—		346
Doubtful		—		—		—		—		—		—		—		—
Total	$	27,683	$	5,704	$	2,485	$	1,232	$	19,095	$	54,694	$	—	$	110,893

Grand Total:
Risk Rating
Pass or not rated	$	1,294,478	$	623,234	$	360,803	$	329,823	$	732,111	$	1,269,098	$	57,610	$	4,667,157
Special Mention		21,592		34,530		278		12,965		20,609		127		—		90,101
Substandard		3,373		1,860		1,380		1,830		17,603		3,231		2,803		32,080
Doubtful		—		—		—		—		—		—		—		—
Grand Total	$	1,319,443	$	659,624	$	362,461	$	344,618	$	770,323	$	1,272,456	$	60,413	$	4,789,338

Table of Contents

Allowance for Credit Losses on Loans

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


	ACLL Rollforward
	Three Months Ended June 30,
	2021										2020
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance

Traditional Banking:
Residential real estate:
Owner occupied	$	9,489	$	(530)	$	—	$	18	$	8,977	$	9,387	$	(127)	$	—	$	43	$	9,303
Nonowner occupied		2,532		18		—		1		2,551		2,165		107		—		2		2,274
Commercial real estate		23,801		(506)		—		12		23,307		13,381		3,187		(270)		2		16,300
Construction & land development		3,593		(294)		—		—		3,299		4,536		404		—		—		4,940
Commercial & industrial		2,718		1,395		—		4		4,117		2,541		15		(192)		41		2,405
Paycheck Protection Program		—		—		—		—		—		—		—		—		—		—
Lease financing receivables		104		(7)		—		—		97		133		(8)		—		—		125
Aircraft		265		38		—		—		303		200		8		—		—		208
Home equity		4,615		(344)		—		34		4,305		5,290		(178)		—		12		5,124
Consumer:
Credit cards		930		42		(33)		10		949		978		16		(71)		5		928
Overdrafts		473		281		(111)		74		717		758		(189)		(159)		78		488
Automobile loans		334		(66)		—		5		273		546		(74)		—		1		473
Other consumer		533		(57)		(17)		8		467		639		(57)		(8)		35		609
Total Traditional Banking		49,387		(30)		(161)		166		49,362		40,554		3,104		(700)		219		43,177
Warehouse lines of credit		2,165		(65)		—		—		2,100		2,126		449		—		—		2,575
Total Core Banking		51,552		(95)		(161)		166		51,462		42,680		3,553		(700)		219		45,752

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		16,019		(5,793)		(10,256)		30		—		15,270		4,305		(19,575)		—		—
Other TRS loans		10		20		(30)		—		—		95		143		(28)		1		211
Republic Credit Solutions		7,755		1,592		(597)		79		8,829		12,386		(1,443)		(2,008)		199		9,134
Total Republic Processing Group		23,784		(4,181)		(10,883)		109		8,829		27,751		3,005		(21,611)		200		9,345

Total	$	75,336	$	(4,276)	$	(11,044)	$	275	$	60,291	$	70,431	$	6,558	$	(22,311)	$	419	$	55,097

Table of Contents


	ACLL Rollforward
	Six Months Ended June 30,
	2021										2020
	Beginning				Charge-				Ending			Beginning	ASC 326				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance			Balance	Adoption		Provision		offs		Recoveries		Balance

Traditional Banking:
Residential real estate:
Owner occupied	$	9,715	$	(783)	$	—	$	45	$	8,977	$	4,729	$	4,199	$	320	$	(27)	$	82	$	9,303
Nonowner occupied		2,466		84		—		1		2,551		1,737		148		385		—		4		2,274
Commercial real estate		23,606		49		(428)		80		23,307		10,486		273		5,338		(270)		473		16,300
Construction & land development		3,274		25		—		—		3,299		2,152		1,447		1,341		—		—		4,940
Commercial & industrial		2,797		1,309		—		11		4,117		2,882		(1,318)		989		(192)		44		2,405
Paycheck Protection Program		—		—		—		—		—		—		—		—		—		—		—
Lease financing receivables		106		(9)		—		—		97		147		—		(22)		—		—		125
Aircraft		253		50		—		—		303		176		—		32		—		—		208
Home equity		4,990		(726)		—		41		4,305		2,721		1,652		664		—		87		5,124
Consumer:
Credit cards		929		86		(90)		24		949		1,020		33		38		(177)		14		928
Overdrafts		587		208		(249)		171		717		1,169		—		(311)		(503)		133		488
Automobile loans		399		(144)		—		18		273		612		(7)		(153)		(8)		29		473
Other consumer		577		(109)		(31)		30		467		374		307		(174)		(45)		147		609
Total Traditional Banking		49,699		40		(798)		421		49,362		28,205		6,734		8,447		(1,222)		1,013		43,177
Warehouse lines of credit		2,407		(307)		—		—		2,100		1,794		—		781		—		—		2,575
Total Core Banking		52,106		(267)		(798)		421		51,462		29,999		6,734		9,228		(1,222)		1,013		45,752

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		10,226		(10,256)		30		—		—		—		19,533		(19,575)		42		—
Other TRS loans		158		(115)		(51)		8		—		234		—		48		(72)		1		211
Republic Credit Solutions		8,803		1,217		(1,362)		171		8,829		13,118		—		263		(4,717)		470		9,134
Total Republic Processing Group		8,961		11,328		(11,669)		209		8,829		13,352		—		19,844		(24,364)		513		9,345

Total	$	61,067	$	11,061	$	(12,467)	$	630	$	60,291	$	43,351	$	6,734	$	29,072	$	(25,586)	$	1,526	$	55,097

The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of June 30, 2021 was primarily based on a static pool analysis of each of the Company’s loan pools using the Company’s loss experience from 2013 through 2020, supplemented by qualitative factor adjustments for current and forecasted conditions. The Company employs one-year forecasts of unemployment and CRE values within its ACLL model, with reversion to long-term averages following the forecasted period. The cumulative loss rate within the Company’s ACLL also includes estimated losses based on an individual evaluation of loans which are either collateral dependent or which do not share risk characteristics with pooled loans, e.g., TDRs.

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

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Nonperforming Loans and Nonperforming Assets

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


(dollars in thousands)	June 30, 2021			December 31, 2020

Loans on nonaccrual status*	$	21,621		$	23,548
Loans past due 90-days-or-more and still on accrual**		723			47
Total nonperforming loans		22,344			23,595
Other real estate owned		1,898			2,499
Total nonperforming assets	$	24,242		$	26,094

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans		0.49	%		0.49	%
Nonperforming assets to total loans (including OREO)		0.53			0.54
Nonperforming assets to total assets		0.39			0.42

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans		0.49	%		0.50	%
Nonperforming assets to total loans (including OREO)		0.53			0.56
Nonperforming assets to total assets		0.42			0.45

*	Loans on nonaccrual status include collateral-dependent loans.

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

Table of Contents

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


					Past Due 90-Days-or-More
	Nonaccrual				and Still Accruing Interest*
(in thousands)	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020

Traditional Banking:
Residential real estate:
Owner occupied	$	13,181	$	14,328	$	—	$	—
Nonowner occupied		102		81		—		—
Commercial real estate		6,548		6,762		—		—
Construction & land development		—		—		—		—
Commercial & industrial		50		55		—		—
Paycheck Protection Program		—				—		—
Lease financing receivables		—		—		—		—
Aircraft		—				—		—
Home equity		1,626		2,141		—		—
Consumer:
Credit cards		—		—		—		5
Overdrafts		—		—		—		—
Automobile loans		108		170		—		—
Other consumer		6		11		—		—
Total Traditional Banking		21,621		23,548		—		5
Warehouse lines of credit		—		—		—		—
Total Core Banking		21,621		23,548		—		5

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—
Other TRS loans		—		—		—		—
Republic Credit Solutions		—		—		723		42
Total Republic Processing Group		—		—		723		42

Total	$	21,621	$	23,548	$	723	$	47

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


							Three Months Ended		Six Months Ended
	As of June 30, 2021						June 30, 2021		June 30, 2021

	Nonaccrual		Nonaccrual		Total		Interest Income		Interest Income
	Loans with		Loans without		Nonaccrual		Recognized		Recognized
(in thousands)	ACLL		ACLL		Loans		on Nonaccrual Loans*		on Nonaccrual Loans*

Residential real estate:
Owner occupied	$	2,008	$	11,173	$	13,181	$	166	$	414
Nonowner occupied		34		68		102		2		3
Commercial real estate		536		6,012		6,548		36		51
Construction & land development		—		—		—		—		—
Commercial & industrial		—		50		50		—		1
Paycheck Protection Program		—		—		—		—		—
Lease financing receivables		—		—		—		—		—
Aircraft		—		—		—		—		—
Home equity		63		1,563		1,626		26		66
Consumer		27		87		114		2		4
Total	$	2,668	$	18,953	$	21,621	$	232	$	539

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

Table of Contents


							Three Months Ended		Six Months Ended
	As of December 31, 2020						June 30, 2020		June 30, 2020

	Nonaccrual		Nonaccrual		Total		Interest Income		Interest Income
	Loans with		Loans without		Nonaccrual		Recognized		Recognized
(in thousands)	ACLL		ACLL		Loans		on Nonaccrual Loans*		on Nonaccrual Loans*

Residential real estate:
Owner occupied	$	1,995	$	12,333	$	14,328	$	169	$	380
Nonowner occupied		8		73		81		2		4
Commercial real estate		576		6,186		6,762		13		686
Construction & land development		—		—		—		—		—
Commercial & industrial		—		55		55		3		9
Paycheck Protection Program		—		—		—		—		—
Lease financing receivables		—		—		—		—		—
Aircraft		—		—		—		—		—
Home equity		91		2,050		2,141		14		14
Consumer		69		112		181		2		2
	$	2,739	$	20,809	$	23,548	$	203	$	1,095

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

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

Delinquent Loans

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


	30 - 59			60 - 89			90 or More
June 30, 2021	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner occupied	$	1,323		$	425		$	860		$	2,608		$	850,339	$	852,947
Nonowner occupied		—			—			—			—			289,290		289,290
Commercial real estate		1,644			127			5,045			6,816			1,382,187		1,389,003
Construction & land development		—			—			—			—			95,180		95,180
Commercial & industrial		—			12			—			12			330,290		330,302
Paycheck Protection Program		—			—			—			—			250,933		250,933
Lease financing receivables		—			—			—			—			9,249		9,249
Aircraft		—			—			—			—			121,112		121,112
Home equity		37			—			212			249			217,372		217,621
Consumer:
Credit cards		47			17			—			64			14,690		14,754
Overdrafts		143			1			1			145			572		717
Automobile loans		—			—			11			11			21,179		21,190
Other consumer		1			3			—			4			6,792		6,796
Total Traditional Banking		3,195			585			6,129			9,909			3,589,185		3,599,094
Warehouse lines of credit		—			—			—			—			840,155		840,155
Total Core Banking		3,195			585			6,129			9,909			4,429,340		4,439,249

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—			—			—			—		—
Other TRS loans		—			—			—			—			—		—
Republic Credit Solutions		6,068			2,018			723			8,809			106,140		114,949
Total Republic Processing Group		6,068			2,018			723			8,809			106,140		114,949

Total	$	9,263		$	2,603		$	6,852		$	18,718		$	4,535,480	$	4,554,198
Delinquency ratio***		0.20	%		0.06	%		0.15	%		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.

Table of Contents


	30 - 59			60 - 89			90 or More
December 31, 2020	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner occupied	$	1,038		$	668		$	1,554		$	3,260		$	876,540	$	879,800
Nonowner occupied		—			—			—			—			264,780		264,780
Commercial real estate		—			348			5,109			5,457			1,343,628		1,349,085
Construction & land development		—			—			—			—			98,674		98,674
Commercial & industrial		—			—			12			12			325,584		325,596
Paycheck Protection Program		—			—			—						392,319		392,319
Lease financing receivables		—			—			—			—			10,130		10,130
Aircraft		—			—			—			—			101,375		101,375
Home equity		93			14			595			702			239,938		240,640
Consumer:
Credit cards		33			35			5			73			14,123		14,196
Overdrafts		140			5			2			147			440		587
Automobile loans		42			—			14			56			30,244		30,300
Other consumer		6			—			—			6			8,161		8,167
Total Traditional Banking		1,352			1,070			7,291			9,713			3,705,936		3,715,649
Warehouse lines of credit		—			—			—			—			962,796		962,796
Total Core Banking		1,352			1,070			7,291			9,713			4,668,732		4,678,445

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—			—			—			—		—
Other TRS loans		—			—			—			—			—		—
Republic Credit Solutions		6,572			3,620			42			10,234			100,659		110,893
Total Republic Processing Group		6,572			3,620			42			10,234			100,659		110,893

Total	$	7,924		$	4,690		$	7,333		$	19,947		$	4,769,391	$	4,789,338
Delinquency ratio***		0.17	%		0.10	%		0.15	%		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.

Table of Contents

Collateral-Dependent Loans

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


	June 30, 2021				December 31, 2020
	Secured		Secured		Secured		Secured
	by Real		by Personal		by Real		by Personal
(dollars in thousands)	Estate		Property		Estate		Property

Traditional Banking:
Residential real estate:
Owner occupied	$	13,711	$	—	$	17,212	$	—
Nonowner occupied		102		—		81		—
Commercial real estate		9,084		—		10,205		—
Construction & land development		—		—		—		—
Commercial & industrial		—		—		—		12
Paycheck Protection Program		—		—		—		—
Lease financing receivables		—		—		—		—
Aircraft		—		—		—		—
Home equity		1,915		—		2,899		—
Consumer		—		162		—		237
Total Traditional Banking	$	24,812	$	162	$	30,397	$	249

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

Table of Contents

Troubled Debt Restructurings

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

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

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

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


	Troubled Debt			Troubled Debt			Total
	Restructurings on			Restructurings on			Troubled Debt
	Nonaccrual Status			Accrual Status			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
June 30, 2021 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate	65	$	4,517	105	$	9,339	170	$	13,856
Commercial real estate	1		2,464	3		1,407	4		3,871
Commercial & industrial	1		—	1		1	2		1
Consumer	2		13	2,443		572	2,445		585
Total troubled debt restructurings	69	$	6,994	2,552	$	11,319	2,621	$	18,313


	Troubled Debt			Troubled Debt			Total
	Restructurings on			Restructurings on			Troubled Debt
	Nonaccrual Status			Accrual Status			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
December 31, 2020 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate	61	$	4,189	123	$	11,041	184	$	15,230
Commercial real estate	2		2,509	5		2,395	7		4,904
Construction & land development	—		—	1		44	1		44
Commercial & industrial	—		—	1		1	1		1
Consumer	1		14	2,194		585	2,195		599
Total troubled debt restructurings	64	$	6,712	2,324	$	14,066	2,388	$	20,778

Table of Contents

The Bank considers a TDR to be performing to its modified terms if the loan is in accrual status and not past due 30-days-or-more as of the reporting date. A summary of the categories of TDR loan modifications outstanding and respective performance under modified terms as of June 30, 2021 and December 31, 2020 follows:


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
June 30, 2021 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Interest only payments	1	$	774	—	$	—	1	$	774
Rate reduction	91		8,391	6		396	97		8,787
Principal deferral	8		819	1		1	9		820
Legal modification	56		3,085	7		390	63		3,475
Total residential TDRs	156		13,069	14		787	170		13,856

Commercial related and construction/land development loans:
Rate reduction	1		947	—		—	1		947
Principal deferral	3		334	2		2,591	5		2,925
Legal modification	—		—	—		—	—		—
Total commercial TDRs	4		1,281	2		2,591	6		3,872

Consumer loans:
Principal deferral	2,441		563	—		—	2,441		563
Legal modification	4		22	—		—	4		22
Total consumer TDRs	2,445		585	—		—	2,445		585

Total troubled debt restructurings	2,605	$	14,935	16	$	3,378	2,621	$	18,313


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
December 31, 2020 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Interest only payments	1	$	826	—	$	—	1	$	826
Rate reduction	101		9,526	6		370	107		9,896
Principal deferral	9		858	2		166	11		1,024
Legal modification	58		3,068	7		416	65		3,484
Total residential TDRs	169		14,278	15		952	184		15,230

Commercial related and construction/land development loans:
Interest only payments	1		488	—		—	1		488
Rate reduction	2		1,046	1		45	3		1,091
Principal deferral	4		906	1		2,464	5		3,370
Total commercial TDRs	7		2,440	2		2,509	9		4,949

Consumer loans:
Principal deferral	2,193		578	—		—	2,193		578
Legal modification	2		21	—		—	2		21
Total consumer TDRs	2,195		599	—		—	2,195		599

Total troubled debt restructurings	2,371	$	17,317	17	$	3,461	2,388	$	20,778

As of June 30, 2021 and December 31, 2020, 82% and 83% of the Bank’s TDR balances were performing according to their modified terms. The Bank had provided $1 million and $1 million of specific ACLL allocations to clients whose loan terms have been modified in TDRs as of June 30, 2021 and December 31, 2020. The Bank had no commitments to lend any additional material amounts to its existing TDR relationships as of June 30, 2021 or December 31, 2020.

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A summary of the categories of TDR loan modifications by respective performance as of June 30, 2021 and 2020 that were modified during the three months ended June 30, 2021 and 2020 follows:


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
June 30, 2021 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Principal deferral	1	$	16	—	$	—	1	$	16
Legal modification	3		226	1		50	4		276
Total residential TDRs	4		242	1		50	5		292

Consumer loans:
Principal deferral	286		38	—		—	286		38
Legal modification	1		—	—		—	1		—
Total consumer TDRs	287		38	—		—	287		38

Total troubled debt restructurings	291	$	280	1	$	50	292	$	330


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
June 30, 2020 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Legal modification	5	$	161	1	$	109	6	$	270
Total residential TDRs	5		161	1		109	6		270

Commercial related and construction/land development loans:
Legal modification	—		—	1		118	1	$	118
Total commercial TDRs	—		—	1		118	1		118

Consumer loans:
Principal deferral	884		141	—		—	884	$	141
Total consumer TDRs	884		141	—		—	884		141

Total troubled debt restructurings	889	$	302	2	$	227	891	$	529

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

As of June 30, 2021 and 2020, 85% and 57% of the Bank’s TDR balances that occurred during the second quarters of 2021 and 2020 were performing according to their modified terms. The Bank provided approximately $18,000 and $0 in specific ACLL allocations to clients whose loan terms were modified in TDRs during the second quarters of 2021 and 2020.

