REPUBLIC BANCORP INC /KY/ - Quarter Report: 2023 September (Form 10-Q)

(in thousands)

September 30, 2023

December 31, 2022

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

1 min

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2023

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

Commission File Number: 0-24649

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)


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

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

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

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

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

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

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

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


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

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

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

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of October 31, 2023 was 17,221,953 and 2,156,662.

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.	65

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	117

Item 4.	Controls and Procedures.	117

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	118

Item 1A.	Risk Factors.	118

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	119

Item 5.	Other Information.	119

Item 6.	Exhibits.	120

	SIGNATURES	121

Table of Contents

GLOSSARY OF TERMS

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


Term		Definition

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

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share data)


	September 30,		December 31,
	2023		2022
ASSETS

Cash and cash equivalents	$	219,653	$	313,689
Available-for-sale debt securities, at fair value (amortized cost of $642,019 in 2023 and $663,003 in 2022, allowance for credit losses of $0 in 2023 and 2022)		601,220		620,365
Held-to-maturity debt securities (fair value of $101,202 in 2023 and $87,357 in 2022, allowance for credit losses of $10 in 2023 and $10 in 2022)		101,650		87,386
Equity securities with readily determinable fair value		137		111
Mortgage loans held for sale, at fair value		2,711		1,302
Consumer loans held for sale, at fair value		8,443		4,706
Consumer loans held for sale, at the lower of cost or fair value		13,529		13,169
Loans (loans carried at fair value of $0 in 2023 and $2 in 2022)		5,081,099		4,515,802
Allowance for credit losses		(74,576)		(70,413)
Loans, net		5,006,523		4,445,389
Federal Home Loan Bank stock, at cost		31,420		9,146
Premises and equipment, net		33,926		31,978
Right-of-use assets		35,907		37,017
Goodwill		40,516		16,300
Other real estate owned		1,423		1,581
Bank owned life insurance		103,211		101,687
Low-income housing tax credit investments		76,047		75,324
Other assets and accrued interest receivable		110,159		76,393

TOTAL ASSETS	$	6,386,475	$	5,835,543

LIABILITIES

Deposits:
Noninterest-bearing	$	1,702,979	$	1,908,768
Interest-bearing		3,090,603		2,629,077
Total deposits		4,793,582		4,537,845

Securities sold under agreements to repurchase and other short-term borrowings		80,797		216,956
Operating lease liabilities		36,726		37,809
Federal Home Loan Bank advances		465,000		95,000
Low-income housing tax credit obligations		58,858		43,609
Other liabilities and accrued interest payable		58,112		47,711

Total liabilities		5,493,075		4,978,930

Commitments and contingent liabilities (Footnote 10)		—		—

STOCKHOLDERS’ EQUITY

Preferred stock, no par value		—		—
Class A Common Stock, no par value, 30,000,000 shares authorized, 17,295,968 shares (2023) and 17,584,928 shares (2022) issued and outstanding; Class B Common Stock, no par value, 5,000,000 shares authorized, 2,156,662 shares (2023) and 2,159,495 shares (2022) issued and outstanding		4,572		4,648
Additional paid in capital		141,621		141,694
Retained earnings		777,808		742,250
Accumulated other comprehensive (loss) income		(30,601)		(31,979)

Total stockholders’ equity		893,400		856,613

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,386,475	$	5,835,543

See accompanying footnotes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
INTEREST INCOME:

Loans, including fees	$	78,175	$	53,167	$	242,984	$	163,235
Taxable investment securities		4,792		3,159		14,179		7,906
Federal Home Loan Bank stock and other		2,901		4,291		8,115		6,488
Total interest income		85,868		60,617		265,278		177,629

INTEREST EXPENSE:

Deposits		15,497		1,830		31,591		3,654
Securities sold under agreements to repurchase and other short-term borrowings		196		94		618		171
Federal Home Loan Bank advances		5,350		96		11,073		226
Total interest expense		21,043		2,020		43,282		4,051

NET INTEREST INCOME		64,825		58,597		221,996		173,578

Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities)		3,730		1,573		36,635		14,504

NET INTEREST INCOME AFTER PROVISION		61,095		57,024		185,361		159,074

NONINTEREST INCOME:

Service charges on deposit accounts		3,559		3,409		10,385		9,998
Net refund transfer fees		242		593		15,528		16,594
Mortgage banking income		852		1,154		2,559		5,574
Interchange fee income		3,282		3,322		9,752		9,853
Program fees		4,041		4,932		11,021		12,671
Increase in cash surrender value of bank owned life insurance		690		617		2,014		1,852
Death benefits in excess of cash surrender value of life insurance		—		—		1,728		—
Net losses on other real estate owned		(53)		(53)		(158)		(158)
Contract termination fee		—		—		—		5,000
Legal settlement		—		—		—		13,000
Other		1,406		1,134		3,522		2,302
Total noninterest income		14,019		15,108		56,351		76,686

NONINTEREST EXPENSE:

Salaries and employee benefits		28,747		27,269		89,472		85,477
Technology, equipment, and communication		7,311		7,235		21,459		21,678
Occupancy		3,503		3,211		10,500		9,875
Marketing and development		2,055		1,951		6,142		5,019
FDIC insurance expense		677		423		2,038		1,241
Interchange related expense		1,580		1,221		4,429		3,602
Legal and professional fees		803		904		2,693		3,073
Merger expense		(132)		—		2,068		—
Other		3,498		3,952		13,217		12,438
Total noninterest expense		48,042		46,166		152,018		142,403