There was no significant change between the pre and post modification loan balances for the three months ending June 30, 2021 and 2020.

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A summary of the categories of TDR loan modifications by respective performance as of June 30, 2021 and 2020 that were modified during the six months ended June 30, 2021 and 2020 follows:


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
June 30, 2021 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Principal deferral	1	$	161	—	$	—	1	$	161
Legal modification	5		279	3		255	8		534
Total residential TDRs	6		440	3		255	9		695

Consumer loans:
Principal deferral	589		69	—		—	589		69
Legal modification	2		3	—		—	2		3
Total consumer TDRs	591		72	—		—	591		72

Total troubled debt restructurings	597	$	512	3	$	255	600	$	767


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
June 30, 2020 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Legal modification	8	$	283	2	$	113	10	$	396
Total residential TDRs	8		283	2		113	10		396

Commercial related and construction/land development loans:
Principal deferral	1		21	—		—	1		21
Legal modification	—		—	1		118	1		118
Total commercial TDRs	1		21	1		118	2		139

Consumer loans:
Principal deferral	884		141	—		—	884		141
Legal modification	1		9	—		—	1		9
Total consumer TDRs	885		150	—		—	885		150

Total troubled debt restructurings	894	$	454	3	$	231	897	$	685

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

As of June 30, 2021 and 2020, 67% and 66% of the Bank’s TDR balances that occurred during the first six months of 2021 and 2020 were performing according to their modified terms. The Bank provided approximately $35,000 and $28,000 in specific ACLL allocations to clients whose loan terms were modified in TDRs during the first six months of 2021 and 2020.

There was no significant change between the pre and post modification loan balances for the six months ending June 30, 2021 and 2020.

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
		Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded
(dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate:
Owner occupied	2	$	121	1	$	109	6	$	293	3	$	218
Commercial real estate	1		127	—		—	1		127	—		—
Commercial & industrial	—		—	1		118	—		—	1		118
Home equity	—		—	—		—	—		—	1		13
Consumer	—		—	—		—	—		—	1		9

Total	3	$	248	2	$	227	7	$	420	6	$	358

COVID-19 Loan Accommodations

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

As of June 30, 2021, $25 million, or 1% of the Company’s Traditional Bank portfolio remained under a COVID-19 hardship accommodation.

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)	June 30, 2021		December 31, 2020

Residential real estate	$	—	$	496
Commercial real estate		1,898		2,003

Total other real estate owned	$	1,898	$	2,499

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)	June 30, 2021		December 31, 2020

Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure	$	433	$	981

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Easy Advances

The Company’s TRS segment offered its EA product during the first two months of 2021 and 2020. During the first quarter of each year, the Company bases its estimated Provision for EAs on the current year’s EA delinquency information and the prior year’s tax refund payment patterns subsequent to the first quarter. Each year, all unpaid EAs are charged off by June 30^th, and each quarter thereafter, any credits to the Provision for EAs matches the recovery of previously charged-off accounts.

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

Information regarding EAs follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(dollars in thousands)	2021		2020		2021			2020

Easy Advances originated	$	—	$	—	$	250,045		$	387,762
Net (credit) charge to the Provision for Easy Advances		(5,793)		4,305		10,226			19,533
Provision to total Easy Advances originated		NA		NA		4.09	%		5.04	%
Easy Advances net charge-offs	$	10,226	$	19,575	$	10,226		$	19,533
Easy Advances net charge-offs to total Easy Advances originated		NA		NA		4.09	%		5.04	%

5. DEPOSITS

The composition of the deposit portfolio follows:


(in thousands)	June 30, 2021		December 31, 2020

Core Bank:
Demand	$	1,231,449	$	1,217,263
Money market accounts		810,307		712,824
Savings		281,164		236,335
Individual retirement accounts (1)		46,694		47,889
Time deposits, $250 and over (1)		78,702		83,448
Other certificates of deposit (1)		171,995		199,214
Reciprocal money market and time deposits (1)		301,384		314,109
Brokered deposits (1)		30,000		25,010
Total Core Bank interest-bearing deposits		2,951,695		2,836,092
Total Core Bank noninterest-bearing deposits		1,622,279		1,503,662
Total Core Bank deposits		4,573,974		4,339,754

Republic Processing Group:
Money market accounts		3,450		6,673
Total RPG interest-bearing deposits		3,450		6,673

Brokered prepaid card deposits		334,967		257,856
Other noninterest-bearing deposits		58,203		110,021
Total RPG noninterest-bearing deposits		393,170		367,877
Total RPG deposits		396,620		374,550

Deposits of discontinued operations (2)		46,984		18,877

Total deposits	$	5,017,578	$	4,733,181

(1)	Includes time deposit

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

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

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

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


(dollars in thousands)	June 30, 2021			December 31, 2020

Outstanding balance at end of period	$	142,895		$	211,026
Weighted average interest rate at end of period		0.02	%		0.04	%

Fair value of securities pledged:
U.S. Treasury securities and U.S. Government agencies	$	44,741		$	60,059
Mortgage backed securities - residential		144,380			140,554
Collateralized mortgage obligations		27,073			29,656
Total securities pledged	$	216,194		$	230,269


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)	2021			2020			2021			2020

Average outstanding balance during the period	$	169,888		$	176,541		$	181,216		$	192,755
Average interest rate during the period		0.02	%		0.04	%		0.02	%		0.14	%
Maximum outstanding at any month end during the period	$	174,928		$	177,397		$	200,704		$	177,397

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

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

As of June 30, 2021, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 36 of its offices, with 14 such operating leases contracted with a related party of the Company. As of June 30, 2021, payments on 24 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.

The Company executed no new operating leases during 2021. The Company renewed a related-party lease on one of its Louisville, Kentucky banking centers during the fourth quarter of 2020 that commenced in January 2021 with a right-of-use asset value of $392,000. During the second quarter of 2021, the Company extended one third-party lease for an additional five years, with the extended term beginning during the third quarter of 2021 and valued at approximately $263,000.

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Operating lease expense:
Related Party:
Variable lease expense	$	1,218	$	1,183	$	2,438	$	2,371
Fixed lease expense		34		23		68		47
Third Party:
Variable lease expense		197		180		393		361
Fixed lease expense		342		368		684		738
Short-term lease expense		—		—		—		4
Total operating lease expense	$	1,791	$	1,754	$	3,583	$	3,521

Other information concerning operating leases:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,799	$	1,793	$	3,597	$	3,630
Short-term lease payments not included in the measurement of lease liabilities		—		—		—		4

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


(dollars in thousands)	June 30, 2021			December 31, 2020

Weighted average remaining term in years		7.96			8.37
Weighted average discount rate		3.08	%		3.10	%

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


Year (in thousands)	Related Party		Third Party		Total

2021	$	2,319	$	1,258	$	3,577
2022		4,639		2,472		7,111
2023		4,639		2,049		6,688
2024		4,512		1,517		6,029
2025		4,344		979		5,323
Thereafter		15,800		2,729		18,529
Total undiscounted cash flows	$	36,253	$	11,004	$	47,257
Discount applied to cash flows		(4,296)		(1,340)		(5,636)
Total discounted cash flows reported as operating lease liabilities	$	31,957	$	9,664	$	41,621

8. FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:


(in thousands)	June 30, 2021		December 31, 2020

Overnight advances	$	25,000	$	225,000
Fixed interest rate advances		—		10,000
Total FHLB advances	$	25,000	$	235,000

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 June 30, 2021 and December 31, 2020, Republic had available borrowing capacity of $909 million and $683 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million available through various other financial institutions as of June 30, 2021 and December 31, 2020.

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

2021 (Overnight)	$	25,000	0.15	%
2021 (Term)		—	—
2022		—	—
2023		—	—
2024		—	—
2025		—	—
Thereafter		—	—
Total	$	25,000	0.15	%

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)	2021			2020			2021			2020

Average outstanding balance during the period	$	25,000		$	42,198		$	32,597		$	43,681
Average interest rate during the period		0.16	%		0.22	%		0.16	%		0.92	%
Maximum outstanding at any month end during the period	$	25,000		$	165,000		$	25,000		$	250,000

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


(in thousands)	June 30, 2021		December 31, 2020

First lien, single family residential real estate	$	1,048,175	$	1,048,236
Home equity lines of credit		191,837		208,944

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9. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

COVID-19 Pandemic

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

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

Commitments to Extend Credit

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

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

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

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


(in thousands)	June 30, 2021		December 31, 2020

Unused warehouse lines of credit	$	608,645	$	456,004
Unused home equity lines of credit		353,465		353,322
Unused loan commitments - other		759,982		775,128
Standby letters of credit		13,937		10,949
FHLB letter of credit		643		643
Total commitments	$	1,736,672	$	1,596,046

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

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The following tables present a rollforward of the ACLC for the three and six months ended June 30, 2021 and 2020:


	ACLC Rollforward
	Three Months Ended
	2021										2020
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance

Loan Commitments
Unused warehouse lines of credit	$	116	$	24	$	—	$	—	$	140	$	55	$	3	$	—	$	—	$	58
Unused home equity lines of credit		194		19		—		—		213		112		12		—		—		124
Unused loan commitments - other		705		(124)		—		—		581		391		63		—		—		454

Total	$	1,015	$	(81)	$	—	$	—	$	934	$	558	$	78	$	—	$	—	$	636

The Company decreased its ACLC during the three months ended June 30, 2021 based on a decrease in the expected loss rate and the expected usage rate for its unused commitments.


	ACLC Rollforward
	Six Months Ended
	2021										2020
	Beginning				Charge-				Ending		Beginning		ASC 326				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Adoption		Provision		offs		Recoveries		Balance

Loan Commitments
Unused warehouse lines of credit	$	79	$	61	$	—	$	—	$	140	$	—	$	55	$	3	$	—	$	—	$	58
Unused home equity lines of credit		173		40		—		—		213		—		89		35		—		—		124
Unused loan commitments - other		737		(156)		—		—		581		—		312		142		—		—		454

Total	$	989	$	(55)	$	—	$	—	$	934	$	—	$	456	$	180	$	—	$	—	$	636

The Company decreased its ACLC during the six months ended June 30, 2021 based on a decrease in the expected loss rate and the expected usage rate for its unused commitments.

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10. FAIR VALUE

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

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

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

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

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

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

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

See in this section of the filing under Footnote 2 “Investment Securities” for additional discussion regarding the Bank’s private label mortgage-backed security.

For its TRUP investment, the Company considered the most recent bid price for the same instrument to approximate market value as of June 30, 2021. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

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

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

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

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

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

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

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

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

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

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

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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 June 30, 2021 is presented net of any applicable ACL.


	Fair Value Measurements at
	June 30, 2021 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	—	$	235,320	$	—	$	235,320
Private label mortgage-backed security		—		—		2,824		2,824
Mortgage-backed securities - residential		—		232,562		—		232,562
Collateralized mortgage obligations		—		39,637		—		39,637
Corporate bonds		—		10,109		—		10,109
Trust preferred security		—		—		3,700		3,700
Total available-for-sale debt securities	$	—	$	517,628	$	6,524	$	524,152

Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	116	$	—	$	116
Community Reinvestment Act mutual fund		2,485		—		—		2,485
Total equity securities with readily determinable fair value	$	2,485	$	116	$	—	$	2,601

Mortgage loans held for sale	$	—	$	32,401	$	—	$	32,401
Consumer loans held for sale		—		—		13,020		13,020
Consumer loans held for investment		—		—		338		338
Rate lock loan commitments		—		2,202		—		2,202
Interest rate swap agreements		—		7,658		—		7,658

Financial liabilities:
Mandatory forward contracts		—		231		—		231
Interest rate swap agreements	$	—	$	7,658	$	—	$	7,658

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	Fair Value Measurements at
	December 31, 2020 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	—	$	246,909	$	—	$	246,909
Private label mortgage-backed security		—		—		2,957		2,957
Mortgage-backed securities - residential		—		211,202		—		211,202
Collateralized mortgage obligations		—		48,952		—		48,952
Corporate bonds		—		10,043		—		10,043
Trust preferred security		—		—		3,800		3,800
Total available-for-sale debt securities	$	—	$	517,106	$	6,757	$	523,863

Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	560	$	—	$	560
Community Reinvestment Act mutual fund		2,523		—		—		2,523
Total equity securities with readily determinable fair value	$	2,523	$	560	$	—	$	3,083

Mortgage loans held for sale	$	—	$	46,867	$	—	$	46,867
Consumer loans held for sale				—		3,298		3,298
Consumer loans held for investment		—		—		497		497
Rate lock loan commitments		—		4,540		—		4,540
Interest rate swap agreements		—		12,545		—		12,545

Financial liabilities:
Mandatory forward contracts	$	—	$	976	$	—	$	976
Interest rate swap agreements		—		12,545		—		12,545

All transfers between levels are generally recognized at the end of each quarter. There were no transfers into or out of Level 1, 2, or 3 assets during the three and six months ended June 30, 2021 and 2020.

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				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Balance, beginning of period	$	2,863	$	3,249	$	2,957	$	3,495
Total gains or losses included in earnings:
Net change in unrealized gain		34		(107)		49		(107)
Principal paydowns		(73)		(119)		(182)		(365)
Balance, end of period	$	2,824	$	3,023	$	2,824	$	3,023

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

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

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


	Fair		Valuation
June 30, 2021 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage-backed security	$	2,824	Discounted cash flow	(1) Constant prepayment rate	4.5% - 12.0%

				(2) Probability of default	1.8% - 9.3%

				(3) Loss severity	50% - 75%


	Fair		Valuation
December 31, 2020 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage-backed security	$	2,957	Discounted cash flow	(1) Constant prepayment rate	4.5% - 18.0%

				(2) Probability of default	1.8% - 9.0%

				(3) Loss severity	50% - 75%

Trust Preferred Security

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Balance, beginning of period	$	3,650	$	4,100	$	3,800	$	4,000
Total gains or losses included in earnings:
Discount accretion		13		11		26		22
Net change in unrealized gain		37		(611)		(126)		(522)
Balance, end of period	$	3,700	$	3,500	$	3,700	$	3,500

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

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Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of June 30, 2021 and December 31, 2020.

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


(in thousands)	June 30, 2021		December 31, 2020

Aggregate fair value	$	32,401	$	46,867
Contractual balance		31,469		44,781
Unrealized gain		932		2,086

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Interest income	$	140	$	419	$	549	$	632
Change in fair value		(143)		614		(1,154)		1,256
Total included in earnings	$	(3)	$	1,033	$	(605)	$	1,888

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 June 30, 2021 and December 31, 2020.

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

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


	Fair		Valuation
June 30, 2021 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	13,020	Contract Terms	(1) Net Premium	1.4%

				(2) Discounted Sales	5.00%


	Fair		Valuation
December 31, 2020 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	3,298	Contract Terms	(1) Net Premium	1.4%

				(2) Discounted Sales	5.00%

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


(in thousands)	June 30, 2021		December 31, 2020

Aggregate fair value	$	13,020	$	3,298
Contractual balance		12,928		3,284
Unrealized gain		92		14

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Interest income	$	1,397	$	45	$	1,968	$	1,521
Change in fair value		63		(22)		78		(4)
Total included in earnings	$	1,460	$	23	$	2,046	$	1,517

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


	Fair Value Measurements at
	June 30, 2021 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	3,008	$	3,008
Commercial real estate		—		—		3,972		3,972
Home equity		—		—		321		321
Total collateral-dependent loans*	$	—	$	—	$	7,301	$	7,301

Other real estate owned:
Commercial real estate	$	—	$	—	$	1,898	$	1,898
Total other real estate owned	$	—	$	—	$	1,898	$	1,898


	Fair Value Measurements at
	December 31, 2020 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	3,860	$	3,860
Commercial real estate		—		—		4,107		4,107
Home equity		—		—		395		395
Total collateral-dependent loans*	$	—	$	—	$	8,362	$	8,362

Other real estate owned:
Residential real estate	$	—	$	—	$	2,003	$	2,003
Total other real estate owned	$	—	$	—	$	2,003	$	2,003

Mortgage servicing rights	$	—	$	3,233	$	—	$	3,233

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

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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
June 30, 2021 (dollars in thousands)	Value		Technique	Inputs	Average)

Collateral-dependent loans - residential real estate owner occupied	$	3,008	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 51% (13%)

Collateral-dependent loans - commercial real estate	$	3,972	Sales comparison approach	Adjustments determined for differences between comparable sales	15% - 31% (27%)

Collateral-dependent loans - home equity	$	321	Sales comparison approach	Adjustments determined for differences between comparable sales	6%-10% (6%)

Other real estate owned - commercial real estate	$	1,898	Sales comparison approach	Adjustments determined for differences between comparable sales	30% (30%)


					Range
	Fair		Valuation	Unobservable	(Weighted
December 31, 2020 (dollars in thousands)	Value		Technique	Inputs	Average)

Collateral-dependent loans - residential real estate owner occupied	$	3,860	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 51% (8%)

Collateral-dependent loans - commercial real estate	$	4,107	Sales comparison approach	Adjustments determined for differences between comparable sales	7% - 31% (26%)

Collateral-dependent loans - home equity	$	395	Sales comparison approach	Adjustments determined for differences between comparable sales	2%-6% (5%)

Other real estate owned - commercial real estate	$	2,003	Sales comparison approach	Adjustments determined for differences between comparable sales	26% (26%)

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Collateral Dependent Loans

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

Collateral-dependent loans are as follows:


(in thousands)	June 30, 2021		December 31, 2020

Carrying amount of loans measured at fair value	$	6,210	$	7,110
Estimated selling costs considered in carrying amount		1,137		1,252
Valuation allowance		(46)		—
Total fair value	$	7,301	$	8,362


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Provision on collateral-dependent	$	45	$	98	$	45	$	128

Other Real Estate Owned

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



(in thousands)	June 30, 2021		December 31, 2020

Other real estate owned carried at fair value	$	1,898	$	2,003
Other real estate owned carried at cost		—		496
Total carrying value of other real estate owned	$	1,898	$	2,499


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Other real estate owned write-downs during the period	$	52	$	—	$	105	$	—

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


			Fair Value Measurements at
			June 30, 2021:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	747,007	$	747,007	$	—	$	—	$	747,007
Available-for-sale debt securities		524,152		—		517,628		6,524		524,152
Held-to-maturity debt securities		46,274		—		46,968		—		46,968
Equity securities with readily determinable fair values		2,601		2,485		116		—		2,601
Mortgage loans held for sale, at fair value		32,401		—		32,401		—		32,401
Consumer loans held for sale, at fair value		13,020		—		—		13,020		13,020
Consumer loans held for sale, at the lower of cost or fair value		11,412		—		—		11,412		11,412
Loans for discontinued operations, at the lower of cost or fair value		23		—		—		23		23
Loans, net		4,493,907		—		—		4,490,189		4,490,189
Federal Home Loan Bank stock		11,670		—		—		—		NA
Accrued interest receivable		10,475		—		10,475		—		10,475
Mortgage servicing rights		8,335		—		10,246		—		10,246
Rate lock loan commitments		2,202		—		2,202		—		2,202
Interest rate swap agreements		7,658		—		7,658		—		7,658

Liabilities:
Noninterest-bearing deposits	$	2,015,449		—	$	2,015,449		—	$	2,015,449
Transaction deposits		2,613,520		—		2,613,520		—		2,613,520
Time deposits		341,625		—		345,801		—		345,801
Deposits of discontinued operations		46,984		—		46,984		—		46,984
Securities sold under agreements to repurchase and other short-term borrowings		142,895		—		142,895		—		142,895
Federal Home Loan Bank advances		25,000		—		25,000		—		25,000
Subordinated note		41,240		—		33,192		—		33,192
Accrued interest payable		211		—		211		—		211
Mandatory forward contracts		231		—		231		—		231
Interest rate swap agreements		7,658		—		7,658		—		7,658

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			Fair Value Measurements at
			December 31, 2020:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	485,587	$	485,587	$	—	$	—	$	485,587
Available-for-sale debt securities		523,863		—		517,106		6,757		523,863
Held-to-maturity debt securities		53,324		—		54,190		—		54,190
Equity securities with readily determinable fair values		3,083		2,523		560		—		3,083
Mortgage loans held for sale, at fair value		46,867		—		46,867		—		46,867
Consumer loans held for sale, at fair value		3,298		—		—		3,298		3,298
Consumer loans held for sale, at the lower of cost or fair value		1,478		—		—		1,478		1,478
Loans for discontinued operations, at the lower of cost or fair value		23,765		—		—		23,765		23,765
Loans, net		4,728,271		—		—		4,726,066		4,726,066
Federal Home Loan Bank stock		17,397		—		—		—		NA
Accrued interest receivable		12,925		—		12,925		—		12,925
Mortgage servicing rights		7,095		—		8,318		—		8,318
Rate lock loan commitments		4,540		—		4,540		—		4,540
Interest rate swap agreements		12,545		—		12,545		—		12,545

Liabilities:
Noninterest-bearing deposits	$	1,871,539		—	$	1,871,539		—	$	1,871,539
Transaction deposits		2,444,361		—		2,444,361		—		2,444,361
Time deposits		398,404		—		404,773		—		404,773
Deposits of discontinued operations		18,877		—		18,877		—		18,877
Securities sold under agreements to repurchase and other short-term borrowings		211,026		—		211,026		—		211,026
Federal Home Loan Bank advances		235,000		—		235,009		—		235,009
Subordinated note		41,240		—		31,071		—		31,071
Accrued interest payable		342		—		342		—		342
Mandatory forward contracts		976		—		976		—		976
Interest rate swap agreements		12,545		—		12,545		—		12,545

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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				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Balance, beginning of period	$	63,636	$	39,384	$	46,867	$	19,224
Origination of mortgage loans held for sale		141,177		218,668		354,764		343,941
Proceeds from the sale of mortgage loans held for sale		(176,424)		(226,723)		(380,239)		(336,641)
Net gain on sale of mortgage loans held for sale		4,012		8,699		11,009		13,504
Balance, end of period	$	32,401	$	40,028	$	32,401	$	40,028

The following table presents the components of Mortgage Banking income:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Net gain realized on sale of mortgage loans held for sale	$	5,711	$	6,050	$	13,756	$	9,128
Net change in fair value recognized on loans held for sale		(143)		614		(1,154)		1,256
Net change in fair value recognized on rate lock loan commitments		299		(132)		(2,338)		3,647
Net change in fair value recognized on forward contracts		(1,855)		2,167		745		(527)
Net gain recognized		4,012		8,699		11,009		13,504

Loan servicing income		808		707		1,601		1,382
Amortization of mortgage servicing rights		(738)		(1,008)		(1,735)		(1,593)
Change in mortgage servicing rights valuation allowance		100		—		500		(100)
Net servicing income recognized		170		(301)		366		(311)
Total Mortgage Banking income	$	4,182	$	8,398	$	11,375	$	13,193

Activity for capitalized mortgage servicing rights was as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Balance, beginning of period	$	7,711	$	5,994	$	7,095	$	5,888
Additions		1,262		1,725		2,475		2,516
Amortized to expense		(738)		(1,008)		(1,735)		(1,593)
Change in valuation allowance		100		—		500		(100)
Balance, end of period	$	8,335	$	6,711	$	8,335	$	6,711

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Beginning valuation allowance	$	100	$	100	$	500	$	—
Charge during the period		(100)		—		(500)		100
Ending valuation allowance	$	—	$	100	$	—	$	100

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Other information relating to mortgage servicing rights follows:


(in thousands)	June 30, 2021			December 31, 2020

Fair value of mortgage servicing rights portfolio	$	10,246		$	8,318
Monthly weighted average prepayment rate of unpaid principal balance*		227	%		308	%
Discount rate		10	%		10	%
Weighted average foreclosure rate		0.30	%		0.44	%
Weighted average life in years		5.65			4.85

*	Rates are applied to individual tranches with similar characteristics.

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

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

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

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


	June 30, 2021				December 31, 2020
	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	$	31,469	$	32,401	$	44,781	$	46,867

Included in other assets:
Rate lock loan commitments	$	85,241	$	2,202	$	105,395	$	4,540

Included in other liabilities:
Mandatory forward contracts	$	98,675	$	231	$	136,236	$	976

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12. INTEREST RATE SWAPS

Interest Rate Swaps Used as Cash Flow Hedges

The Bank entered into two interest rate swap agreements (“swaps”) during 2013 as part of its interest rate risk management strategy. The Bank designated these swaps as cash flow hedges intended to reduce the variability in cash flows attributable to either FHLB advances tied to the 3-month LIBOR or the overall changes in cash flows on certain money market deposit accounts tied to the 1-month LIBOR. Both swaps matured in December 2020.

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Interest rate swap on money market deposits	$	—	$	38	$	—	$	55
Interest rate swap on FHLB advance		—		41		—		53
Total interest (benefit) expense on swap transactions	$	—	$	79	$	—	$	108

The following table presents the net gains (losses) recorded in OCI and the consolidated statements of income relating to the swaps designated as cash flow hedges:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Gains (losses) recognized in OCI on derivative (effective portion)	$	—	$	(10)	$	—	$	(171)

Gains (losses) reclassified from OCI on derivative (effective portion)		—		(79)		—		(108)

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

Non-hedge Interest Rate Swaps

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

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

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


		June 30, 2021				December 31, 2020
		Notional				Notional
(in thousands)	Bank Position	Amount		Fair Value		Amount		Fair Value

Interest rate swaps with Bank clients - Assets	Pay variable/receive fixed	$	110,397	$	7,658	$	138,277	$	12,545
Interest rate swaps with Bank clients - Liabilities	Pay variable/receive fixed		16,074		(33)		—		—
Interest rate swaps with Bank clients - Total	Pay variable/receive fixed	$	126,471	$	7,625	$	138,277	$	12,545

Offsetting interest rate swaps with institutional swap dealer	Pay fixed/receive variable		126,471		(7,625)		138,277		(12,545)
Total		$	252,942	$	—	$	276,554	$	—

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The Bank is required to pledge securities as collateral when the Bank is in a net loss position for all swaps with dealer counterparties when such net loss positions exceed $250,000. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $7.9 million and $13.3 million as of June 30, 2021 and December 31, 2020.

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				Six Months Ended
	June 30,				June 30,
(in thousands, except per share data)	2021		2020		2021		2020

Income from continuing operations	$	16,502	$	17,755	$	36,828	$	32,069
Income (loss) from discontinued operations		7,420		(1,951)		13,147		10,432
Net income available to common shareholders		23,922		15,804		49,975		42,501
Dividends declared on Common Stock:
Class A Shares		(5,680)		(5,347)		(11,423)		(10,705)
Class B Shares		(608)		(572)		(1,224)		(1,144)
Undistributed net income for basic earnings per share		17,634		9,885		37,328		30,652
Weighted average potential dividends on Class A shares upon exercise of dilutive options		(17)		(7)		(40)		(24)
Undistributed net income for diluted earnings per share	$	17,617	$	9,878	$	37,288	$	30,628

Weighted average shares outstanding:
Class A Shares		18,712		18,804		18,761		18,821
Class B Shares		2,182		2,200		2,190		2,202
Effect of dilutive securities on Class A Shares outstanding		55		25		65		42
Weighted average shares outstanding including dilutive securities		20,949		21,029		21,016		21,065

Basic earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.31	$	0.29	$	0.62	$	0.57
Undistributed earnings per share* from continuing operations		0.49		0.57		1.17		0.97
Total basic earnings per share from continuing operations		0.80		0.86		1.79		1.54
Total basic earnings per share from discontinued operations		0.36		(0.09)		0.63		0.50
Total basic earnings per share - Class A Common Stock	$	1.16	$	0.77	$	2.42	$	2.04

Class B Common Stock:
Per share dividends distributed	$	0.28	$	0.26	$	0.56	$	0.52
Undistributed earnings per share*		0.45		0.52		1.06		0.88
Total basic earnings per share from continuing operations		0.73		0.78		1.62		1.40
Total basic earnings per share from discontinued operations		0.32		(0.09)		0.58		0.46
Total basic earnings per share - Class B Common Stock	$	1.05	$	0.69	$	2.20	$	1.86

Diluted earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.31	$	0.29	$	0.62	$	0.57
Undistributed earnings per share*		0.49		0.57		1.16		0.97
Total diluted earnings per share from continuing operations		0.80		0.86		1.78		1.54
Total diluted earnings per share from discontinued operations		0.36		(0.10)		0.63		0.50
Total diluted earnings per share - Class A Common Stock	$	1.16	$	0.76	$	2.41	$	2.04

Class B Common Stock:
Per share dividends distributed	$	0.28	$	0.26	$	0.56	$	0.52
Undistributed earnings per share*		0.45		0.52		1.05		0.88
Total diluted earnings per share from continuing operations		0.73		0.78		1.61		1.40
Total diluted earnings per share from discontinued operations		0.32		(0.09)		0.58		0.45
Total diluted earnings per share - Class B Common Stock	$	1.05	$	0.69	$	2.19	$	1.85

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


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2021	2020	2021	2020

Antidilutive stock options	149,000	427,000	169,000	247,000
Average antidilutive stock options	149,000	365,000	166,000	172,000

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14. OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Available-for-Sale Debt Securities:
Change in unrealized gains and losses on AFS debt securities	$	(614)	$	1,099	$	(2,643)	$	8,876
Change in unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings		34		(108)		49		(107)
Net unrealized (losses) gains		(580)		991		(2,594)		8,769
Tax effect		145		(248)		648		(2,193)
Net of tax		(435)		743		(1,946)		6,576

Cash Flow Hedges:
Change in fair value of derivatives used for cash flow hedges		—		(10)		—		(171)
Reclassification amount for net derivative losses realized in income		—		79		—		108
Net gains (losses)		—		69		—		(63)
Tax effect		—		(17)		—		15
Net of tax		—		52		—		(48)

Total other comprehensive (loss) income components, net of tax	$	(435)	$	795	$	(1,946)	$	6,528

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


		Amounts Reclassified from AOCI
	Affected Line Items	Three Months Ended				Six Months Ended
	in the Consolidated	June 30,				June 30,
(in thousands)	Statements of Income	2021		2020		2021		2020

Cash Flow Hedges:
Interest rate swap on money market deposits	Interest expense on deposits	$	—	$	(38)	$	—	$	(55)
Interest rate swap on FHLB advance	Interest expense on FHLB advances		—		(41)		—		(53)
Total derivative losses on cash flow hedges	Total interest expense		—		(79)		—		(108)
Tax effect	Income tax expense		—		20		—		27
Net of tax	Net income	$	—	$	(59)	$	—	$	(81)

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


			2021
(in thousands)	December 31, 2020		Change		June 30, 2021

Unrealized gain (loss) on AFS debt securities	$	7,571	$	(1,982)	$	5,589
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		938		36		974
Total unrealized gain (loss)	$	8,509	$	(1,946)	$	6,563


			2020
(in thousands)	December 31, 2019		Change		June 30, 2020

Unrealized gain on AFS debt securities	$	2,211	$	6,657	$	8,868
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings		964		(81)		883
Unrealized loss on cash flow hedges		(77)		(48)		(125)
Total unrealized gain	$	3,098	$	6,528	$	9,626

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15. REVENUE FROM CONTRACTS WITH CUSTOMERS

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


	Three Months Ended June 30, 2021
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income (1)	$	38,278		$	6,324		$	140		$	44,742		$	220		$	4,676		$	4,896		$	49,638

Noninterest income:
Service charges on deposit accounts		3,061			14			—			3,075			(4)			—			(4)			3,071
Mortgage banking income (1)		—			—			4,182			4,182			—			—			—			4,182
Interchange fee income		3,367			—			—			3,367			1			—			1			3,368
Program fees (1)		—			—			—			—			715			2,834			3,549			3,549
Increase in cash surrender value of BOLI (1)		600			—			—			600			—			—			—			600
Net gains (losses) on OREO		(44)			—			—			(44)			—			—			—			(44)
Other		986			—			50			1,036			(1)			—			(1)			1,035
Total noninterest income		7,970			14			4,232			12,216			711			2,834			3,545			15,761

Total net revenue	$	46,248		$	6,338		$	4,372		$	56,958		$	931		$	7,510		$	8,441		$	65,399

Net-revenue concentration from continuing operations (2)		71	%		10	%		7	%		88	%		1	%		11	%		12	%		100	%


	Three Months Ended June 30, 2020
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income (1)	$	39,035		$	6,063		$	419		$	45,517		$	688		$	5,607		$	6,295		$	51,812

Noninterest income:
Service charges on deposit accounts		2,438			17			—			2,455			(4)			—			(4)			2,451
Mortgage banking income (1)		—			—			8,398			8,398			—			—			—			8,398
Interchange fee income		2,724			—			—			2,724			1			—			1			2,725
Program fees (1)		—			—			—			—			618			520			1,138			1,138
Increase in cash surrender value of BOLI (1)		395			—			—			395			—			—			—			395
Net gains (losses) on OREO		1			—			—			1			—			—			—			1
Other		568			—			8			576			(1)			—			(1)			575
Total noninterest income		6,126			17			8,406			14,549			614			520			1,134			15,683

Total net revenue	$	45,161		$	6,080		$	8,825		$	60,066		$	1,302		$	6,127		$	7,429		$	67,495

Net-revenue concentration from continuing operations (2)		67	%		9	%		13	%		89	%		2	%		9	%		11	%		100	%

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

(2)

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

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	Six Months Ended June 30, 2021
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income (1)	$	79,380		$	13,096		$	549		$	93,025		$	494		$	9,497		$	9,991		$	103,016

Noninterest income:
Service charges on deposit accounts		5,926			28			—			5,954			(10)			—			(10)			5,944
Net refund transfer fees		—			—			—			—			—			—			—			—
Mortgage banking income (1)		—			—			11,375			11,375			—			—			—			11,375
Interchange fee income		6,336			—			—			6,336			3			—			3			6,339
Program fees (1)		—			—			—			—			1,611			4,163			5,774			5,774
Increase in cash surrender value of BOLI (1)		990			—			—			990			—			—			—			990
Net gains (losses) on OREO		(55)			—			—			(55)			—			—			—			(55)
Other		1,557			—			78			1,635			—			—			—			1,635
Total noninterest income		14,754			28			11,453			26,235			1,604			4,163			5,767			32,002

Total net revenue	$	94,134		$	13,124		$	12,002		$	119,260		$	2,098		$	13,660		$	15,758		$	135,018

Net-revenue concentration from continuing operations (2)		69	%		10	%		9	%		88	%		2	%		10	%		12	%		100	%


	Six Months Ended June 30, 2020
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income (1)	$	79,656		$	10,370		$	632		$	90,658		$	947		$	12,679		$	13,626		$	104,284

Noninterest income:
Service charges on deposit accounts		5,576			28			—			5,604			(17)			—			(17)			5,587
Net refund transfer fees		—			—			—			—			—			—			—			—
Mortgage banking income (1)		—			—			13,193			13,193			—			—			—			13,193
Interchange fee income		5,217			—			—			5,217			2			—			2			5,219
Program fees (1)		—			—			—			—			930			2,832			3,762			3,762
Increase in cash surrender value of BOLI (1)		784			—			—			784			—			—			—			784
Net gains (losses) on OREO		4			—			—			4			—			—			—			4
Net gain on branch divestiture(1)		—			—			—			—			—			—			—			—
Other		1,780			—			32			1,812			—			—			—			1,812
Total noninterest income		13,361			28			13,225			26,614			915			2,832			3,747			30,361

Total net revenue	$	93,017		$	10,398		$	13,857		$	117,272		$	1,862		$	15,511		$	17,373		$	134,645

Net-revenue concentration from continuing operations (2)		69	%		8	%		10	%		87	%		1	%		12	%		13	%		100	%

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

(2)

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

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

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

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

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

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

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

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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.