INCOME BEFORE INCOME TAX EXPENSE		27,072		25,966		89,694		93,357
INCOME TAX EXPENSE		5,501		6,070		18,979		20,764
NET INCOME	$	21,571	$	19,896	$	70,715	$	72,593

BASIC EARNINGS PER SHARE:
Class A Common Stock	$	1.11	$	1.01	$	3.61	$	3.66
Class B Common Stock		1.01		0.92		3.28		3.33

DILUTED EARNINGS PER SHARE:
Class A Common Stock	$	1.10	$	1.01	$	3.60	$	3.65
Class B Common Stock		1.01		0.92		3.27		3.32

See accompanying footnotes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

Net income	$	21,571	$	19,896	$	70,715	$	72,593

OTHER COMPREHENSIVE INCOME (LOSS)

Unrealized gain (loss) on AFS debt securities		1,024		(15,510)		1,812		(46,892)
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings		(7)		1		27		10
Total other comprehensive income (loss) before income tax		1,017		(15,509)		1,839		(46,882)
Income tax benefit (expense) related to items of other comprehensive income		(250)		3,875		(461)		11,720
Total other comprehensive income (loss), net of tax		767		(11,634)		1,378		(35,162)

COMPREHENSIVE INCOME	$	22,338	$	8,262	$	72,093	$	37,431

See accompanying footnotes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


	Three Months Ended September 30, 2023

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

Balance, July 1, 2023	17,449	2,157	$	4,617	$	142,462	$	771,260	$	(31,368)	$	886,971

Net income	—	—		—		—		21,571		—		21,571
Net change in AOCI	—	—		—		—		—		767		767
Dividends declared on Common Stock:
Class A Shares ($0.374 per share)	—	—		—		—		(6,448)		—		(6,448)
Class B Shares ($0.340 per share)	—	—		—		—		(734)		—		(734)
Stock options exercised, net of shares withheld	—	—		—		(10)		—		—		(10)
Repurchase of Class A Common Stock	(206)	—		(46)		(1,509)		(7,841)		—		(9,396)
Net change in notes receivable on Class A Common Stock	—	—		—		—		—		—		—
Deferred compensation - Class A Common Stock:
Directors	—	—		—		123		—		—		123
Designated key employees	—	—		—		36		—		—		36
Employee stock purchase plan - Class A Common Stock	4	—		1		172		—		—		173
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		—		—		—		—
Restricted stock	49	—		—		172		—		—		172
Stock options	—	—		—		175		—		—		175

Balance, September 30, 2023	17,296	2,157	$	4,572	$	141,621	$	777,808	$	(30,601)	$	893,400


	Three Months Ended September 30, 2022

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

Balance, July 1, 2022	17,629	2,161	$	4,663	$	140,516	$	720,341	$	(21,654)	$	843,866

Net income	—	—		—		—		19,896		—		19,896
Net change in AOCI	—	—		—		—		—		(11,634)		(11,634)
Dividends declared on Common Stock:
Class A Shares ($0.341 per share)	—	—		—		—		(5,995)		—		(5,995)
Class B Shares ($0.310 per share)	—	—		—		—		(669)		—		(669)
Stock options exercised, net of shares withheld	—	—		—		(2)		—		—		(2)
Conversion of Class B to Class A Common Shares	1	(1)		—		—		—		—		—
Repurchase of Class A Common Stock	(48)	—		(15)		(484)		(2,829)		—		(3,328)
Net change in notes receivable on Class A Common Stock	—	—		—		43		—		—		43
Deferred compensation - Class A Common Stock:
Directors	—	—		—		192		—		—		192
Designated key employees	—	—		—		184		—		—		184
Employee stock purchase plan - Class A Common Stock	5	—		1		181		—		—		182
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		38		—		—		38
Restricted stock	—	—		—		161		—		—		161
Stock options	—	—		—		129		—		—		129

Balance, September 30, 2022	17,587	2,160	$	4,649	$	140,958	$	730,744	$	(33,288)	$	843,063

Table of Contents


	Nine Months Ended September 30, 2023
	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income (Loss)		Equity

Balance, January 1, 2023	17,585	2,160	$	4,648	$	141,694	$	742,250	$	(31,979)	$	856,613

Net income	—	—		—		—		70,715		—		70,715
Net change in AOCI	—	—		—		—		—		1,378		1,378
Dividends declared on Common Stock:
Class A Shares ($1.122 per share)	—	—		—		—		(19,566)		—		(19,566)
Class B Shares ($1.020 per share)	—	—		—		—		(2,201)		—		(2,201)
Stock options exercised, net of shares withheld	—	—		(1)		(193)		—		—		(194)
Conversion of Class B to Class A Common Shares	3	(3)		—		—		—		—		—
Repurchase of Class A Common Stock	(363)	—		(80)		(2,640)		(13,390)		—		(16,110)
Net change in notes receivable on Class A Common Stock	—	—		—		—		—		—		—
Deferred compensation - Class A Common Stock:
Directors	—	—		—		349		—		—		349
Designated key employees	7	—		—		495		—		—		495
Employee stock purchase plan - Class A Common Stock	13	—		3		535		—		—		538
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		—		—		—		—
Restricted stock	51	—		2		798		—		—		800
Stock options	—	—		—		583		—		—		583

Balance, September 30, 2023	17,296	2,157	$	4,572	$	141,621	$	777,808	$	(30,601)	$	893,400


	Nine Months Ended September 30, 2022
	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income (Loss)		Equity

Balance, January 1, 2022	17,816	2,165	$	4,702	$	139,956	$	688,522	$	1,874	$	835,054