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

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


Reportable Segment:	Nature of Operations:	Primary Drivers of Net Revenue:

Core Banking:

Traditional Banking	Provides traditional banking products to clients in its market footprint primarily via its network of banking centers and to clients outside of its market footprint primarily via its digital delivery channels.	Loans, investments, and deposits

Warehouse Lending	Provides short-term, revolving credit facilities to mortgage bankers across the United States.	Mortgage warehouse lines of credit

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

Republic Processing Group:

Tax Refund Solutions:

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

Discontinued Operations	The Bank agreed to sell its TRS business to Green Dot in May 2021. The TRS business has traditionally contained the significant majority of revenue and expense generated at the TRS segment. The TRS business to be sold 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 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 2020 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 June 30, 2021
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	38,278		$	6,324		$	140		$	44,742		$	220		$	4,676		$	4,896		$	49,638

Provision for expected credit loss expense		(77)			(65)			—			(142)			—			1,592			1,592			1,450

Mortgage banking income		—			—			4,182			4,182			—			—			—			4,182
Program fees		—			—			—			—			715			2,834			3,549			3,549
Other noninterest income		7,970			14			50			8,034			(4)			—			(4)			8,030
Total noninterest income		7,970			14			4,232			12,216			711			2,834			3,545			15,761

Total noninterest expense		36,937			1,066			3,006			41,009			1,331			950			2,281			43,290

Income (loss) from continuing operations before income tax expense		9,388			5,337			1,366			16,091			(400)			4,968			4,568			20,659
Income tax expense (benefit)		1,555			1,227			301			3,083			(156)			1,230			1,074			4,157
Income (loss) from continuing operations		7,833			4,110			1,065			13,008			(244)			3,738			3,494			16,502

Discontinued operations:
Income from discontinued operations before income taxes		—			—			—			—			9,902			—			9,902			9,902
Income tax expense		—			—			—			—			2,482			—			2,482			2,482
Income from discontinued operations, net of tax		—			—			—			—			7,420			—			7,420			7,420

Net income	$	7,833		$	4,110		$	1,065		$	13,008		$	7,176		$	3,738		$	10,914		$	23,922

Period-end assets	$	4,774,765		$	840,083		$	46,816		$	5,661,664		$	389,999		$	131,647		$	521,646		$	6,183,310

Net interest margin from continuing operations		2.97	%		3.48	%		NM			3.03	%		NM			NM			NM			3.27	%

Net-revenue concentration from continuing operations*		71	%		10	%		7	%		88	%		1	%		11	%		12	%		100	%


	Three Months Ended June 30, 2020
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	39,035		$	6,063		$	419		$	45,517		$	688		$	5,607		$	6,295		$	51,812

Provision for expected credit loss expense		3,080			449			—			3,529			—			(1,443)			(1,443)			2,086

Mortgage banking income		—			—			8,398			8,398			—			—			—			8,398
Program fees		—			—			—			—			618			520			1,138			1,138
Other noninterest income		6,126			17			8			6,151			(4)			—			(4)			6,147
Total noninterest income		6,126			17			8,406			14,549			614			520			1,134			15,683

Total noninterest expense		36,688			811			2,689			40,188			2,110			903			3,013			43,201

Income (loss) from continuing operations before income tax expense		5,393			4,820			6,136			16,349			(808)			6,667			5,859			22,208
Income tax expense (benefit)		729			1,085			1,288			3,102			(193)			1,544			1,351			4,453
Income (loss) from continuing operations		4,664			3,735			4,848			13,247			(615)			5,123			4,508			17,755

Discontinued operations:
Income (loss) from discontinued operations before income taxes		—			—			—			—			(2,611)			—			(2,611)			(2,611)
Income tax expense (benefit)		—			—			—			—			(660)			—			(660)			(660)
Income (loss) from discontinued operations, net of tax		—			—			—			—			(1,951)			—			(1,951)			(1,951)

Net income (loss)	$	4,664		$	3,735		$	4,848		$	13,247		$	(2,566)		$	5,123		$	2,557		$	15,804

Period-end assets	$	4,967,759		$	1,028,400		$	54,518		$	6,050,677		$	306,583		$	103,315		$	409,898		$	6,460,575

Net interest margin from continuing operations		3.26	%		3.01	%		NM			3.23	%		NM			NM			NM			3.58	%

Net-revenue concentration from continuing operations*		67	%		9	%		13	%		89	%		2	%		9	%		11	%		100	%

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

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	Six Months Ended June 30, 2021
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	79,380		$	13,096		$	549		$	93,025		$	494		$	9,497		$	9,991		$	103,016

Provision for expected credit loss expense		(82)			(307)			—			(389)			—			1,217			1,217			828

Mortgage banking income		—			—			11,375			11,375			—			—			—			11,375
Program fees		—			—			—			—			1,611			4,163			5,774			5,774
Other noninterest income		14,754			28			78			14,860			(7)			—			(7)			14,853
Total noninterest income		14,754			28			11,453			26,235			1,604			4,163			5,767			32,002

Total noninterest expense		74,265			2,094			6,127			82,486			2,931			1,982			4,913			87,399

Income (loss) from continuing operations before income tax expense		19,951			11,337			5,875			37,163			(833)			10,461			9,628			46,791
Income tax expense (benefit)		3,680			2,661			1,293			7,634			(271)			2,600			2,329			9,963
Income (loss) from continuing operations		16,271			8,676			4,582			29,529			(562)			7,861			7,299			36,828

Discontinued operations:
Income from discontinued operations before income taxes		—			—			—			—			17,514			—			17,514			17,514
Income tax expense		—			—			—			—			4,367			—			4,367			4,367
Income from discontinued operations, net of tax		—			—			—			—			13,147			—			13,147			13,147

Net income	$	16,271		$	8,676		$	4,582		$	29,529		$	12,585		$	7,861		$	20,446		$	49,975

Period-end assets	$	4,774,765		$	840,083		$	46,816		$	5,661,664		$	389,999		$	131,647		$	521,646		$	6,183,310

Net interest margin from continuing operations		3.21	%		3.45	%		NM			3.24	%		NM			NM			NM			3.42	%

Net-revenue concentration from continuing operations*		69	%		10	%		9	%		88	%		2	%		10	%		12	%		100	%


	Six Months Ended June 30, 2020
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	79,656		$	10,370		$	632		$	90,658		$	947		$	12,679		$	13,626		$	104,284

Provision for expected credit loss expense		8,669			781			—			9,450			—			263			263			9,713

Mortgage banking income		—			—			13,193			13,193			—			—			—			13,193
Program fees		—			—			—			—			930			2,832			3,762			3,762
Other noninterest income		13,361			28			32			13,421			(15)			—			(15)			13,406
Total noninterest income		13,361			28			13,225			26,614			915			2,832			3,747			30,361

Total noninterest expense		73,335			1,614			4,685			79,634			3,879			1,797			5,676			85,310

Income (loss) from continuing operations before income tax expense		11,013			8,003			9,172			28,188			(2,017)			13,451			11,434			39,622
Income tax expense (benefit)		1,189			1,801			1,926			4,916			(477)			3,114			2,637			7,553
Income (loss) from continuing operations		9,824			6,202			7,246			23,272			(1,540)			10,337			8,797			32,069

Discontinued operations:
Income from discontinued operations before income taxes		—			—			—			—			13,553			—			13,553			13,553
Income tax expense		—			—			—			—			3,121			—			3,121			3,121
Income from discontinued operations, net of tax		—			—			—			—			10,432			—			10,432			10,432

Net income	$	9,824		$	6,202		$	7,246		$	23,272		$	8,892		$	10,337		$	19,229		$	42,501

Period-end assets	$	4,967,759		$	1,028,400		$	54,518		$	6,050,677		$	306,583		$	103,315		$	409,898		$	6,460,575

Net interest margin from continuing operations		3.52	%		2.86	%		NM			3.43	%		NM			NM			NM			3.75	%

Net-revenue concentration from continuing operations*		69	%		8	%		10	%		87	%		1	%		12	%		13	%		100	%

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17. DISCONTINUED OPERATIONS

Agreement to Sell Tax Refund Solutions Business to Green Dot

On May 13, 2021, the Bank entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Green Dot to sell substantially all of the assets and operations of the Bank’s Tax Refund Solutions business (the “Sale Transaction”). Pursuant to the terms of the Purchase Agreement, Green Dot will pay the Bank a purchase price of approximately $165 million in cash. Furthermore, under the terms of the Purchase Agreement, the Bank will provide transition services to Green Dot for the TRS business during the 2022 calendar year.

In a Form 8-K filed on July 23, 2021, the Company disclosed that on July 21, 2021 the Company and Green Dot received early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and that the parties expected to complete the Sale Transaction by August 22, 2021, subject to the satisfaction or waiver of the remaining customary conditions set forth in the Purchase Agreement. However, in a Form 8-K filed on August 4, 2021, the Company disclosed that Green Dot recently informed the Company that the Federal Reserve has requested information from Green Dot relating to the proposed Sale Transaction and Green Dot intends to seek the Federal Reserve’s approval of, or non-objection to, as applicable, the Sale Transaction prior to completing the Sale Transaction. As a result, Green Dot does not intend to close the Sale Transaction by August 22, 2021 as previously disclosed. Closing of the Sale Transaction is subject solely to the satisfaction or waiver of the customary conditions set forth in the Purchase Agreement. Receipt of approval or non-objection from the Federal Reserve is not a condition to closing set forth in the Purchase Agreement.

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

INTEREST INCOME:

Loans, including fees	$	298	$	207	$	14,739	$	20,843
Funds transfer credit		135		443		262		1,473
Total interest income		433		650		15,001		22,316

INTEREST EXPENSE:

Deposits		—		237		—		527
Funds transfer cost		30		20		196		1,130
Total interest expense		30		257		196		1,657

NET INTEREST INCOME		403		393		14,805		20,659

Provision for expected credit loss expense		(5,773)		4,448		10,111		19,581

NET INTEREST INCOME AFTER PROVISION		6,176		(4,055)		4,694		1,078

NONINTEREST INCOME:

Net refund transfer fees		5,921		2,913		18,642		18,736
Interchange fee income		113		83		169		141
Other		58		72		77		82
Total noninterest income		6,092		3,068		18,888		18,959

NONINTEREST EXPENSE:

Salaries and employee benefits		1,304		1,218		3,225		2,748
Technology, equipment, and communication		63		220		174		330
Occupancy		1		6		1		7
Marketing and development		73		49		115		141
FDIC insurance expense		—		—		150		—
Bank franchise tax expense		2		3		5		1,727
Legal and professional fees		1,018		22		1,079		165
Other		(95)		106		1,319		1,366
Total noninterest expense		2,366		1,624		6,068		6,484

INCOME (LOSS) FROM DISCONTINUED OPERATIONS BEFORE INCOME TAX EXPENSE		9,902		(2,611)		17,514		13,553
INCOME TAX EXPENSE (BENEFIT)		2,482		(660)		4,367		3,121
INCOME (LOSS) FROM DISCONTINUED OPERATIONS	$	7,420	$	(1,951)	$	13,147	$	10,432

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Through its TRS business, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). Substantially all of the business generated by the TRS business occurs during the first half of each year. TRS traditionally operates at a loss in the second half of the year, during which time it incurs costs preparing for the next year’s tax season.

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

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

●

Offered only during the first two months of each year;

●

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

●

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

●

Multiple funds disbursement methods, including direct deposit, prepaid card, or check, based on the taxpayer-customer’s election;

●

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

●

If an insufficient refund to repay the EA occurs:

there is no recourse to the taxpayer,

no negative credit reporting on the taxpayer, and

no collection efforts against the taxpayer.

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

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

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

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

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

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

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

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

Broadly speaking, forward-looking statements include:

●

the potential impact of the COVID-19 pandemic on Company operations;

●

projections of revenue, income, expenses, losses, earnings per share, capital expenditures, dividends, capital structure, or other financial items;

●

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

●

forecasts of future economic performance;

●

statements relating to the completion of the Sale Transaction and the potential timing thereof; and

●

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

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

●

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

●

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

●

natural disasters impacting 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 as well as the overall steepness of the U.S. Treasury yield curve;

●

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

●

equity and fixed income market fluctuations;

●

client bankruptcies and loan defaults;

●

inflation;

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●

recession;

●

future acquisitions;

●

integrations of acquired businesses;

●

changes in technology;

●

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

●

changes in fiscal, monetary, regulatory and tax policies;

●

changes in accounting standards;

●

monetary fluctuations;

●

changes to the Company’s overall internal control environment;

●

success in gaining regulatory approvals when required;

●

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

●

risks related to the completion of the proposed Sale Transaction and the potential timing thereof;

●

the occurrence of any event, change or other circumstances that could give rise to the termination of the Purchase Agreement;

●

disruption from the proposed Sale Transaction making it difficult to maintain business and operational relationships, including retaining and hiring key personnel and maintaining relationships with the Bank’s customers, vendors and others with whom the Bank does business;

●

the risk of litigation and/or regulatory actions related to the proposed Sale Transaction;

●

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

●

other risks and uncertainties reported from time to time in the Company’s filings with the SEC, including Part 1 Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and Part II Item 1A “Risk Factors” of the current filing.

Accounting Standards Update

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

A summary of the Company's significant accounting policies is set forth in Part II “Item 8. Financial Statements and Supplementary Data” of its Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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

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

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

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

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

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

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

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

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

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

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BUSINESS SEGMENT COMPOSITION

(I) Traditional Banking segment

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

●

Kentucky — 28

●

Metropolitan Louisville — 18

●

Central Kentucky — 7

●

Georgetown — 1

●

Lexington — 5

●

Shelbyville — 1

●

Northern Kentucky — 3

●

Covington — 1

●

Crestview Hills — 1

●

Florence — 1

●

Southern Indiana — 3

●

Floyds Knobs — 1

●

Jeffersonville — 1

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New Albany — 1

●

Metropolitan Tampa, Florida — 7

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Metropolitan Cincinnati, Ohio — 2

●

Metropolitan Nashville, Tennessee — 2

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

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

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

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

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

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

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

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Aircraft Lending — In October 2017, the Bank created an Aircraft Lending division. Aircraft loans are typically made to purchase or refinance personal aircrafts, along with engine overhauls and avionic upgrades. The aircraft loan program is open to all states, except for Alaska and Hawaii.

The credit characteristics of an aircraft borrower are higher than a typical consumer in that they must demonstrate and indicate a higher degree of credit worthiness for approval.

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

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

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

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

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

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

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

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

(II) Warehouse Lending segment

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

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

(III) Mortgage Banking segment

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

See additional detail regarding the Mortgage Banking segment under Footnote 11 “Mortgage Banking Activities” and Footnote 16 “Segment Information” of Part I Item 1 “Financial Statements.”

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(IV) Tax Refund Solutions segment

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

(V) Republic Credit Solutions segment

Through the RCS segment, the Bank offers consumer credit products. In general, the credit products are unsecured, small dollar consumer loans 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:

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

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RCS installment loan product – In December 2019, through RCS, the Bank began offering installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. The same third-party service provider for RCS’s LOC II is the third-party provider for the installment loans. This third-party provider is subject to the Bank’s oversight and supervision and provides the Bank with marketing services and loan servicing for these RCS installment loans. The Bank is the lender for these RCS installment loans and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this RCS installment loan product. Currently, all loan balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intention to sell these loans to its third-party service provider generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

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OVERVIEW (Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020)

Total Company net income for the second quarter of 2021 was $23.9 million, an $8.1 million, or 51%, increase from the same period in 2020. Diluted EPS increased to $1.16 for the three months ended June 30, 2021 compared to $0.76 for the same period in 2020. The increase in net income reflected a $9.4 million increase in net income from discontinued operations, driven by a $10.2 million positive swing in Provision resulting from significantly higher Easy Advance repayments during the second quarter of 2021 compared to the same period in 2020.

Net income from continuing operations was $16.5 million for the second quarter of 2021, a $1.3 million decrease from the same period in 2020. Diluted EPS from continuing operations were $0.80 for the three months ended June 30, 2021 compared to $0.86 for the same period in 2020. The decrease in net income from continuing operations generally reflected a decrease in net interest income partially offset by a positive reduction in Provision.

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

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

Traditional Banking segment

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Net income increased $3.2 million, or 68%, for the second quarter of 2021 compared to the same period in 2020.

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Net interest income decreased $757,000, or 2%, for the second quarter of 2021 compared to the same period in 2020. The Traditional Bank’s net interest margin decreased 29 basis points to 2.97% for the second quarter of 2021.

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Provision decreased $3.2 million to a net credit of $77,000 for the second quarter of 2021 compared to a net charge of $3.1 million for the same period in 2020.

●

Noninterest income increased $1.8 million, or 30%, for the second quarter of 2021 compared to the same period in 2020.

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Total noninterest expense increased $249,000, or 1%, for the second quarter of 2021 compared to same period in 2020.

Warehouse Lending segment

●

Net income increased $375,000, or 10%, for the second quarter of 2021 compared to the same period in 2020.

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Net interest income increased $261,000, or 4%, for the second quarter of 2021 compared to the same period in 2020.

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The Warehouse Provision was a net credit of $65,000 for the second quarter of 2021 compared to a net charge of $449,000 for the same period in 2020.

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

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Average line usage was 51% during the second quarter of 2021 compared to 68% during the same period in 2020.

Mortgage Banking segment

●

Within the Mortgage Banking segment, mortgage banking income decreased $4.2 million, or 50%, during the second quarter of 2021 compared to the same period in 2020.

●

Overall, Republic’s originations of secondary market loans totaled $141 million during the second quarter of 2021 compared to $219 million during the same period in 2020, with the Company’s gain-as-a-percent-of-loans-sold decreasing from 3.98% to 2.84% from period to period.

Tax Refund Solutions segment

Continuing Operations

●

Net loss from continuing operations was $244,000 for the second quarter of 2021 compared to a net loss of $615,000 for the same period in 2020. The higher loss during the second quarter of 2020 primarily reflected general operating losses related to TRS’s prepaid card division, with such losses substantially occurring prior to May 1, 2020. On May 1, 2020, the RPS division added a large depository relationship that significantly improved profitability on a subsequent basis.

Discontinued Operations

●

Net income from discontinued operations increased $9.4 million for the second quarter of 2021 compared to the same period in 2020.

●

Overall, TRS recorded a net credit to the Provision from discontinued operations of $5.8 million during the second quarter of 2021 compared to a net charge to the Provision of $4.4 million for the same period in 2020.

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Noninterest income from discontinued operations increased $3.0 million, or 99%, for the second quarter of 2021 compared to the same period in 2020.

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Net RT revenue from discontinued operations increased $3.0 million, or 103%, for the second quarter of 2021 compared to the same period in 2020.

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Noninterest expense from discontinued operations was $2.4 million for the second quarter of 2021 compared to $1.6 million for the same period in 2020.

Republic Credit Solutions segment

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Net income decreased $1.4 million, or 27%, for the second quarter of 2021 compared to the same period in 2020.

●

Net interest income decreased $931,000, or 17%, for the second quarter of 2021 compared to the same period in 2020.

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Overall, RCS recorded a net charge to the Provision of $1.6 million during the second quarter of 2021 compared to a net credit of $1.4 million for the same period in 2020.

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Noninterest income increased $2.3 million from the second quarter of 2020 to the second quarter of 2021.

●

Noninterest expense was $950,000 for the second quarter of 2021 compared to $903,000 for the same period in 2020.