Net income	—	—		—		—		72,593		—		72,593
Net change in AOCI	—	—		—		—		—		(35,162)		(35,162)
Dividends declared on Common Stock:
Class A Shares ($1.023 per share)	—	—		—		—		(18,123)		—		(18,123)
Class B Shares ($0.930 per share)	—	—		—		—		(2,010)		—		(2,010)
Stock options exercised, net of shares withheld	3	—		2		38		—		—		40
Conversion of Class B to Class A Common Shares	5	(5)		—		—		—		—		—
Repurchase of Class A Common Stock	(263)	—		(58)		(1,868)		(10,238)		—		(12,164)
Net change in notes receivable on Class A Common Stock	—	—		—		61		—		—		61
Deferred compensation - Class A Common Stock:
Directors	6	—		—		403		—		—		403
Designated key employees	—	—		—		541		—		—		541
Employee stock purchase plan - Class A Common Stock	12	—		3		506		—		—		509
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		114		—		—		114
Restricted stock	8	—		—		771		—		—		771
Stock options	—	—		—		436		—		—		436

Balance, September 30, 2022	17,587	2,160	$	4,649	$	140,958	$	730,744	$	(33,288)	$	843,063

See accompanying footnotes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine Months Ended
	September 30,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	70,715	$	72,593
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization on investment securities and low-income housing investments		4,176		3,753
Net accretion and amortization on loans		(2,756)		(3,026)
Unrealized and realized losses on equity securities with readily determinable fair value		(26)		204
Depreciation of premises and equipment		4,930		5,884
Amortization of mortgage servicing rights		1,440		1,773
Provision for on-balance sheet exposures		36,635		14,504
Provision for off-balance sheet exposures		90		128
Net gain on sale of mortgage loans held for sale		(1,453)		(4,704)
Origination of mortgage loans held for sale		(53,750)		(195,006)
Proceeds from sale of mortgage loans held for sale		53,794		226,191
Net gain on sale of consumer loans held for sale		(8,880)		(10,466)
Origination of consumer loans held for sale		(756,714)		(820,127)
Proceeds from sale of consumer loans held for sale		761,497		831,802
Writedowns of other real estate owned		158		158
Deferred compensation expense - Class A Common Stock		844		944
Stock-based awards and ESPP expense - Class A Common Stock		1,407		1,397
Increase in cash surrender value of bank owned life insurance		(1,324)		(1,852)
Gain from death benefits in excess of cash surrender value of BOLI		(1,728)		—
Net change in other assets and liabilities:
Accrued interest receivable		(5,366)		(1,225)
Accrued interest payable		1,778		34
Other assets		(21,085)		1,309
Other liabilities		1,872		10,518
Net cash provided by operating activities		86,254		134,786
INVESTING ACTIVITIES:
Net cash proceeds paid in acquisition		(40,970)		—
Purchases of available-for-sale debt securities		(30,000)		(244,820)
Purchases of held-to-maturity debt securities		(25,000)		—
Proceeds from calls, maturities and paydowns of equity and available-for-sale debt securities		67,571		65,269
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities		10,736		11,703
Net change in outstanding warehouse lines of credit		(54,472)		408,312
Net change in other loans		(323,283)		(212,312)
Purchase of Federal Home Loan Bank stock		(22,274)		1,743
Investments in low-income housing tax partnerships		10,221		(7,258)
Net purchases of premises and equipment		(5,278)		(2,624)
Proceeds of principal and earnings from bank-owned life insurance		1,528		—
Net cash used in investing activities		(411,221)		20,013
FINANCING ACTIVITIES:
Net change in deposits		34,059		(39,594)
Net change in securities sold under agreements to repurchase and other short-term borrowings		(136,159)		(81,591)
Payments of Federal Home Loan Bank advances		(538,000)		(25,000)
Proceeds from Federal Home Loan Bank advances		908,000		20,000
Repurchase of Class A Common Stock		(16,110)		(12,164)
Net proceeds from Class A Common Stock purchased through employee stock purchase plan		514		433
Net proceeds from option exercises and equity awards vested - Class A Common Stock		(194)		40
Cash dividends paid		(21,179)		(19,501)
Net cash (used in) provided by financing activities		230,931		(157,377)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(94,036)		(2,578)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		313,689		756,971
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	219,653	$	754,393
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	41,504	$	4,017
Income taxes		17,279		14,614
SUPPLEMENTAL NONCASH DISCLOSURES:
Mortgage servicing rights capitalized	$	381	$	1,755
New unfunded obligations in low-income-housing investments		27,000		16,100
Right-of-use assets recorded		3,480		6,360

See accompanying footnotes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –SEPTEMBER 30, 2023 and 2022 AND DECEMBER 31, 2022 (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-member financial institution that provides both traditional and non-traditional banking products through five reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives for which insurance may not be available or economically feasible. In May 2023, the Company’s Board of Directors voted to dissolve the Company’s Captive. The dissolution of the Captive is expected to occur during the fourth quarter of 2023.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in Republic’s Form 10-K for the year ended December 31, 2022.

As of September 30, 2023, the Company was divided into five reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute RPG operations.

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Core Bank

Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of September 30, 2023, Republic had 46 banking centers with locations as follows:

●

Kentucky — 29

●

Metropolitan Louisville — 18

●

Central Kentucky — 7

●

Georgetown — 1

●

Lexington — 5

●

Shelbyville — 1

●

Northern Kentucky — 4

●Bellevue— 1

●

Covington — 1

●

Crestview Hills — 1

●

Florence — 1

●

Indiana — 3

●

Southern Indiana — 3

●

Floyds Knobs — 1

●

Jeffersonville — 1

●

New Albany — 1

●

Florida — 7

●

Metropolitan Tampa — 7

●

Ohio — 4

●

Metropolitan Cincinnati — 4

●

Tennessee — 3

●

Metropolitan Nashville — 3

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

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

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

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

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

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

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

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

Republic Processing Group

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

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

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

●

Offered only during the first two months of each year;

●

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

●

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

●

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

●

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

●

If an insufficient refund to repay the RA occurs:

there is no recourse to the taxpayer,

no negative credit reporting on the taxpayer, and

no collection efforts against the taxpayer.

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refund and to underwrite the ERA. The repayment of the ERA is incumbent upon the taxpayer client returning to the Bank’s Tax Provider for the filing of their federal tax return in order for the tax refund to potentially be received by the Bank from the federal government to pay off the advance. The ERA product related to the first quarter 2023 tax filing season had the following features:

●

Offered only during December 2022 and January 2023;

●

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

●

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

●

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

●

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

●

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

there is no recourse to the taxpayer,

no negative credit reporting on the taxpayer, and

no collection efforts against the taxpayer.

The Company reports fees paid for the RAs, including ERAs, as interest income on loans. RAs that were originated related to the first quarter 2022 tax season were repaid, on average, within 32 days after the taxpayer’s tax return was submitted to the applicable taxing authority. RAs do not have a contractual due date but the Company considered a RA, related to the first quarter 2022 tax season, delinquent if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. In 2023, the Company also considered a RA, related to the first quarter 2023 tax season, delinquent if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. For the ERA product originated in December of 2022 and January 2023, the Company considered it delinquent if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. Provisions on RAs and ERAs are estimated when advances are made. Unpaid RAs, including ERAs, related to the first quarter tax season of a given year are charged-off by June 30th of that year, with RAs collected during the second half of that year recorded as recoveries of previously charged-off loans, unless they were covered under a loss guaranty arrangement. Any RAs subject to a loss guaranty arrangement that are recovered during the second half of the year are distributed to the guarantor.

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

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

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

Settlement of Lawsuit Against Green Dot - As previously disclosed, on June 3, 2022, the Bank and Green Dot entered into the Settlement Agreement to fully resolve the Lawsuit that the Bank filed against Green Dot in the Delaware Court of Chancery on October 5, 2021. The Lawsuit arose from Green Dot’s inability to consummate the Sale Transaction contemplated in the TRS Purchase Agreement through which Green Dot would purchase all of the assets and operations of the Bank’s Tax Refund Solutions business.

In accordance with the Settlement Agreement, on June 6, 2022, Green Dot paid $13.0 million to the Bank, which was in addition to a $5.0 million termination fee that Green Dot paid to the Bank during the first quarter of 2022 under the terms of the TRS Purchase Agreement. On June 6, 2022, the Bank and Green Dot filed a stipulation of dismissal of the Lawsuit with the Delaware Court of Chancery, which was effective to dismiss the Lawsuit when filed.

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Republic Payment Solutions division

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

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

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

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

The Bank sells participation interests in this product. These participations sold represent 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.

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

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

●

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

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●

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

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

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

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

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Recently Adopted Accounting Standards

The following ASUs were adopted by the Company during the nine months ended September 30, 2023:


				Method of	Financial
ASU. No.	Topic	Nature of Update	Date Adopted	Adoption	Statement Impact
2022-02	Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures	This ASU eliminates the TDR recognition and measurement guidance and, instead, requires the Company to evaluate (consistent with the accounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan. This ASU also enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. This ASU requires the Company to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross writeoff information must be included in the vintage disclosures required for the Company in accordance with ASC 326-20-50-6, which requires that the Company disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. (see Note 5 in this section of the filing)	January 1, 2023	Prospectively	Immaterial

2022-06	Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848	This ASU extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.	January 1, 2023	Prospectively	Immaterial. The Company ceased making new loans and renewing loans indexed to LIBOR on January 1, 2022.

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Accounting Standards Update

The following not-yet-effective ASUs are considered relevant to the Company’s financial statements.


			Date Adoption	Adoption	Expected
ASU. No.	Topic	Nature of Update	Required	Method	Financial Impact
2022-03	Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions	This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.	January 1, 2024	Prospectively	Immaterial

2023-06	Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative	This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification™. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations.	The date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective.	Prospectively	Immaterial

2023-03	Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock (SEC Update)	This ASU amends the FASB Accounting Standards Codification™ for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.	Upon addition to the FASB Codification.	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

2023-02	Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)	This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.	January 1, 2024	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

2023-01	Leases (Topic 842): Common Control Arrangements	This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions).	January 1, 2024	Prospectively	The Company is currently analyzing the impact of this ASU on its financial statements.

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2. ACQUISITION OF CBANK

OVERVIEW

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

ACQUISITION SUMMARY

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


	March 15, 2023
	As Previously Reported					As Recasted

	As Recorded		Fair Value			Recast			As Recorded
(in thousands)	by CBank		Adjustments			Adjustments			by Republic

Assets acquired:

Cash and cash equivalents	$	10,030	$	—		$	—		$	10,030
Investment securities		16,463		(4)	a		(65)	a		16,394
Loans		221,707		(4,219)	b		(150)	b		217,338
Allowance for loan and lease losses		(2,953)		1,353	c		1,391	c, j		(209)
Loans, net		218,754		(2,866)			1,241			217,129
Goodwill		954		(954)	d		—			—
Core deposit intangible		—		2,844	e		—			2,844
Premises and equipment, net		162		35	f		(24)	f		173
Other assets and accrued interest receivable		7,067		(320)	g		—			6,747

Total assets acquired	$	253,430	$	(1,265)		$	1,152		$	253,317

Liabilities assumed:

Deposits:
Noninterest-bearing	$	42,160	$	—		$	—		$	42,160
Interest-bearing		179,487		31	h		—			179,518
Total deposits		221,647		31			—			221,678

Other liabilities and accrued interest payable		4,709		96	i		50	i		4,855

Total liabilities assumed		226,356		127			50			226,533

Net assets acquired	$	27,074	$	(1,392)		$	1,102			26,784

Cash consideration paid										(51,000)

Goodwill									$	24,216

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Explanation of fair value and recast adjustments:

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

Adjustments to loans to reflect estimated fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

Adjustments to the Allowance reflect the fair value adjustment to eliminate the acquiree’s recorded allowance for loan losses and other fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

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

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

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

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

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

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

Adjustment reflects a change in estimated fair value based upon further evaluation of PCD loans, including cash payments received subsequent to the date of acquisition.