RESULTS OF OPERATIONS (Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020)

Net Interest Income

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

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

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

Additional increases in short-term interest rates and overall market rates are generally believed by management to be favorable to the Bank’s net interest income and net interest margin in the near term, while additional decreases in short-term interest rates and overall market rates are generally believed by management to be unfavorable to the Bank’s net interest income and net interest margin in the near term. Increases in short-term interest rates, however, could have a negative impact on net interest income and net interest margin if the Bank is unable to maintain its deposit balances and the cost of those deposits at the levels assumed in its interest-rate-risk model. In addition, a flattening or inversion of the yield curve, causing the spread between long-term interest rates and short-term interest rates to decrease, could negatively impact the Company’s net interest income and net interest margin. Unknown variables, which may impact the Company’s net interest income and net interest margin in the future, include, but are not limited to, the actual steepness of the yield curve, future demand for the Bank’s financial products and the Bank’s overall future liquidity needs.

Total Company net interest income from continuing operations decreased $2.2 million, or 4%, during the second quarter of 2021 compared to the same period in 2020. Total Company net interest margin from continuing operations decreased to 3.27% during the second quarter of 2021 compared to 3.58% for the same period in 2020. Net interest income from discontinued operations was $403,000 during the second quarter of 2021 compared to $393,000 during the second quarter of 2020.

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

Traditional Banking segment

The Traditional Banking’s net interest income decreased $757,000, or 2%, for the second quarter of 2021 compared to the same period in 2020. Traditional Banking’s net interest margin was 2.97% for the second quarter of 2021, a decrease of 29 basis points from the same period in 2020.

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

Due to the short-term nature of the PPP, management believes Traditional Bank net interest income excluding PPP lender fees is a more appropriate measure to analyze the Traditional Bank’s net interest income and net interest margin. The following table reconciles Traditional Bank net interest income and net interest margin to Traditional Bank net interest income and net interest margin excluding PPP lender fees, a non-GAAP measure. Net interest margin excluding PPP lender fees presented below also excludes average PPP loans of $350 million and $387 million for the quarters ended June 30, 2021 and 2020.

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	Net Interest Income								Net Interest Margin
	Three Months Ended Jun. 30,								Three Months Ended Jun. 30,
(dollars in thousands)	2021		2020		$ Change		% Change		2021		2020		Change

Traditional Banking - GAAP	$	38,278	$	39,035	$	(757)	(2)	%	2.97	%	3.26	%	(0.29)	%
Less: PPP lender fees		3,676		1,599		2,077	130		0.16		(0.05)		0.21
Traditional Banking ex PPP lender fees - non-GAAP	$	34,602	$	37,436	$	(2,834)	(8)	%	2.81		3.31		(0.50)

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

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Excluding accreted PPP lender fees, net interest income decreased $2.8 million, or 8%, from the second quarter 2020, as the Traditional Bank’s net interest margin, excluding PPP loans and related fees, declined from 3.31% for the second quarter of 2020 to 2.81% for the second quarter of 2021. The decline in the net interest margin was substantially driven by a 56-basis point decline in the Traditional Bank’s yield on its average interest-earning assets from the second quarter of 2020 to the second quarter of 2021, as the majority of the Traditional Bank’s growth in interest-earning assets during the previous 12 months was in lower-yielding cash or cash equivalent investments instead of loans.

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Partially offsetting the Traditional Bank’s margin compression, the Traditional Bank recognized $3.7 million of fee income on its PPP portfolio during the second quarter of 2021 compared to $1.6 million of similar fees during the same period in 2020. The $2.1 million increase in PPP fee income was driven significantly by the forgiveness, payoff, and paydown of $166 million of PPP loans during the second quarter of 2021. As of June 30, 2021, net PPP loans of $251 million remained on the Core Bank’s balance sheet, including $53 million in loan balances originated during 2020, $207 million in loan balances originated during 2021, and $9 million of unaccreted PPP lender fees reported as a credit offset to these originated balances. Unaccreted PPP lender fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated.

Warehouse Lending segment

Net interest income from the Warehouse segment increased $261,000, or 4%, from the second quarter of 2020 to the second quarter of 2021 driven by an improved net interest margin. Overall the net interest margin for the Warehouse segment improved from 3.01% during the second quarter of 2020 to 3.48% during the second quarter of 2021, as many of the Bank’s Warehouse clients reached contractual interest rate floors on their lines-of-credit during the second quarter of 2020 preventing further declines in the segment’s loan yields, while the segment’s cost of funds continued to decline.

The improved margin overcame a decrease in average outstanding balances, which declined from $807 million during the second quarter of 2020 to $727 million for the second quarter of 2021, as home-mortgage refinancing dipped from record highs during 2020. Committed Warehouse lines-of-credit grew to $1.4 billion as of June 30, 2021 from $1.2 billion as of June 30, 2020, while average usage rates for Warehouse lines were 51% and 68%, respectively, during the second quarters of 2021 and 2020.

Republic Credit Solutions segment

RCS’s net interest income decreased $931,000, or 17%, from the second quarter of 2020 to the second quarter of 2021. The decrease was driven primarily by a decline in fee income from RCS’s LOC I product. Loan fees on this product, recorded as interest income on loans, decreased to $3.6 million during the second quarter of 2021 compared to $4.6 million during the same period in 2020 and accounted for 74% and 79% of all RCS interest income on loans during the periods. The decrease in loan fees was the direct result of a decline in balances for RCS’s LOC I product following a reduction of marketing for this product during the second and third quarters of 2020. While the marketing for this product was reinstated during the fourth quarter of 2020, management believes the ongoing impact of government stimulus payments continued to reduce demand for this product during the current period.

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

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



	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
	Average				Average		Average				Average
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate

ASSETS (1)

Interest-earning assets:
Federal funds sold and other interest-earning deposits	$	938,728	$	262	0.11	%	$	299,760	$	87	0.12	%
Investment securities, including FHLB stock (2)		562,509		1,912	1.36			605,776		2,819	1.86
Intercompany funds loaned to discontinued operations		49,443		31	0.25			31,584		20	0.25
RCS LOC I product (3) (7)		15,107		3,569	94.50			19,971		4,647	93.07
Other RPG loans (7)		105,685		1,190	4.50			92,488		1,046	4.52
Outstanding Warehouse lines of credit (4) (7)		727,091		6,824	3.75			806,771		7,294	3.62
Paycheck Protection Program loans (5) (7)		349,643		4,582	5.24			386,664		2,652	2.74
All other Core Bank loans (6) (7)		3,331,114		32,914	3.95			3,539,379		38,339	4.33

Total interest-earning assets		6,079,320		51,284	3.37			5,782,393		56,904	3.94

Allowance for credit losses		(59,555)						(55,310)

Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		112,928						103,390
Premises and equipment, net		39,117						43,733
Bank owned life insurance		97,257						67,079
Other assets (2)		166,355						146,867
Total assets	$	6,435,422					$	6,088,152

LIABILITIES AND STOCKHOLDERS’ EQUITY (1)

Interest-bearing liabilities:
Transaction accounts	$	1,599,721	$	93	0.02	%	$	1,264,581	$	159	0.05	%
Money market accounts		773,838		93	0.05			727,516		248	0.14
Time deposits		303,468		930	1.23			424,190		2,188	2.06
Reciprocal money market and time deposits		319,509		206	0.26			289,804		435	0.60
Brokered deposits		23,632		2	0.03			121,333		380	1.25

Total interest-bearing deposits		3,020,168		1,324	0.18			2,827,424		3,410	0.48

SSUARs		169,888		8	0.02			176,541		17	0.04
Intercompany funds borrowed from discontinued operations		84,015		135	0.64			140,141		443	1.26
Federal Reserve PPP Liquidity Facility		—		—	—			122,769		105	0.34
Federal Home Loan Bank advances		25,000		10	0.16			263,296		822	1.25
Subordinated note		41,240		169	1.64			41,240		295	2.86

Total interest-bearing liabilities		3,340,311		1,646	0.20			3,571,411		5,092	0.57

Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		2,142,055						1,611,026
Other liabilities		103,751						108,488
Stockholders’ equity		849,305						797,227
Total liabilities and stockholders’ equity	$	6,435,422					$	6,088,152

Net interest income			$	49,638					$	51,812

Net interest spread					3.17	%					3.37	%

Net interest margin					3.27	%					3.58	%

(1)

The table above excludes average assets, average liabilities, interest income, and interest expense for discontinued operations; however, loans to and borrowings from discontinued operations are included above based on the Company’s funds transfer pricing methodology. Net interest income would be $50.0 million and $52.2 million and net interest margin would be 3.31% and 3.62% for the quarters ended June 30, 2021 and 2020 if continuing and discontinued operations were consolidated above.

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

(3)	Interest income is entirely composed of loan fees.

(4)	Interest income includes loan fees of $789,000 and $791,000 for the quarters ended June 30, 2021 and 2020.

(5)	Interest income includes loan fees of $3.7 million and $1.6 million for the quarters ended June 30, 2021 and 2020.

(6)	Interest income includes loan fees of $968,000 and $511,000 for the quarters ended June 30, 2021 and 2020.

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

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

Table 3 — Total Company Volume/Rate Variance Analysis from Continuing Operations


		Three Months Ended June 30, 2021
		Compared to
		Three Months Ended June 30, 2020
	Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate

Interest income:

Federal funds sold and other interest-earning deposits	$	175	$	179	$	(4)
Investment securities, including FHLB stock		(907)		(190)		(717)
Intercompany funds loaned to discontinued operations		11		11		—
RCS LOC I product		(1,078)		(1,148)		70
Other RPG loans		144		149		(5)
Outstanding Warehouse lines of credit		(470)		(740)		270
Paycheck Protection Program loans		1,930		(276)		2,206
All other Core Bank loans		(5,425)		(2,176)		(3,249)
Net change in interest income		(5,620)		(4,191)		(1,429)

Interest expense:

Transaction accounts		(66)		35		(101)
Money market accounts		(155)		15		(170)
Time deposits		(1,258)		(518)		(740)
Reciprocal money market and time deposits		(229)		41		(270)
Brokered deposits		(379)		(172)		(207)
SSUARs		(9)		(1)		(8)
Intercompany funds borrowed from discontinued operations		(309)		(139)		(170)
Federal Reserve PPP Liquidity Facility		(105)		(105)		—
Federal Home Loan Bank advances		(813)		(414)		(399)
Subordinated note		(123)		—		(123)
Net change in interest expense		(3,446)		(1,258)		(2,188)

Net change in net interest income	$	(2,174)	$	(2,933)	$	759

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

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Provision

Total Company Provision from continuing operations was a net charge of $1.5 million for the second quarter of 2021 compared to a net charge of $2.1 million for the same period in 2020. Provision from discontinued operations was a net credit of $5.8 million for the second quarter of 2021 compared to a net charge of $4.4 million for the same period in 2020.

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

Traditional Banking segment

The Traditional Banking Provision during the second quarter of 2021 was a net credit of $77,000 compared to a net charge of $3.1 million for the second quarter of 2020. An analysis of the Provision for the second quarter of 2021 compared to the same period in 2020 follows:

●

For the second quarter of 2021, the Traditional Bank Provision was a net credit, generally based on an improving economic outlook in conjunction with limited charge-offs incurred by the Traditional Bank since making significant life-of-loan reserves during 2020 following the onset of the pandemic. The net credit recorded during the second quarter of 2021 primarily included ACLL releases for the residential real estate, CRE, and HELOC portfolios offset by additional reserves for certain Special Mention loans with continued signs of pandemic-related hardship through June 30, 2021.

●

During the second quarter of 2020, the Traditional Bank recorded $4.6 million of additional Provision due to the expected economic impact of the COVID-19 pandemic. Offsetting the increase in Provision due to the impact of the COVID-19 pandemic during the second quarter of 2020 was a reduction in Provision of $1.2 million consistent with a $112 million decrease in Traditional Bank loan spot balances during the same quarter.

As a percentage of total loans, the Traditional Banking ACLL was 1.37% as of June 30, 2021 compared to 1.34% as of December 31, 2020 and 1.10% as of June 30, 2020. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of June 30, 2021.

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

Warehouse Lending segment

Warehouse recorded a net credit to the Provision of $65,000 for the second quarter of 2021 compared to a net charge of $449,000 for the same period in 2020. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $26 million during the second quarter of 2021 compared to an increase of $179 million during the second quarter of 2020.

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

Tax Refund Solutions segment

Discontinued Operations

TRS recorded a net credit to the Provision from discontinued operations of $5.8 million during the second quarter of 2021 compared to a net charge of $4.4 million for the same period in 2020. Substantially all TRS Provision from discontinued operations in both periods was related to its EA product.

The TRS Provision from discontinued operations swung from a net charge of $4.4 million during the second quarter of 2020 to a net credit of $5.8 million during the second quarter of 2021. The credit to the Provision during the second quarter of 2021 resulted from repayment rates on EA loans from the U.S. Treasury that significantly exceeded those during the second quarter of 2020. Management believes the slower repayment rate from the U.S. Treasury during the second quarter of 2020 was directly related to the impact of the COVID-19 pandemic and the resulting delay in tax-return processing by the IRS for certain types of tax returns that require further taxpayer communication and verification.

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The Company completely charged-off all remaining unpaid EAs as of June 30, 2021, in-line with its customary June 30th charge-off policy for EA loans. Any EA payments received after June 30^th will be credited as a direct recovery to the Provision in the period it is received for the remainder of 2021.

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

Republic Credit Solutions segment

As illustrated in Table 4 below, RCS recorded a net charge to the Provision of $1.6 million during the second quarter of 2021 compared to a net credit to the Provision of $1.4 million for the same period in 2020. The negative swing in the Provision was driven by an increase in outstanding balances for RCS’s lines of credit during the second quarter of 2021 compared to a decrease in similar balances during the second quarter of 2020. The Company reduced marketing for its LOC I product during the second and third quarters of 2020, then began incrementally increasing such marketing during the fourth quarter of 2020. The Company began offering its LOC II product during the first quarter of 2021.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 7.68% as of June 30, 2021, 7.94% as of December 31, 2020 and 9.21% as of June 30, 2020. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of June 30, 2021.

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

Table 4 — RCS Provision by Product


	Three Months Ended Jun. 30,
(in thousands)	2021		2020		$ Change		% Change
Product:
Lines of credit	$	1,581	$	(1,454)	$	3,035	(209)	%
Hospital receivables		11		11		—	—
Total	$	1,592	$	(1,443)	$	3,035	(210)	%

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Table 5 — Summary of Loan and Lease Loss Experience


	Three Months Ended
	June 30,
(dollars in thousands)	2021			2020

ACLL at beginning of period	$	75,336		$	70,431

Charge-offs:

Traditional Banking:
Commercial real estate		—			(270)
Commercial & industrial		—			(192)
Consumer		(161)			(238)
Total Traditional Banking		(161)			(700)
Warehouse lines of credit		—			—
Total Core Banking		(161)			(700)

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		(10,256)			(19,575)
Other TRS loans		(30)			(28)
Republic Credit Solutions		(597)			(2,008)
Total Republic Processing Group		(10,883)			(21,611)
Total charge-offs		(11,044)			(22,311)

Recoveries:

Traditional Banking:
Residential real estate		19			45
Commercial real estate		12			2
Commercial & industrial		4			41
Home equity		34			12
Consumer		97			119
Total Traditional Banking		166			219
Warehouse lines of credit		—			—
Total Core Banking		166			219

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		30			—
Other TRS loans		—			1
Republic Credit Solutions		79			199
Total Republic Processing Group		109			200

Total recoveries		275			419

Net loan recoveries (charge-offs)		(10,769)			(21,892)

Provision from continuing operations- Core Banking		(95)			3,553
Provision from continuing operations - RPG		1,592			(1,443)
Provision from discontinued operations - RPG		(5,773)			4,448
Total Provision		(4,276)			6,558
ACLL at end of period	$	60,291		$	55,097

Credit Quality Ratios - Total Company:

ACLL to total loans		1.32	%		1.09	%
ACLL to nonperforming loans		270			270
Net loan charge-offs to average loans		0.95			1.80
Net loan charge-offs from continuing operations to average loans		0.05			0.19

Credit Quality Ratios - Core Banking:

ACLL to total loans		1.16	%		0.92	%
ACLL to nonperforming loans		238			230
Net loan charge-offs to average loans		—			0.04

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Noninterest Income

Total Company noninterest income from continuing operations increased $78,000 during the second quarter of 2021 compared to the same period in 2020. Noninterest income from discontinued operations increased $3.0 million, or 99% comparing the same periods.

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

Traditional Banking segment

Traditional Banking’s noninterest income increased $1.8 million, or 30%, for the second quarter of 2021 compared to the same period in 2020. Interchange Fee Income increased $643,000 from the second quarter of 2020 to the same period in 2021, while Service Charges on Deposit Accounts increased $623,000 comparing the same periods. Service Charges on Deposit Accounts were below normal levels during the second quarter of 2020, as a pandemic-driven rise in the consumer savings rates drove a reduction in the Bank’s overdraft-related fees. Both Interchange Fee Income and Service Charges on Deposits began to rise towards normal levels during the first quarter of 2021 following the removal of many pandemic-related restrictions.

The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in Service Charges on Deposits Accounts for the three months ended June 30, 2021 and 2020 were $1.3 million and $893,000. The total daily overdraft charges, net of refunds, included in interest income for the three months ended June 30, 2021 and 2020 were $257,000 and $0. The Bank suspended its daily overdraft charges during 2020 to soften the economic hardship of the COVID-19 pandemic on its clients. The Bank reinstituted the charging of its daily overdraft fee on September 1, 2020.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income decreased $4.2 million, or 50%, during the second quarter of 2021 compared to the same period in 2020. For the second quarter of 2021, the Core Bank originated $141 million in secondary market loans and achieved an average gain-as-a-percent-of-loans-sold during the period of 2.84%, with comparable originations of $219 million and comparable gains of 3.98% during the second quarter of 2020. Favorable market conditions drove a higher gain percentage for the Core Bank during the last nine months of 2020 and for a portion of the first quarter of 2021, with these favorable conditions beginning to normalize during February 2021. Management believes these favorable conditions could continue to normalize during the remainder of 2021 potentially bringing the Core Bank’s gain-as-a-percent-of-loans-sold closer to normal historical levels at, or below, 2.50%.

Tax Refund Solutions segment

Discontinued Operations

TRS’s noninterest income from discontinued operations increased $3.0 million during the second quarter of 2021 compared to the same period in 2020. This increase reflected a $3.0 million increase in net RT fees, as delays in the 2021 tax season drove a larger share of RT volume into the second quarter of the year.

Republic Credit Solutions segment

RCS’s noninterest income increased $2.3 million during the second quarter of 2021 compared to the same period in 2020, with program fees representing the entirety of RCS’s noninterest income. Pandemic-driven restrictions negatively impacted RCS program fees during the second quarter of 2020, with those program fees beginning to normalize during 2021 following the removal of restrictions.