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

3. INVESTMENT SECURITIES

Available-for-Sale Debt Securities

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


			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
September 30, 2023 (in thousands)	Cost		Gains		Losses		Credit Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	436,512	$	1	$	(20,901)	$	—	$	415,612
Private label mortgage-backed security		574		1,311		—		—		1,885
Mortgage-backed securities - residential		175,693		16		(20,160)		—		155,549
Collateralized mortgage obligations		23,441		29		(1,307)		—		22,163
Corporate bonds		2,014		2		—		—		2,016
Trust preferred security		3,785		210		—		—		3,995
Total available-for-sale debt securities	$	642,019	$	1,569	$	(42,368)	$	—	$	601,220


			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
December 31, 2022 (in thousands)	Cost		Gains		Losses		Credit Losses		Value

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

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Held-to-Maturity Debt Securities

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


			Gross		Gross				Allowance
	Amortized		Unrecognized		Unrecognized		Fair		for
September 30, 2023 (in thousands)	Cost		Gains		Losses		Value		Credit Losses

U.S. Treasury securities and U.S. Government agencies	$	90,000	$	—	$	(368)	$	89,632	$	—
Mortgage-backed securities - residential		25		—		(1)		24		—
Collateralized mortgage obligations		6,652		40		(155)		6,537		—
Corporate bonds		4,983		26		—		5,009		(10)
Obligations of state and political subdivisions		—		—		—		—		—
Total held-to-maturity debt securities	$	101,660	$	66	$	(524)	$	101,202	$	(10)


			Gross		Gross				Allowance
	Amortized		Unrecognized		Unrecognized		Fair		for
December 31, 2022 (in thousands)	Cost		Gains		Losses		Value		Credit Losses

U.S. Treasury securities and U.S. Government agencies	$	75,000	$	106	$	—	$	75,106	$	—
Mortgage-backed securities - residential		27		—		(1)		26		—
Collateralized mortgage obligations		7,270		54		(148)		7,176		—
Corporate bonds		4,974		—		(49)		4,925		(10)
Obligations of state and political subdivisions		125		—		(1)		124		—
Total held-to-maturity debt securities	$	87,396	$	160	$	(199)	$	87,357	$	(10)

Sales of Available-for-Sale Debt Securities

During the three and nine months ended September 30, 2023 and 2022, there were no material gains or losses on sales or calls of AFS debt securities.

Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity as of September 30, 2023 follow. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.


	Available-for-Sale				Held-to-Maturity
	Debt Securities				Debt Securities
	Amortized		Fair		Amortized		Fair
September 30, 2023 (in thousands)	Cost		Value		Cost		Value

Due in one year or less	$	169,819	$	165,862	$	25,000	$	24,917
Due from one year to five years		268,707		251,766		69,983		69,724
Due from five years to ten years		—		—		—		—
Due beyond ten years		3,785		3,995		—		—
Private label mortgage-backed security		574		1,885		—		—
Mortgage-backed securities - residential		175,693		155,549		25		24
Collateralized mortgage obligations		23,441		22,163		6,652		6,537
Total debt securities	$	642,019	$	601,220	$	101,660	$	101,202

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Unrealized-Loss Analysis on Debt Securities

The following tables summarize AFS debt securities in an unrealized loss position for which an ACLS had not been recorded as of September 30, 2023 and December 31, 2022, aggregated by investment category and length of time in a continuous unrealized loss position:


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
September 30, 2023 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	26,661	$	(128)	$	373,950	$	(20,773)	$	400,611	$	(20,901)
Mortgage-backed securities - residential		11,905		(628)		141,948		(19,532)		153,853		(20,160)
Collateralized mortgage obligations		3,341		(123)		16,892		(1,184)		20,233		(1,307)
Trust preferred security		—		—		—		—		—		—
Total available-for-sale debt securities	$	41,907	$	(879)	$	532,790	$	(41,489)	$	574,697	$	(42,368)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2022 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

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

As of September 30, 2023, the Bank’s security portfolio consisted of 191 securities, 172 of which were in an unrealized loss position.

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

As of September 30, 2023 and December 31, 2022, there were no holdings of debt securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Private Label Mortgage-Backed Security

The Bank owns one private label mortgage-backed security with a total carrying value of $2 million as of September 30, 2023. This security is mostly backed by “Alternative A” first-lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

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

Mortgage-Backed Securities and Collateralized Mortgage Obligations

As of September 30, 2023, with the exception of the $2 million private label mortgage-backed security, all other mortgage-backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FHLMC and FNMA. As of September 30, 2023 and December 31, 2022, there were gross unrealized losses of $21.5 million and $18.9 million related to AFS mortgage-backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to have OTTI.

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

The table below presents a roll-forward for the three months ended September 30, 2023 and 2022 of the ACLS on AFS and HTM debt securities:


	ACLS Roll-forward
	Three Months Ended September 30,
	2023										2022
	Beginning				Charge-				Ending			Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance			Balance		Provision		offs		Recoveries		Balance

Available-for-Sale Securities:
Corporate Bonds	$	—	$	—	$	—	$	—	$	—		$	30	$	(30)	$	—	$	—	$	—
Held-to-Maturity Securities:
Corporate Bonds		10		—		—		—		10			50		(40)		—		—		10

Total	$	10	$	—	$	—	$	—	$	10		$	80	$	(70)	$	—	$	—	$	10


	ACLS Roll-forward
	Nine Months Ended September 30,
	2023										2022
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance

Available-for-Sale Securities:
Corporate Bonds	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Held-to-Maturity Securities:
Corporate Bonds		10		—		—		—		10		47		(37)		—		—		10

Total	$	10	$	—	$	—	$	—	$	10	$	47	$	(37)	$	—	$	—	$	10

The Company’s ACLS on its HTM corporate bonds during the three and nine months ended September 30, 2023 remained unchanged from December 31, 2022.

There were no HTM debt securities on nonaccrual or past due 90 days or more as of September 30, 2023 and December 31, 2022. All of the Company’s HTM corporate bonds were rated investment grade as of September 30, 2023 and December 31, 2022.

There were no HTM debt securities considered collateral dependent as of September 30, 2023 and December 31, 2022.

Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet and is excluded from the ACLS. Accrued interest on AFS debt securities totaled $3 million and $2 million as of September 30, 2023 and December 31, 2022. Accrued interest receivable on HTM debt securities totaled $1 million and $92,000 as of September 30, 2023 and December 31, 2022.

Pledged Debt Securities

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


(in thousands)	September 30, 2023		December 31, 2022

Amortized cost	$	90,170	$	236,047
Fair value		82,376		217,562
Carrying amount		82,376		217,562

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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
September 30, 2023 (in thousands)	Cost		Gains		Losses		Value

Freddie Mac preferred stock	$	—	$	137	$	—	$	137
Total equity securities with readily determinable fair values	$	—	$	137	$	—	$	137


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2022 (in thousands)	Cost		Gains		Losses		Value

Freddie Mac preferred stock	$	—	$	111	$	—	$	111
Total equity securities with readily determinable fair values	$	—	$	111	$	—	$	111

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


	Gains (Losses) Recognized on Equity Securities
	Three Months Ended September 30, 2023						Three Months Ended September 30, 2022
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total

Freddie Mac preferred stock	$	—	$	16	$	16	$	—	$	(14)	$	(14)
Community Reinvestment Act mutual fund		—		—		—		—		—		—
Total equity securities with readily determinable fair value	$	—	$	16	$	16	$	—	$	(14)	$	(14)


	Gains (Losses) Recognized on Equity Securities
	Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2022
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total

Freddie Mac preferred stock	$	—	$	26	$	26	$	—	$	5	$	5
Community Reinvestment Act mutual fund		—		—		—		(209)		—		(209)
Total equity securities with readily determinable fair value	$	—	$	26	$	26	$	(209)	$	5	$	(204)

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4. LOANS HELD FOR SALE

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

Mortgage Loans Held for Sale, at Fair Value

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

Consumer Loans Held for Sale, at Fair Value

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

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Balance, beginning of period	$	5,757	$	17,459	$	4,706	$	19,747
Origination of consumer loans held for sale		34,280		85,172		87,224		280,608
Proceeds from the sale of consumer loans held for sale		(32,545)		(96,169)		(85,994)		(297,253)
Net gain on sale of consumer loans held for sale		951		2,334		2,507		5,694
Balance, end of period	$	8,443	$	8,796	$	8,443	$	8,796

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

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

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Balance, beginning of period	$	15,787	$	13,777	$	13,169	$	2,937
Origination of consumer loans held for sale		252,808		206,959		669,490		539,519
Proceeds from the sale of consumer loans held for sale		(257,452)		(209,924)		(675,503)		(534,549)
Net gain on sale of consumer loans held for sale		2,386		1,867		6,373		4,772
Balance, end of period	$	13,529	$	12,679	$	13,529	$	12,679

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5. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:


(in thousands)	September 30, 2023		December 31, 2022

Traditional Banking:
Residential real estate:
Owner occupied	$	1,128,745	$	911,427
Nonowner occupied		344,682		321,358
Commercial real estate		1,745,187		1,599,510
Construction & land development		189,756		153,875
Commercial & industrial		473,790		413,387
Lease financing receivables		85,242		10,505
Aircraft		226,947		179,785
Home equity		275,750		241,739
Consumer:
Credit cards		16,950		15,473
Overdrafts		640		726
Automobile loans		3,380		6,731
Other consumer		5,674		626
Total Traditional Banking		4,496,743		3,855,142
Warehouse lines of credit*		457,033		403,560
Total Core Banking		4,953,776		4,258,702

*Republic Processing Group:**
Tax Refund Solutions:
Refund Advances		—		97,505
Other TRS commercial & industrial loans		354		51,767
Republic Credit Solutions		126,969		107,828
Total Republic Processing Group		127,323		257,100

Total loans**		5,081,099		4,515,802
Allowance for credit losses		(74,576)		(70,413)

Total loans, net	$	5,006,523	$	4,445,389

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

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

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


(in thousands)	September 30, 2023		December 31, 2022

Contractually receivable	$	5,088,035	$	4,519,136
Unearned income		(2,325)		(835)
Unamortized premiums		1,209		99
Unaccreted discounts		(2,859)		(479)
Other net unamortized deferred origination (fees) and costs		(2,961)		(2,119)
Carrying value of loans	$	5,081,099	$	4,515,802

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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 September 30, 2023 remain unchanged from those defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Regarding origination year, loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a loan modification (formerly TDR.) Loan extensions and renewals classified as loan modifications (formerly TDRs) generally receive no change in origination date upon extension or renewal.