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The following table presents RCS program fees by product:

Table 6 — RCS Program Fees by Product


	Three Months Ended Jun. 30,
(in thousands)	2021		2020		$ Change		% Change
Product:
Lines of credit	$	1,354	$	529	$	825	156	%
Hospital receivables		63		(10)		73	(730)
Installment loans*		1,417		1		1,416	NM
Total	$	2,834	$	520	$	2,314	445	%

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

Noninterest Expense

Total Company noninterest expense from continuing operations increased $89,000 during the second quarter of 2021 compared to the same period in 2020. Noninterest expense from discontinued operations increased $742,000, or 46%, comparing the same periods.

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

Traditional Banking segment

Traditional Banking noninterest expense increased $249,000, or 1%, for the second quarter of 2021 compared to the same period in 2020. The following primarily drove the change in noninterest expense:

●

Technology, Equipment, and Communication expense increased $628,000, as the Traditional Bank strategically added 30 Interactive Teller Machines over the previous 12 months, bringing its ITM fleet to over 70 ITMs as of June 30, 2021.

●

Partially offsetting the increase above, Bank Franchise Tax expense decreased $474,000. As previously reported, Kentucky enacted HB354 in March 2019 and as a result, the Bank transitioned from a capital-based bank franchise tax to corporate income tax on January 1, 2021 for Kentucky state taxes.

Tax Refund Solutions segment

Discontinued Operations

TRS’s noninterest expense from discontinued operations increased $742,000 during the second quarter of 2021 compared to the same period in 2020. This increase reflected approximately $1.0 million in legal costs associated with the Bank’s sale of its TRS operations.

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OVERVIEW (Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020)

Total Company net income for the first six months of 2021 was $50.0 million, a $7.5 million, or 18%, increase from the same period in 2020. Diluted EPS increased to $2.41 for the six months of June 30, 2021 compared to $2.04 for the same period in 2020.

Net income from continuing operations was $36.8 million for the first six months of 2021, a $4.8 million increase from the same period in 2020. Diluted EPS from continuing operations were $1.78 for the six months ended June 30, 2021 compared to $1.54 for the same period in 2020. The increase in net income and net income from continuing operations primarily reflected a positive reduction in Provision partially offset by a decrease in net interest income.

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

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

Traditional Banking segment

●

Net income increased $6.4 million, or 66%, for the first six months of 2021 compared to the same period in 2020.

●

Net interest income decreased $276,000 for the first six months of 2021 compared to the same period in 2020.

●

Provision decreased $8.8 million to a net credit of $82,000 for the first six months of 2021 compared to a net charge of $8.7 million for the same period in 2020.

●

Noninterest income increased $1.4 million, or 10%, for the first six months of 2021 compared to the same period in 2020.

●

Total noninterest expense increased $930,000, or 1%, for the first six months of 2021 compared to same period in 2020.

●

Total Traditional Bank loans decreased $117 million, or 3%, during the first six months of 2021, driven by a $141 million decrease in PPP loans.

●

Total nonperforming loans to total loans for the Traditional Banking segment was 0.60% as of June 30, 2021 compared to 0.63% as of December 31, 2020.

●

Delinquent loans to total loans for the Traditional Banking segment was 0.28% as of June 30, 2021 compared to 0.26% as of December 31, 2020.

●

As of June 30, 2021, $25 million, or 1%, of Traditional Banking loans remained under a COVID-19 hardship accommodation.

●

Total Traditional Bank deposits increased $238 million, or 6%, during the first six months of 2021.

Warehouse Lending segment

●

Net income increased $2.5 million, or 40%, for the first six months of 2021 compared to the same period in 2020.

●

Net interest income increased $2.7 million, or 26%, for the first six months of 2021 compared to the same period in 2020.

●

The Warehouse Provision was a net credit of $307,000 for the first six months of 2021 compared to a net charge of $781,000 for the same period in 2020.

●

Average committed Warehouse lines increased to $1.4 billion during the first six months of 2021 from $1.1 billion during the same period in 2020.

●

Average line usage was 52% during the first six months of 2021 compared to 63% during the same period in 2020.

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Mortgage Banking segment

●

Within the Mortgage Banking segment, mortgage banking income decreased $1.8 million, or 14%, during the first six months of 2021 compared to the same period in 2020.

●

Overall, Republic’s originations of secondary market loans totaled $355 million during the first six months of 2021 compared to $344 million during the same period in 2020, with the Company’s gain-as-a-percent-of-loans-sold decreasing from 3.93% to 3.10% from period to period.

Tax Refund Solutions segment

Continuing Operations

●

Net loss from continuing operations was $562,000 for the first six months of 2021 compared to a net loss of $1.5 million for the same period in 2020. The higher loss during the first six months of 2020 primarily reflected general operating losses related to TRS’s prepaid card division, with such losses substantially occurring prior to May 1, 2020. On May 1, 2020, the RPS division added a large depository relationship that significantly improved profitability on a subsequent basis.

Discontinued Operations

●

Net income from discontinued operations increased $2.7 million for the first six months of 2021 compared to the same period in 2020.

●

Net interest income from discontinued operations decreased $5.9 million for the first six months of 2021 compared to the same period in 2020.

●

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

●

Overall, TRS recorded a net charge to the Provision from discontinued operations of $10.1 million during the first six months of 2021 compared to a net charge to the Provision of $19.6 million for the same period in 2020.

●

Noninterest income from discontinued operations decreased $71,000 for the first six months of 2021 compared to the same period in 2020.

●

Net RT revenue decreased $94,000 for the first six months of 2021 compared to the same period in 2020.

●

Noninterest expense from discontinued operations was $6.1 million for the first six months of 2021 compared to $6.5 million for the same period in 2020.

Republic Credit Solutions segment

●

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

●

Net interest income decreased $3.2 million, or 25%, for the first six months of 2021 compared to the same period in 2020.

●

Overall, RCS recorded a net charge to the Provision of $1.2 million during the first six months of 2021 compared to a net charge of $263,000 for the same period in 2020.

●

Noninterest income increased $1.3 million, or 47%, from the first six months of 2020 to the first six months of 2021.

●

Noninterest expense was $2.0 million for the first six months of 2021 compared to $1.8 million for the same period in 2020.

●

Total nonperforming loans to total loans for the RCS segment was 0.63% as of June 30, 2021 compared to 0.04% as of December 31, 2020.

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●

Delinquent loans to total loans for the RCS segment was 7.66% as of June 30, 2021 compared to 9.23% as of December 31, 2020.

RESULTS OF OPERATIONS (Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020)

Net Interest Income

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

Total Company net interest income from continuing operations decreased $1.3 million, or 1%, during the first six months of 2021 compared to the same period in 2020. Total Company net interest margin from continuing operations decreased to 3.42% during the first six months of 2021 compared to 3.75% for the same period in 2020. Net interest income from discontinued operations was $14.8 million during the first six months of 2021 compared to $20.7 million during the same period in 2020.

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

Traditional Banking segment

The Traditional Banking’s net interest income decreased $276,000 for the first six months of 2021 compared to the same period in 2020. Traditional Banking’s net interest margin was 3.21% for the first six months of 2021, a decrease of 31 basis points from the same period in 2020.

Table 7 — Traditional Bank Net Interest Income and Net Interest Margin Excluding PPP (Non-GAAP)

Due to the short-term nature of the PPP, management believes Traditional Bank net interest income excluding PPP lender fees is a more appropriate measure to analyze the Traditional Bank’s net interest income and net interest margin. The following table reconciles Traditional Bank net interest income and net interest margin to Traditional Bank net interest income and net interest margin excluding PPP lender fees, a non-GAAP measure. Net interest margin excluding PPP lender fees presented below also excludes average PPP loans of $357 million and $193 million for the six months ended June 30, 2021 and 2020.

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	Net Interest Income								Net Interest Margin
	Six Months Ended Jun. 30,								Six Months Ended Jun. 30,
(dollars in thousands)	2021		2020		$ Change		% Change		2021		2020		Change

Traditional Banking - GAAP	$	79,380	$	79,656	$	(276)	(0)	%	3.21	%	3.52	%	(0.31)	%
Less: PPP lender fees		9,433		1,599		7,834	490		0.24		(0.03)		0.27
Traditional Banking ex PPP lender fees - non-GAAP	$	69,947	$	78,057	$	(8,110)	(10)	%	2.97		3.55		(0.58)

The decrease in the Traditional Bank’s net interest income and net interest margin during the first six months of 2021 was primarily attributable to the following factors:

●

Excluding accreted PPP lender fees, net interest income decreased $8.1 million, or 10%, from the first six months of 2020, as the Traditional Bank’s net interest margin, excluding PPP loans and related fees, declined from 3.55% for the first six months of 2020 to 2.97% for the first six months of 2021. The decline in the net interest margin was substantially driven by a 22-basis point decline in the Traditional Bank’s yield on its average interest-earning assets from the first six months of 2020 to the first six months of 2021, as the majority of the Traditional Bank’s growth in interest-earning assets during the previous 12 months was in lower-yielding cash or cash equivalents instead of loans.

●

Partially offsetting the Traditional Bank’s margin compression, the Traditional Bank recognized $9.4 million of fee income on its PPP portfolio during the first six months of 2021 compared to $1.6 million of similar fees during the same period in 2020. The $7.8 million increase in PPP fee income was driven significantly by the forgiveness, payoff, and paydown of $348 million of PPP loans during the first six months of 2021. As of June 30, 2021, net PPP loans of $251 million remained on the Core Bank’s balance sheet, including $53 million in loan balances originated during 2020, $207 million in loan balances originated during 2021, and $9 million of unaccreted PPP lender fees reported as a credit offset to these originated balances. Unaccreted PPP lender fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated.

Warehouse Lending segment

Net interest income increased $2.7 million, or 26%, for the first six months of 2021 compared to the same period in 2020.

Average committed Warehouse lines increased to $1.4 billion during the first six months of 2021 from $1.2 billion during the same period in 2020, while overall usage rates on Warehouse lines of credit were 52% and 63%, respectively for the same periods. In addition, the Warehouse net interest margin increased to 3.45% for the first six months of 2021 compared to 2.86% for the first six months of 2020, as many of the Bank’s Warehouse client reached contractual interest rate floors on their lines-of-credit during the first six months of 2020 preventing further declines in the segment’s loan yields, while the segment’s cost of funds continued to decline.

Tax Refund Solutions segment

Discontinued Operations

TRS’s net interest income from discontinued operations decreased $5.9 million for the first six months of 2021 compared to the same period in 2020. TRS’s EA product earned $13.1 million in interest income during the first six months of 2021, a $6.4 million decrease from the first six months of 2020 resulting primarily from a $138 million decrease in EA originations from period to period. Management believes that economic impact (stimulus) payments, pandemic health risks, and a two-week delay in the start to the 2021 tax season, all, in varying degrees, negatively impacted demand for its EA product during the first six months of 2021.

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

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Republic Credit Solutions segment

RCS’s net interest income decreased $3.2 million, or 25%, from the first six months of 2020 to the first six months of 2021. The decrease was driven primarily by a decline in fee income from RCS’s LOC I product. Loan fees on this product, recorded as interest income on loans, decreased to $7.3 million during the first six months of 2021 compared to $10.7 million during the same period in 2020 and accounted for 75% and 79% of all RCS interest income on loans during the periods. The decrease in loan fees was the direct result of a decline in balances for RCS’s LOC I product following a reduction of marketing for this product during the second and third quarters of 2020. While the marketing for this product was reinstated during the fourth quarter of 2020, management believes the ongoing impact of government stimulus payments continued to reduce demand for this product during the current period.

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

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Table 8 — Total Company Average Balance Sheets and Interest Rates


	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
	Average				Average		Average				Average
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate

ASSETS (1)

Interest-earning assets:
Federal funds sold and other interest-earning deposits	$	725,764	$	416	0.11	%	$	253,548	$	724	0.57	%
Investment securities, including FHLB stock (2)		563,243		3,931	1.40			562,751		5,828	2.07
Intercompany funds loaned to discontinued operations		160,208		195	0.24			154,561		1,130	1.46
RCS LOC I product (3) (7)		15,692		7,338	93.53			23,287		10,697	91.87
Other RPG loans (7)		103,247		2,328	4.51			90,511		2,383	5.27
Outstanding Warehouse lines of credit (4) (7)		758,493		14,194	3.74			724,977		14,339	3.96
Paycheck Protection Program loans (5) (7)		357,163		11,280	6.32			193,332		2,650	2.74
All other Core Bank loans (6) (7)		3,337,969		66,884	4.01			3,554,117		80,786	4.55

Total interest-earning assets		6,021,779		106,566	3.54			5,557,084		118,537	4.27

Allowance for credit loss		(60,235)						(51,357)

Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		109,641						95,663
Premises and equipment, net		39,151						44,680
Bank owned life insurance		82,837						66,866
Other assets (2)		167,361						132,861
Total assets	$	6,360,534					$	5,845,797

LIABILITIES AND STOCKHOLDERS’ EQUITY (1)

Interest-bearing liabilities:
Transaction accounts	$	1,542,685	$	175	0.02	%	$	1,196,681	$	841	0.14	%
Money market accounts		753,198		196	0.05			744,745		1,490	0.40
Time deposits		309,155		2,035	1.32			421,257		4,345	2.06
Reciprocal money market and time deposits		316,493		461	0.29			248,887		1,053	0.85
Brokered deposits		43,369		22	0.10			196,414		1,693	1.72

Total interest-bearing deposits		2,964,900		2,889	0.19			2,807,984		9,422	0.67

Securities sold under agreements to repurchase and other short-term borrowings		181,216		17	0.02			192,755		136	0.14
Intercompany funds borrowed from discontinued operations		132,144		262	0.40			184,950		1,473	1.59
Federal Reserve PPP Liquidity Facility		—		—	—			61,384		105	0.34
Federal Home Loan Bank advances		34,033		41	0.24			317,307		2,470	1.56
Subordinated note		41,240		341	1.65			41,240		647	3.14

Total interest-bearing liabilities		3,353,533		3,550	0.21			3,605,620		14,253	0.79

Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		2,054,131						1,348,541
Other liabilities		110,044						103,572
Stockholders’ equity		842,826						788,064
Total liabilities and stock-holders’ equity	$	6,360,534					$	5,845,797

Net interest income			$	103,016					$	104,284

Net interest spread					3.33	%					3.48	%

Net interest margin					3.42	%					3.75	%

(1)

The table above excludes average assets, average liabilities, interest income, and interest expense for discontinued operations; however, loans to and borrowings from discontinued operations are included above based on the Company’s funds transfer pricing methodology. Net interest income would be $117.8 million and $124.9 million and net interest margin would be 3.97% and 4.55% for the six months ended June 30, 2021 and 2020 if continuing and discontinued operations were consolidated above.

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

(3)	Interest income is composed entirely of loan fees.

(4)	Interest income includes loan fees of $1.7 million and $1.4 million for the six months ended June 30, 2021 and 2020.

(5)	Interest income includes loan fees of $9.4 million and $1.6 million for the six months ended June 30, 2021 and 2020.

(6)	Interest income includes loan fees of $1.9 million and $1.7 million for the six months ended June 30, 2021 and 2020.

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

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Table 9 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 9 — Total Company Volume/Rate Variance Analysis


		Six Months Ended June 30, 2021
		Compared to
		Six Months Ended June 30, 2020
	Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate

Interest income:

Federal funds sold and other interest-earning deposits	$	(308)	$	595	$	(903)
Investment securities, including FHLB stock		(1,897)		5		(1,902)
Intercompany funds loaned to discontinued operations		(935)		40		(975)
RCS LOC I product		(3,359)		(5,045)		1,686
Other RPG loans		(55)		312		(367)
Outstanding Warehouse lines of credit		(145)		647		(792)
Paycheck Protection Program loans		8,630		3,399		5,231
All other Core Bank loans		(13,902)		(4,716)		(9,186)
Net change in interest income		(11,971)		(4,763)		(7,208)

Interest expense:

Transaction accounts		(666)		191		(857)
Money market accounts		(1,294)		17		(1,311)
Time deposits		(2,310)		(979)		(1,331)
Reciprocal money market and time deposits		(592)		231		(823)
Brokered deposits		(1,671)		(757)		(914)
Securities sold under agreements to repurchase and other short-term borrowings		(119)		(7)		(112)
Intercompany funds borrowed from discontinued operations		(1,211)		(334)		(877)
Federal Reserve PPP Liquidity Facility		(105)		(105)		—
Federal Home Loan Bank advances		(2,429)		(1,247)		(1,182)
Subordinated note		(306)		—		(306)
Net change in interest expense		(10,703)		(2,990)		(7,713)

Net change in net interest income	$	(1,268)	$	(1,773)	$	505

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

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Provision

Total Company Provision from continuing operations was a net charge of $828,000 for the first six months of 2021 compared to a net charge of $9.7 million for the same period in 2020. Total Company Provision from discontinued operations was a net charge of $10.1 million for the first six months of 2021 compared to a net charge of $19.6 million for the same period in 2020.

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

Traditional Banking segment

The Traditional Banking Provision during the first six months of 2021 was a net credit of $82,000 compared to an $8.7 million net charge for the first six months of 2020. An analysis of the Provision for the first six months of 2021 compared to the same period in 2020 follows:

●

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

●

During the first six months of 2020, the Traditional Bank recorded $10.9 million of additional Provision due to the expected economic impact of the COVID-19 pandemic. Offsetting the increase in Provision due to the impact of the COVID-19 pandemic during the first six months of 2020 was a reduction in Provision of $2.0 million consistent with a $170 million decrease in Traditional Bank loan spot balances from December 31, 2019 to June 30, 2020.

Warehouse Lending segment

Warehouse recorded a net credit to the Provision of $307,000 for the first six months of 2021 compared to a net charge of $781,000 for the same period in 2020. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $123 million during the first six months of 2021 compared to an increase of $312 million during the first six months of 2020.

Tax Refund Solutions segment

Discontinued Operations

TRS recorded a net charge to the Provision from discontinued operations of $10.1 million during the first six months of 2021 compared to a net charge of $19.6 million for the same period in 2020. Substantially all TRS Provision in both periods was related to its EA product.

TRS’s Provision for EA loan losses was $10.2 million, or 4.1% of its $250 million in EAs originated during the first six months of 2021, compared to a Provision of $19.5 million, or 5.0% of its $388 million in EAs originated during the first six months of 2020. The lower Provision during the first six months of 2021 resulted from repayment rates on EA loans from the U.S. Treasury that exceeded those during the first six months of 2020. Management believes the slower repayment rates from the U.S. Treasury during the first six months of 2020 was directly related to the impact of the COVID-19 pandemic and the resulting delay in tax-return processing by the IRS for certain types of tax returns that required further taxpayer communication and verification.

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EAs are only originated during the first two months of each year, with all uncollected EAs charged off by June 30th of each year. EAs collected during the second half of each year are recorded as recoveries of previously charged-off loans.

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

Republic Credit Solutions segment

As illustrated in Table 10 below, RCS recorded a net charge to the Provision of $1.2 million during the first six months of 2021 compared to a net charge to the Provision of $263,000 for the same period in 2020. The increase in the Provision was driven by an increase in outstanding balances for RCS’s lines of credit during the first six months of 2021 compared to a decrease in similar balances during the same period in 2020. The Company reduced marketing for its LOC I product during the second and third quarters of 2020, then began incrementally increasing such marketing during the fourth quarter of 2020. The Company began offering its LOC II product during the first quarter of 2021.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 7.68% as of June 30, 2021, 7.94% as of December 31, 2020, and 9.21% as of June 30, 2020. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of June 30, 2021.

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

Table 10 — RCS Provision by Product


	Six Months Ended Jun. 30,
(in thousands)	2021			2020	$ Change		% Change
Product:
Lines of credit	$	1,207	$	253	$	954	377	%
Hospital receivables		10		10		—	—
Total	$	1,217	$	263	$	954	363	%

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Table 11 — Summary of Loan and Lease Loss Experience


	Six Months Ended
	June 30,
(dollars in thousands)	2021			2020

ACLL at beginning of period	$	61,067		$	43,351

Adoption of ASC 326		—			6,734

Charge-offs:

Traditional Banking:
Residential real estate		—			(27)
Commercial real estate		(428)			(270)
Commercial & industrial		—			(192)
Consumer		(370)			(733)
Total Traditional Banking		(798)			(1,222)
Warehouse lines of credit		—			—
Total Core Banking		(798)			(1,222)

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		(10,256)			(19,575)
Commercial & industrial		(51)			(72)
Republic Credit Solutions		(1,362)			(4,717)
Total Republic Processing Group		(11,669)			(24,364)
Total charge-offs		(12,467)			(25,586)

Recoveries:

Traditional Banking:
Residential real estate		46			86
Commercial real estate		80			473
Commercial & industrial		11			44
Home equity		41			87
Consumer		243			323
Total Traditional Banking		421			1,013
Warehouse lines of credit		—			—
Total Core Banking		421			1,013

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		30			42
Commercial & industrial		8			1
Republic Credit Solutions		171			470
Total Republic Processing Group		209			513
Total recoveries		630			1,526

Net loan charge-offs		(11,837)			(24,060)

Provision from continuing operations- Core Banking		(267)			9,228
Provision from continuing operations - RPG		1,217			263
Provision from discontinued operations - RPG		10,111			19,581
Total Provision		11,061			29,072
ACLL at end of period	$	60,291		$	55,097

Credit Quality Ratios - Total Company:

ACLL to total loans		1.32	%		1.09	%
ACLL to nonperforming loans		270			270
Net loan charge-offs to average loans		0.51			1.03
Net loan charge-offs from continuing operations to average loans		0.07			0.20

Credit Quality Ratios - Core Banking:

ACLL to total loans		1.16	%		0.92	%
ACLL to nonperforming loans		238			230
Net loan charge-offs to average loans		0.02			0.01

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Noninterest Income

Total Company noninterest income from continuing operations increased $1.6 million, or 5%, during the first six months of 2021 compared to the same period in 2020. Total Company noninterest income from discontinued operations decreased $71,000 during the first six months of 2021 compared to the same period in 2020.

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

Traditional Banking segment

Traditional Banking’s noninterest income increased $1.4 million, or 10%, for the first six months of 2021 compared to the same period in 2020. Interchange Fee Income increased $1.1 million from the first six months of 2020 to the same period in 2021, while Service Charges on Deposit Accounts increased $350,000 comparing the same periods. Service Charges on Deposit Accounts were below normal levels during the first six months of 2020, as a pandemic-driven rise in the consumer savings rate drove a reduction in the Bank’s overdraft-related fees. Both Interchange Fee Income and Service Charges on Deposits began to rise towards normal levels during the first quarter of 2021 following the removal of pandemic-related restrictions.

The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the six months ended June 30, 2021 and 2020 were $2.5 million and $2.7 million. The total daily overdraft charges, net of refunds, included in interest income for the six months ended June 30, 2021 and 2020 were $506,000 and $417,000. The Bank suspended its daily overdraft charges during the first six months of 2020 to soften the economic hardship of the COVID-19 pandemic on its clients. The Bank reinstituted the charging of its daily overdraft fee on September 1, 2020.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income decreased $1.8 million, or 14%, during the first six months of 2021 compared to the same period in 2020. For the first six months of 2021, the Core Bank originated $355 million in secondary market loans and achieved an average gain-as-a-percent-of-loans-sold during the period of 3.10%, with comparable originations of $344 million and comparable gains of 3.93% during the first six months of 2020. Favorable market conditions drove a higher gain percentage for the Core Bank during the last nine months of 2020 and for a portion of the first six months of 2021, with these favorable conditions beginning to normalize during February 2021. Management believes these favorable conditions could continue to normalize during the remainder of 2021 potentially bringing the Core Bank’s gain-as-a-percent-of-loans-sold closer to normal historical levels near 2.50%.

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Republic Credit Solutions segment

RCS’s noninterest income increased $1.3 million, or 47%, during the first six months of 2021 compared to the same period in 2020, with program fees representing the entirety of RCS’s noninterest income. Pandemic-driven restrictions negatively impacted RCS program fees during the first six months of 2020, with those program fees beginning to normalize during 2021 following the removal of restrictions.

The following table presents RCS program fees by product:

Table 12 — RCS Program Fees by Product


	Six Months Ended Jun. 30,
(in thousands)	2021		2020		$ Change		% Change
Product:
Lines of credit	$	2,122	$	1,448	$	674	47	%
Hospital receivables		111		8		103	1,288
Installment loans*		1,930		1,376		554	NM
Total	$	4,163	$	2,832	$	1,331	47	%

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

Noninterest Expense

Total Company noninterest expense from continuing operations increased $2.1 million, or 2%, during the first six months of 2021 compared to the same period in 2020. Total Company noninterest expense from discontinued operations decreased $416,000 during the first six months of 2021 compared to the same period in 2020.

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

Traditional Banking segment

Traditional Banking noninterest expense increased $930,000 for the first six months of 2021 compared to the same period in 2020. The following primarily drove the change in noninterest expense:

●

Salaries and benefits expense increased approximately $1.8 million, or 4%, primarily driven by annual merit increases and increases in contract labor, equity compensation, payroll taxes, and health benefits from period to period.

●

Technology, Equipment, and Communication expense increased $736,000, as the Traditional Bank strategically added 30 Interactive Teller Machines over the previous 12 months, bringing its ITM fleet to over 70 ITMs as of June 30, 2021.

●

Occupancy expense increased $436,000, or 7%, driven primarily by increases in snow removal and pandemic-driven janitorial and cleaning costs from period to period.

●

Partially offsetting the increases above, Bank Franchise Tax expense decreased $906,000. As previously reported, Kentucky enacted HB354 in March 2019 and as a result, the Bank transitioned from a capital-based bank franchise tax to the Kentucky corporate income tax on January 1, 2021.

●

Legal and professional fees decreased $472,000 driven by estimated pandemic-related costs during 2020, including consumer compliance consultations.

●

Supplies, meals, entertainment, mileage, and travel costs decreased $540,000, in total, resulting from continuing pandemic-driven restrictions on these activities.

Mortgage Banking segment

Noninterest expense at the Mortgage Banking segment increased $1.4 million, or 31%, during the first six months of 2021 compared to the same period in 2020, primarily due to higher mortgage commissions recorded during 2021.

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COMPARISON OF FINANCIAL CONDITION AS OF JUNE 30, 2021 AND DECEMBER 31, 2020

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 $747 million in cash and cash equivalents as of June 30, 2021 compared to $486 million as of December 31, 2020. The Company continues to maintain a relatively high cash balance on its balance sheet as deposit balances have continued to grow and loan balances have continued to generally decline.

For cash held at the FRB, the Bank earns a yield on amounts more than required reserves. This yield was a weighted-average 0.11% for the first six months of 2021. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.

Table 13 — Loan Portfolio Composition


(in thousands)	June 30, 2021		December 31, 2020		$ Change		% Change

Traditional Banking:
Residential real estate:
Owner occupied	$	852,947	$	879,800	$	(26,853)	(3)	%
Nonowner occupied		289,290		264,780		24,510	9
Commercial real estate		1,389,003		1,349,085		39,918	3
Construction & land development		95,180		98,674		(3,494)	(4)
Commercial & industrial		330,302		325,596		4,706	1
Paycheck Protection Program		250,933		392,319		(141,386)	(36)
Lease financing receivables		9,249		10,130		(881)	(9)
Aircraft		121,112		101,375		19,737	19
Home equity		217,621		240,640		(23,019)	(10)
Consumer:
Credit cards		14,754		14,196		558	4
Overdrafts		717		587		130	22
Automobile loans		21,190		30,300		(9,110)	(30)
Other consumer		6,796		8,167		(1,371)	(17)
Total Traditional Banking		3,599,094		3,715,649		(116,555)	(3)
Warehouse lines of credit*		840,155		962,796		(122,641)	(13)
Total Core Banking		4,439,249		4,678,445		(239,196)	(5)

*Republic Processing Group:**
Tax Refund Solutions:
Easy Advances		—		—		—	NA
Other TRS loans		—		—		—	NA
Republic Credit Solutions		114,949		110,893		4,056	4
Total Republic Processing Group		114,949		110,893		4,056	4

Total loans**		4,554,198		4,789,338		(235,140)	(5)
Allowance for credit losses		(60,291)		(61,067)		776	(1)

Total loans, net	$	4,493,907	$	4,728,271	$	(234,364)	(5)	%

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

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

Gross loans decreased by $235 million, or 5%, during the first six months of 2021 to $4.6 billion as of June 30, 2021. The most significant components comprising the change in loans by reportable segment follow:

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Traditional Banking segment

Period-end balances for Traditional Banking loans decreased $117 million, or 3%, from December 31, 2020 to June 30, 2021. The following primarily drove the change in loan balances during the first six months of 2021:

●

During the first six months of 2021, the Core Bank’s PPP portfolio decreased $141 million, primarily reflecting the forgiveness and payoff of $348 million of 2020 PPP originations and the origination of $208 million of PPP loans during the first six months of 2021.

The CARES Act was enacted in March 2020 and provided for the SBA’s PPP, which allowed the Bank to lend to its qualifying small business clients to assist them in their efforts to meet their cash-flow needs during the COVID-19 pandemic. The Economic Aid Act was enacted in December 2020 and provided for a second round of PPP loans. PPP loans are fully backed by the SBA and may be entirely forgiven if the loan client uses loan funds for qualifying reasons. As of June 30, 2021, net PPP loans of $251 million remained on the Core Bank’s balance sheet, including $53 million in loan balances originated during 2020, $207 million in loan balances originated during the first six months of 2021, and $9 million of unaccreted PPP lender fees reported as a credit offset to these originated balances. Unaccreted PPP lender fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated. While no guarantee can be made as to the overall remaining life of these loans, management believes the loans are likely to remain on the Company’s balance sheet less than one year, as it expects the substantial majority of its clients to request forgiveness for their loans at the earliest possible time, presuming these clients achieve the required program metrics.

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

●

The owner-occupied residential real estate and home equity categories decreased $27 million and $23 million. These decreases largely reflect a sharp drop in long-term market interest rates during the previous 12 months that drove an increase in refinance volume for residential mortgages, with much of the refinance activity going into fixed-rate products sold on the secondary market.

●

Offsetting the decreases above, the CRE category increased $40 million and the Aircraft category increased $20 million, as lending activity began normalizing following the removal of pandemic-driven restrictions during the first six months of 2021.

Warehouse Lending segment

Outstanding Warehouse period end balances decreased $123 million from December 31, 2020 to June 30, 2021. Due to the volatility and seasonality of the mortgage market, it is difficult to project future outstanding balances of Warehouse lines of credit. The growth of the Bank’s Warehouse Lending business greatly depends on the overall mortgage market and typically follows industry trends. Since its entrance into this business during 2011, the Bank has experienced volatility in the Warehouse portfolio consistent with overall demand for mortgage products. Weighted average quarterly usage rates on the Bank’s Warehouse lines have ranged from a low of 31% during the fourth quarter of 2013 to a high of 71% during the fourth quarter of 2019. On an annual basis, weighted average usage rates on the Bank’s Warehouse lines have ranged from a low of 40% during 2013 to a high of 66% during 2020.

Allowance for Credit Losses

As of June 30, 2021, 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 decreased $1 million from $61 million as of December 31, 2020 to $60 million as of June 30, 2021. As a percent of total loans, the total Company’s ACLL increased to 1.32% as of June 30, 2021 compared to 1.27% as of December 31, 2020. An analysis of the ACL by reportable segment follows:

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Traditional Banking segment

●

The Traditional Banking ACLL decreased approximately $337,000 to $49 million as of June 30, 2021 driven primarily by net charge-offs during the first six months of 2021.

●

The Traditional Bank decreased its ACLS $122,000 during the first six months of 2021 to $56,000 based on improved PD and LGD expectations on its corporate bond portfolios.

●

The Traditional Bank decreased its ACLC $55,000 during the first six months of 2021 to $934,000 based on improving economic outlook.

Warehouse Lending segment

The Warehouse ACLL decreased to approximately $2.1 million, and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparing June 30, 2021 to December 31, 2020. As of June 30, 2021, the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for the first six months of 2021.

Republic Credit Solutions segment

The RCS ACLL remained at $9 million from December 31, 2020 to June 30, 2021.

RCS maintained an ACLL for two distinct credit products offered as of June 30, 2021, including its line-of-credit products and its healthcare-receivables products. As of June 30, 2021, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables products to as high as 49% for its line-of-credit products. The lower reserve percentage of 0.25% was provided for RCS’s healthcare receivables, as such receivables have recourse back to the third-party providers.

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Asset Quality

COVID-19 Loan Accommodations

As of June 30, 2021, $25 million, or 1% of the Company’s Traditional Bank portfolio remained under a COVID-19 hardship accommodation.

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

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 $20 million during the first six months of 2021, driven primarily by commercial-purpose loans within the hospitality and leisure industry downgraded to Special Mention during the first six months of 2021. As previously mentioned, the ultimate impact of loans accommodated due to COVID-19 on the Company’s Classified and Special Mention loans is currently uncertain.

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

Table 14 — Classified and Special Mention Loans


(in thousands)	June 30, 2021		December 31, 2020		$ Change		% Change

Loss	$	—	$	—	$	—	—
Doubtful		—		—		—	—
Substandard		26,426		30,193		(3,767)	(12)	%
PCD - Substandard		1,788		1,887		(99)	(5)
Total Classified Loans		28,214		32,080		(3,866)	(12)

Special Mention		113,137		89,206		23,931	27
PCD - Special Mention		853		895		(42)	(5)
Total Special Mention Loans		113,990		90,101		23,889	27

Total Classified and Special Mention Loans	$	142,204	$	122,181	$	20,023	16

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Nonperforming Loans

Nonperforming loans include loans on nonaccrual status and loans past due 90-days-or-more and still accruing. The nonperforming loan category includes TDRs totaling approximately $7 million and $7 million as of June 30, 2021 and December 31, 2020.

Nonperforming loans to total loans remained at 0.49% from December 31, 2020 to June 30, 2021. As previously mentioned, the ultimate impact of loans accommodated due to COVID-19 on the Company’s nonperforming loans is currently uncertain.