											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year										Amortized		Converted
As of September 30, 2023	2023		2022		2021		2020		Prior		Cost Basis		to Term		Total

Residential real estate owner occupied:
Risk Rating
Pass or not rated	$	307,179	$	208,209	$	178,744	$	172,850	$	238,598	$	—	$	1,500	$	1,107,080
Special Mention		—		—		—		—		6,482		—		—		6,482
Substandard		—		1,544		1,667		1,138		10,834		—		—		15,183
Doubtful		—		—		—		—		—		—		—		—
Total	$	307,179	$	209,753	$	180,411	$	173,988	$	255,914	$	—	$	1,500	$	1,128,745
YTD Gross Charge-offs	$	—	$	8	$	16	$	—	$	—	$	—	$	—	$	24

Residential real estate nonowner occupied:
Risk Rating
Pass or not rated	$	48,424	$	72,749	$	85,990	$	49,442	$	80,307	$	—	$	7,675	$	344,587
Special Mention		—		—		—		—		27		—		—		27
Substandard		—		—		20		—		48		—		—		68
Doubtful		—		—		—		—		—		—		—		—
Total	$	48,424	$	72,749	$	86,010	$	49,442	$	80,382	$	—	$	7,675	$	344,682
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate:
Risk Rating
Pass or not rated	$	176,925	$	466,888	$	375,172	$	197,435	$	338,991	$	24,663	$	125,735	$	1,705,809
Special Mention		573		1,684		4,376		—		30,319		1,520		—		38,472
Substandard		—		—		—		—		906		—		—		906
Doubtful		—		—		—		—		—		—		—		—
Total	$	177,498	$	468,572	$	379,548	$	197,435	$	370,216	$	26,183	$	125,735	$	1,745,187
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction and land development:
Risk Rating
Pass or not rated	$	53,267	$	113,557	$	21,167	$	521	$	252	$	—	$	992	$	189,756
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	53,267	$	113,557	$	21,167	$	521	$	252	$	—	$	992	$	189,756
YTD Gross Charge-offs		—		—		—		—		—		—		—		—

Commercial and industrial:
Risk Rating
Pass or not rated	$	99,935	$	96,064	$	76,604	$	15,758	$	61,574	$	102,820	$	3,744	$	456,499
Special Mention		—		452		13,186		438		1,613		376		—		16,065
Substandard		—		38		3		—		337		27		821		1,226
Doubtful		—		—		—		—		—		—		—		—
Total	$	99,935	$	96,554	$	89,793	$	16,196	$	63,524	$	103,223	$	4,565	$	473,790
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Lease financing receivables:
Risk Rating
Pass or not rated	$	36,895	$	26,631	$	11,907	$	5,554	$	2,973	$	—	$	—	$	83,960
Special Mention		—		—		—		—		981		—		—		981
Substandard		—		—		—		—		301		—		—		301
Doubtful		—		—		—		—		—		—		—		—
Total	$	36,895	$	26,631	$	11,907	$	5,554	$	4,255	$	—	$	—	$	85,242
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Aircraft:
Risk Rating
Pass or not rated	$	67,327	$	58,637	$	47,885	$	31,206	$	21,892	$	—	$	—	$	226,947
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	67,327	$	58,637	$	47,885	$	31,206	$	21,892	$	—	$	—	$	226,947
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	273,803	$	—	$	273,803
Special Mention		—		—		—		—		—		295		—		295
Substandard		—		—		—		—		—		1,652		—		1,652
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	275,750	$	—	$	275,750
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted
As of September 30, 2023	2023		2022		2021		2020		Prior		Cost Basis		to Term		Total

Consumer:
Risk Rating
Pass or not rated	$	1,813	$	1,309	$	243	$	92	$	4,270	$	18,897	$	—	$	26,624
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		2		—		18		—		—		20
Doubtful		—		—		—		—		—		—		—		—
Total	$	1,813	$	1,309	$	245	$	92	$	4,288	$	18,897	$	—	$	26,644
YTD Gross Charge-offs	$	—	$	11	$	8	$	—	$	7	$	852	$	—	$	878

Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	457,033	$	—	$	457,033
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	457,033	$	—	$	457,033
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	354	$	—	$	354
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	354	$	—	$	354
YTD Gross Charge-offs	$	126	$	—	$	—	$	—	$	—	$	25,825	$	—	$	25,951

RCS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	73,196	$	52,650	$	—	$	125,846
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		1,123		—		1,123
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	73,196	$	53,773	$	—	$	126,969
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	9,459	$	—	$	9,459

Grand Total:
Risk Rating
Pass or not rated	$	791,765	$	1,044,044	$	797,712	$	472,858	$	822,053	$	930,220	$	139,646	$	4,998,298
Special Mention		573		2,136		17,562		438		39,422		2,191		—		62,322
Substandard		—		1,582		1,692		1,138		12,444		2,802		821		20,479
Doubtful		—		—		—		—		—		—		—		—
Grand Total	$	792,338	$	1,047,762	$	816,966	$	474,434	$	873,919	$	935,213	$	140,467	$	5,081,099
YTD Gross Charge-offs	$	126	$	19	$	24	$	—	$	7	$	36,136	$	—	$	36,312


											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year										Amortized		Converted
As of December 31, 2022	2022		2021		2020		2019		Prior		Cost Basis		to Term		Total