Table 15 — Nonperforming Loans and Nonperforming Assets Summary


(in thousands)	June 30, 2021			December 31, 2020

Loans on nonaccrual status*	$	21,621		$	23,548
Loans past due 90-days-or-more and still on accrual**		723			47
Total nonperforming loans		22,344			23,595
Other real estate owned		1,898			2,499
Total nonperforming assets	$	24,242		$	26,094

Credit Quality Ratios - Total Company:
Nonperforming loans to total loans		0.49	%		0.49	%
Nonperforming assets to total loans (including OREO)		0.53			0.54
Nonperforming assets to total assets		0.39			0.42

Credit Quality Ratios - Core Bank:
Nonperforming loans to total loans		0.49	%		0.50	%
Nonperforming assets to total loans (including OREO)		0.53			0.56
Nonperforming assets to total assets		0.42			0.45

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

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

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Table 16 — Nonperforming Loan Composition


	June 30, 2021					December 31, 2020
				Percent of					Percent of
				Total					Total
(in thousands)	Balance			Loan Class		Balance			Loan Class

Traditional Banking:
Residential real estate:
Owner occupied		$	13,181	1.55	%		$	14,328	1.63	%
Nonowner occupied			102	0.04				81	0.03
Commercial real estate			6,548	0.47				6,762	0.50
Construction & land development			—	—				—	—
Commercial & industrial			50	0.02				55	0.02
Paycheck Protection Program			—	—				—	—
Lease financing receivables			—	—				—	—
Aircraft			—	—				—	—
Home equity			1,626	0.75				2,141	0.89
Consumer:
Credit cards			—	—				5	0.04
Overdrafts			—	—				—	—
Automobile loans			108	0.51				170	0.56
Other consumer			6	0.09				11	0.13
Total Traditional Banking			21,621	0.60				23,553	0.63
Warehouse lines of credit			—	—				—	—
Total Core Banking			21,621	0.49				23,553	0.50

Republic Processing Group:
Tax Refund Solutions:
Easy Advances			—	—				—	—
Other TRS loans			—	—				—	—
Republic Credit Solutions			723	0.63				42	0.04
Total Republic Processing Group			723	0.63				42	0.04

Total nonperforming loans		$	22,344	0.49	%		$	23,595	0.49	%

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Table 17 — Stratification of Nonperforming Loans


	Number of Nonperforming Loans and Recorded Investment
					Balance
June 30, 2021		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance

Traditional Banking:
Residential real estate:
Owner occupied	144	$	4,738	28	$	4,889	4	$	3,554	176	$	13,181
Nonowner occupied	3		102	—		—	—		—	3		102
Commercial real estate	—		—	4		809	3		5,739	7		6,548
Construction & land development	—		—	—		—	—		—	—		—
Commercial & industrial	1		50	—		—	—		—	1		50
Paycheck Protection Program	—		—	—		—	—		—	—		—
Lease financing receivables	—		—	—		—	—		—	—		—
Aircraft	—		—	—		—	—		—	—		—
Home equity	27		693	4		933	—		—	31		1,626
Consumer:
Credit cards	—		—	—		—	—		—	NM		—
Overdrafts	—		—	—		—	—		—	—		—
Automobile loans	12		108	—		—	—		—	12		108
Other consumer	7		6	—		—	—		—	7		6
Total Traditional Banking	194		5,697	36		6,631	7		9,293	237		21,621
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	194		5,697	36		6,631	7		9,293	237		21,621

Republic Processing Group:
Tax Refund Solutions:
Easy Advances	—		—	—		—	—		—	—		—
Other TRS loans	—		—	—		—	—		—	—		—
Republic Credit Solutions	NM		723	—		—	—		—	NM		723
Total Republic Processing Group	NM		723	—		—	—		—	NM		723

Total	194	$	6,420	36	$	6,631	7	$	9,293	237	$	22,344


	Number of Nonperforming Loans and Recorded Investment
					Balance
December 31, 2020		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance

Traditional Banking:
Residential real estate:
Owner occupied	146	$	5,110	27	$	4,966	5	$	4,252	178	$	14,328
Nonowner occupied	3		81	—		—	—		—	3		81
Commercial real estate	2		45	3		925	3		5,792	8		6,762
Construction & land development	—		—	—		—	—		—	—		—
Commercial & industrial	2		55	—		—	—		—	2		55
	—		—	—		—	—		—
Lease financing receivables	—		—	—		—	—		—	—		—
Aircraft	—		—	—		—	—		—	—		—
Home equity	26		867	6		1,274	—		—	32		2,141
Consumer:
Credit cards	NM		5	—		—	—		—	NM		5
Overdrafts	—		—	—		—	—		—	—		—
Automobile loans	14		170	—		—	—		—	14		170
Other consumer	7		11	—		—	—		—	7		11
Total Traditional Banking	200		6,344	36		7,165	8		10,044	244		23,553
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	200		6,344	36		7,165	8		10,044	244		23,553

Republic Processing Group:
Tax Refund Solutions:
Easy Advances	—		—	—		—	—		—	—		—
Other TRS loans	—		—	—		—	—		—	—		—
Republic Credit Solutions	NM		42	—		—	—		—	NM		42
Total Republic Processing Group	NM		42	—		—	—		—	NM		42

Total	200	$	6,386	36	$	7,165	8	$	10,044	244	$	23,595

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Table 18 — Rollforward of Nonperforming Loans


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Nonperforming loans at the beginning of the period	$	22,520	$	20,853	$	23,595	$	23,489
Loans added to nonperforming status during the period that remained nonperforming at the end of the period		1,042		3,069		1,772		4,658
Loans removed from nonperforming status during the period that were nonperforming at the beginning of the period (see table below)		(934)		(2,981)		(2,838)		(7,898)
Principal balance paydowns of loans nonperforming at both period ends		(490)		(561)		(860)		(208)
Net change in principal balance of other loans nonperforming at both period ends*		206		39		675		378

Nonperforming loans at the end of the period	$	22,344	$	20,419	$	22,344	$	20,419

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

Table 19 — Detail of Loans Removed from Nonperforming Status


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Loans charged off	$	—	$	(273)	$	—	$	(2)
Loans transferred to OREO		—		(2,109)		—		(2,109)
Loans refinanced at other institutions		(752)		(490)		(2,650)		(2,445)
Loans returned to accrual status		(182)		(109)		(188)		(3,342)

Total loans removed from nonperforming status during the period that were nonperforming at the beginning of the period	$	(934)	$	(2,981)	$	(2,838)	$	(7,898)

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

Delinquent Loans

Total Company delinquent loans to total loans remained at 0.41% from December 31, 2020 to June 30, 2021. Core Bank delinquent loans to total Core Bank loans increased to 0.22% as of June 30, 2021 from 0.21% as of December 31, 2020. With the exception of small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of June 30, 2021 and December 31, 2020 were on nonaccrual status. As previously mentioned, the ultimate impact of loans accommodated due to COVID-19 on the Company’s delinquent loans is currently uncertain.

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Table 20 — Delinquent Loan Composition*


	June 30, 2021					December 31, 2020
				Percent of					Percent of
				Total					Total
(in thousands)	Balance			Loan Class		Balance			Loan Class

Traditional Banking:
Residential real estate:
Owner occupied		$	2,608	0.31	%		$	3,260	0.37	%
Nonowner occupied			—	—				—	—
Commercial real estate			6,816	0.49				5,457	0.40
Construction & land development			—	—				—	—
Commercial & industrial			12	0.00				12	0.00
Paycheck Protection Program			—	—				—	—
Lease financing receivables			—	—				—	—
Aircraft			—	—				—	—
Home equity			249	0.11				702	0.29
Consumer:
Credit cards			64	0.43				73	0.51
Overdrafts			145	20.22				147	25.04
Automobile loans			11	0.05				56	0.18
Other consumer			4	0.06				6	0.07
Total Traditional Banking			9,909	0.28				9,713	0.26
Warehouse lines of credit			—	—				—	—
Total Core Banking			9,909	0.22				9,713	0.21

Republic Processing Group:
Tax Refund Solutions:
Easy Advances			—	—				—	—
Other TRS loans			—	—				—	—
Republic Credit Solutions			8,809	7.66				10,234	9.23
Total Republic Processing Group			8,809	7.66				10,234	9.23

Total delinquent loans		$	18,718	0.41	%		$	19,947	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 21 — Rollforward of Delinquent Loans


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Delinquent loans at the beginning of the period	$	14,986	$	42,627	$	19,947	$	20,804
Loans added to delinquency status during the period and remained in delinquency status at the end of the period		2,717		2,823		3,276		3,080
Loans removed from delinquency status during the period that were in delinquency status at the beginning of the period (see table below)		(1,425)		(29,901)		(3,016)		(7,513)
Principal balance paydowns of loans delinquent at both period ends		(31)		(1,394)		(54)		(2,189)
Net change in principal balance of other loans delinquent at both period ends*		2,471		(109)		(1,435)		(136)
Delinquent loans at the end of period	$	18,718	$	14,046	$	18,718	$	14,046

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

Table 22 — Detail of Loans Removed from Delinquent Status


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020

Loans charged off	$	(2)	$	(2)	$	(1)	$	(2)
Easy Advances paid-off or charged-off		—		(23,467)		—		—
Loans transferred to OREO		—		(2,109)		—		(2,109)
Loans refinanced at other institutions		(667)		(1,270)		(1,796)		(3,012)
Loans paid current		(756)		(3,053)		(1,219)		(2,390)

Total loans removed from delinquency status during the period that were in delinquency status at the beginning of the period	$	(1,425)	$	(29,901)	$	(3,016)	$	(7,513)

Collateral Dependent Loans and Troubled Debt Restructurings

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

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

Table 23 — Collateral-Dependent Loans and Troubled Debt Restructurings


(in thousands)	June 30, 2021		December 31, 2020		$ Change		% Change

Cashflow-dependent TDRs	$	8,807	$	10,938	$	(2,131)	(19)	%
Collateral-dependent TDRs		9,506		9,840		(334)	(3)
Total TDRs		18,313		20,778		(2,465)	(12)
Collateral dependent loans (which are not TDRs)		15,468		20,806		(5,338)	(26)
Total recorded investment in TDRs and collateral-dependent loans	$	33,781	$	41,584	$	(7,803)	(19)	%

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

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Deposits

Table 24 — Deposit Composition


(in thousands)	June 30, 2021		December 31, 2020		$ Change		% Change

Core Bank:
Demand	$	1,231,449	$	1,217,263	$	14,186	1	%
Money market accounts		810,307		712,824		97,483	14
Savings		281,164		236,335		44,829	19
Individual retirement accounts (1)		46,694		47,889		(1,195)	(2)
Time deposits, $250 and over (1)		78,702		83,448		(4,746)	(6)
Other certificates of deposit (1)		171,995		199,214		(27,219)	(14)
Reciprocal money market and time deposits (1)		301,384		314,109		(12,725)	(4)
Brokered deposits (1)		30,000		25,010		4,990	20
Total Core Bank interest-bearing deposits		2,951,695		2,836,092		115,603	4
Total Core Bank noninterest-bearing deposits		1,622,279		1,503,662		118,617	8
Total Core Bank deposits		4,573,974		4,339,754		234,220	5

Republic Processing Group:
Money market accounts		3,450		6,673		(3,223)	(48)
Total RPG interest-bearing deposits		3,450		6,673		(3,223)	(48)

Brokered prepaid card deposits		334,967		257,856		77,111	30
Other noninterest-bearing deposits		58,203		110,021		(51,818)	(47)
Total RPG noninterest-bearing deposits		393,170		367,877		25,293	7
Total RPG deposits		396,620		374,550		22,070	6

Deposits of discontinued operations (2)		46,984		18,877		28,107	149

Total deposits	$	5,017,578	$	4,733,181	$	284,397	6	%

(1)	Includes time deposit

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

Total Company deposits increased $284 million, or 6%, from December 31, 2020 to $5.0 billion as of June 30, 2021.

Total Core Bank deposits increased $234 million, or 5%, with the following primarily driving growth:

●

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

●

The Core Bank originated $208 million of PPP loans during the first six months of 2021, with PPP borrowers generally retaining their loan proceeds within a deposit account at the Bank.

●

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

Total RPG deposits from continuing operations increased $22 million, or 6%, for the first six months of 2021, with the following primarily driving growth:

●

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

●

RPG prepaid card balances within its RPS division increased $77 million, driven by government stimulus funds applied to prepaid card deposit balances. At this time, management is uncertain how long these stimulus funds may remain at the Bank.

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●

RPG other noninterest-bearing deposits decreased $52 million, driven by an outflow of funds associated with the RCS segment’s line-of-credit products.

Federal Home Loan Bank Advances

FHLB advances declined by $210 million from December 31, 2020 to June 30, 2021, as the Bank continued to maintain sufficient deposit balances to meet its current liquidity needs. The Bank held $25 million in overnight advances at a rate of 0.15% as of June 30, 2021, compared to $225 million in overnight advances at a rate of 0.16% as of December 31, 2020. Given the overall amount of liquidity on the Company’s balance sheet as of June 30, 2021, management does not anticipate that FHLB term or overnight advances will likely be utilized to any material extent over the near term.

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 Company had a loan to deposit ratio (excluding brokered deposits) of 98% as of June 30, 2021 and 108% as of December 31, 2020. As of June 30, 2021 and December 31, 2020, the Company had cash and cash equivalents on-hand of $747 million and $486 million. The Bank also had available borrowing capacity of $909 million and $683 million from the FHLB as of June 30, 2021 and December 31, 2020. In addition, the Bank’s liquidity resources included unencumbered debt securities of $280 million and $274 million as of June 30, 2021 and December 31, 2020 and unsecured lines of credit of $125 million available through various other financial institutions as of the same period-ends.

The Bank maintains sufficient liquidity to fund routine loan demand and routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets in the form of investment securities. Funding and cash flows can also be realized by the sale of AFS debt securities, principal paydowns on loans and mortgage-backed securities, and proceeds realized from loans held for sale. The Bank’s liquidity is impacted by its ability to sell certain investment securities, which is limited due to the level of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings, and for other purposes, as required by law. As of June 30, 2021 and December 31, 2020, these pledged investment securities had a fair value of $291 million and $304 million. Republic’s banking centers and its website, www.republicbank.com, provide access to retail deposit markets. These retail deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were canceled, 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 June 30, 2021, the Bank had approximately $1.5 billion in deposits from 242 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded $2 million. The 20 largest non-sweep deposit relationships represented approximately $637 million, or 13%, of the Company’s total deposit balances as of June 30, 2021. 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.

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Capital

Total stockholders’ equity increased from $823 million as of December 31, 2020 to $845 million as of June 30, 2021. The increase in stockholders’ equity was primarily attributable to net income earned during 2021 reduced primarily by cash dividends declared and Class A common stock repurchased.

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

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 June 30, 2021, RB&T could, without prior approval, declare dividends of approximately $163 million. Any payment of dividends in the future will depend, in large part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors.

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

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

Republic continues to exceed the regulatory requirements for Total Risk Based Capital, Common Equity Tier I Risk Based Capital, Tier I Risk Based Capital and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer. Republic’s average stockholders’ equity to average assets ratio was 13.25% as of June 30, 2021 compared to 13.35% as of December 31, 2020. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.

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

The subordinated note and related interest expense are included in Republic’s consolidated financial statements. The subordinated note paid a fixed interest rate of 6.015% through September 30, 2015 and adjusted to 3-month LIBOR plus 1.42% on a quarterly basis thereafter. The subordinated note matures on December 31, 2035 and is redeemable at the Company’s option on a quarterly basis. In July 2021, the Company’s board approved the redemption of the RBCT TPS and the repayment of the subordinated note for the end of the third quarter of 2021.

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Table 25 — Capital Ratios (1)


	As of June 30, 2021				As of December 31, 2020
(dollars in thousands)	Amount		Ratio		Amount		Ratio

Total capital to risk-weighted assets
Republic Bancorp, Inc.	$	920,201	18.93	%	$	896,053	18.52	%
Republic Bank & Trust Company		833,178	17.15			796,114	16.46

Common equity tier 1 capital to risk-weighted assets
Republic Bancorp, Inc.	$	868,526	17.04	%	$	803,682	16.61	%
Republic Bank & Trust Company		781,503	16.09			743,743	15.38

Tier 1 (core) capital to risk-weighted assets
Republic Bancorp, Inc.	$	828,526	17.86	%	$	843,682	17.43	%
Republic Bank & Trust Company		781,503	16.09			743,743	15.38

Tier 1 leverage capital to average assets
Republic Bancorp, Inc.	$	828,526	13.51	%	$	843,682	13.70	%
Republic Bank & Trust Company		781,503	12.17			743,743	12.11

(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 15 basis points lower than those presented in the table above as of June 30, 2021.

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Asset/Liability Management and Market Risk

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

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

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

As of June 30, 2021, a dynamic simulation model was run for interest rate changes from “Down 100” basis points to “Up 400” basis points. The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning July 1, 2021 and ending June 30, 2022 based on instantaneous movements in interest rates from Down 100 to Up 400 basis points equally across all points on the yield curve. The Bank’s dynamic earnings simulation model includes secondary market loan fees and excludes Traditional Bank loan fees.

Table 26 — Bank Interest Rate Sensitivity (Continuing Operations)


	Change in Rates
	-100			+100			+200			+300			+400
	Basis Points			Basis Points			Basis Points			Basis Points			Basis Points

% Change from base net interest income as of June 30, 2021		(1.0)	%		(1.7)	%		(1.4)	%		2.4	%		6.5	%
% Change from base net interest income as of December 31, 2020		0.4	%		(4.5)	%		(7.0)	%		(5.7)	%		(4.2)	%

The Bank’s dynamic simulation model run for June 2021 projected a decrease in the Bank’s net interest income plus secondary market loan fees for the “Down-100”, “Up-100” and “Up-200” scenarios, while the “Up-300” and “Up-400” rate scenarios projected increases. The projections as of December 2020 reflected a modest increase in the Down-100 scenario and decreases in all Up-rate scenarios.

As compared to December 2020, the deterioration in the Down-100 rate scenario for June 2021 was generally because the Bank had less ability in June 2021 than December to reprice its liabilities downward. The improvement in the Up-rate scenarios was due partially to growth in interest-earning assets and partially to a smaller projected falloff in secondary market fees for the June 2021 simulation than previously projected for the December 2020 simulation.

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 June 30, 2021 Compared to Three Months Ended June 30, 2020) and “RESULTS OF OPERATIONS (Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020.”

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Item 3.Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4.Controls and Procedures.

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

PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

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

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Item 1A.Risk Factors.

FACTORS THAT MAY AFFECT FUTURE RESULTS

There have been no material changes in the Company’s risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of its Annual Report on Form 10-K for the fiscal year ended December 31, 2020. You should carefully consider the risk factors discussed in Republic’s 2020 Form 10-K, which could materially affect its business, financial condition or future results.

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

Details of Republic’s Class A Common Stock purchases during the second quarter of 2021 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

April 1 - April 30	54,364	$	44.85	54,364	838,976
May 1 - May 31	31,096		45.89	31,096	807,880
June 1 - June 30	169,600		46.80	169,600	638,280
Total	255,060	$	46.28	255,060	638,280

The Company repurchased 255,060 shares during the second quarter of 2021. In connection with employee stock awards, there were 15,846 shares withheld upon exercise of stock options to cover withholding taxes and the exercise price. On January 27, 2021, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase shares of its Class A Common Stock to 1,000,000 shares, an increase of 941,577 shares from the buyback program that was previously in place. 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 June 30, 2021, the Company had 638,280 remaining shares that could be repurchased under its current share repurchase program.

During the second quarter of 2021, there were approximately 32,000 shares of Class A Common Stock issued upon conversion of shares of Class B Common Stock by stockholders of Republic in accordance with the share-for-share conversion option of the Class B Common Stock. The exemption from registration of newly issued Class A Common Stock relies upon Section (3)(a)(9) of the Securities Act of 1933.

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

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Item 6.Exhibits.

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


Exhibit Number		Description of Exhibit

2.1		Asset Purchase Agreement dated as of May 13, 2021, between Republic Bank & Trust Company and Green Dot Corporation (Incorporated by reference to Exhibit 2.1 of Registrant’s Form 8-K filed May 19, 2021 (Commission File Number: 0-24649))

3.1		Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed April 26, 2021 (Commission File Number: 0-24649))

10.1		Republic Bancorp, Inc. 401(k) Retirement Plan, as Amended and Restated, effective May 1, 2021

10.2		Form of Agreement for TRS Transaction Bonus Program (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed May 19, 2021 (Commission File Number: 0-24649))

31.1		Certification of Principal Executive Officer pursuant to the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002

32*		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

104		Cover Page Interactive Data File formatted in iXBRL and contained in Exhibit 101.

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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SIGNATURES

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


			REPUBLIC BANCORP, INC.
			(Registrant)

			Principal Executive Officer:


Date: August 6, 2021			/s/ Steven E. Trager
			By: Steven E. Trager
			Chairman and Chief Executive Officer


			Principal Financial Officer:


Date: August 6, 2021			/s/ Kevin Sipes
			By: Kevin Sipes
			Executive Vice President, Chief Financial
			Officer and Chief Accounting Officer

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