Residential real estate owner occupied:
Risk Rating
Pass or not rated	$	231,638	$	189,495	$	188,004	$	71,306	$	208,296	$	—	$	—	$	888,739
Special Mention		—		160		—		—		7,240		—		—		7,400
Substandard		1,230		1,103		1,501		1,460		9,994		—		—		15,288
Doubtful		—		—		—		—		—		—		—		—
Total	$	232,868	$	190,758	$	189,505	$	72,766	$	225,530	$	—	$	—	$	911,427
YTD Gross Charge-offs	$	21	$	—	$	—	$	—	$	—	$	—	$	—	$	21

Residential real estate nonowner occupied:
Risk Rating
Pass or not rated	$	78,337	$	91,778	$	55,058	$	32,803	$	57,053	$	—	$	6,147	$	321,176
Special Mention		—		—		—		—		32		—		—		32
Substandard		—		30		—		—		120		—		—		150
Doubtful		—		—		—		—		—		—		—		—
Total	$	78,337	$	91,808	$	55,058	$	32,803	$	57,205	$	—	$	6,147	$	321,358
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate:
Risk Rating
Pass or not rated	$	451,327	$	394,317	$	210,055	$	117,928	$	253,213	$	25,499	$	99,791	$	1,552,130
Special Mention		3,124		11,870		—		21,296		9,967		318		—		46,575
Substandard		—		—		—		—		805		—		—		805
Doubtful		—		—		—		—		—		—		—		—
Total	$	454,451	$	406,187	$	210,055	$	139,224	$	263,985	$	25,817	$	99,791	$	1,599,510
YTD Gross Charge-offs	$	—	$	9	$	—	$	—	$	—	$	—	$	—	$	9

Construction and land development:
Risk Rating
Pass or not rated	$	107,153	$	43,289	$	638	$	641	$	373	$	1,781	$	—	$	153,875
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	107,153	$	43,289	$	638	$	641	$	373	$	1,781	$	—	$	153,875
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Table of Contents


											Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted
As of December 31, 2022	2022		2021		2020		2019		Prior		Cost Basis		to Term		Total

Commercial and industrial:
Risk Rating
Pass or not rated	$	116,483	$	82,431	$	17,944	$	36,254	$	36,367	$	103,257	$	4,865	$	397,601
Special Mention		536		13,239		—		—		1,756		255		—		15,786
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	117,019	$	95,670	$	17,944	$	36,254	$	38,123	$	103,512	$	4,865	$	413,387
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Lease financing receivables:
Risk Rating
Pass or not rated	$	5,469	$	1,964	$	542	$	1,548	$	982	$	—	$	—	$	10,505
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	5,469	$	1,964	$	542	$	1,548	$	982	$	—	$	—	$	10,505
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Aircraft:
Risk Rating
Pass or not rated	$	65,399	$	54,749	$	35,085	$	16,888	$	7,454	$	—	$	—	$	179,575
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		210		—		—		210
Doubtful		—		—		—		—		—		—		—		—
Total	$	65,399	$	54,749	$	35,085	$	16,888	$	7,664	$	—	$	—	$	179,785
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	240,704	$	—	$	240,704
Special Mention		—		—		—		—		—		171		—		171
Substandard		—		—		—		—		—		864		—		864
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	241,739	$	—	$	241,739
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Risk Rating
Pass or not rated	$	415	$	499	$	168	$	2,531	$	4,328	$	15,573	$	—	$	23,514
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		9		33		—		—		42
Doubtful		—		—		—		—		—		—		—		—
Total	$	415	$	499	$	168	$	2,540	$	4,361	$	15,573	$	—	$	23,556
YTD Gross Charge-offs	$	—	$	5	$	—	$	11	$	—	$	1,274	$	—	$	1,290

Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	403,560	$	—	$	403,560
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	403,560	$	—	$	403,560
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	149,272	$	—	$	149,272
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	149,272	$	—	$	149,272
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	11,659	$	—	$	11,659

RCS:
Risk Rating
Pass or not rated	$	22,357	$	2,273	$	1,264	$	602	$	29,594	$	50,589	$	—	$	106,679
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		1,149		—		1,149
Doubtful		—		—		—		—		—		—		—		—
Total	$	22,357	$	2,273	$	1,264	$	602	$	29,594	$	51,738	$	—	$	107,828
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	11,390	$	—	$	11,390

Grand Total:
Risk Rating
Pass or not rated	$	1,078,578	$	860,795	$	508,758	$	280,501	$	597,660	$	990,235	$	110,803	$	4,427,330
Special Mention		3,660		25,269		—		21,296		18,995		744		—		69,964
Substandard		1,230		1,133		1,501		1,469		11,162		2,013		—		18,508
Doubtful		—		—		—		—		—		—		—		—
Grand Total	$	1,083,468	$	887,197	$	510,259	$	303,266	$	627,817	$	992,992	$	110,803	$	4,515,802
YTD Gross Charge-offs	$	21	$	14	$	—	$	11	$	—	$	24,323	$	—	$	24,369

Table of Contents

Allowance for Credit Losses on Loans

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


	ACLL Roll-forward
	Three Months Ended September 30,
	2023												2022
	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	$	9,899	$	318	$	(9)	$	23	$	10,231	$	8,445	$	(3)	$	—	$	24	$	8,466
Nonowner occupied		3,086		(51)		—		1		3,036		2,733		63		—		—		2,796
Commercial real estate		25,089		251		—		7		25,347		24,341		(1,413)		—		275		23,203
Construction & land development		4,811		325		—		—		5,136		3,591		331		—		—		3,922
Commercial & industrial		4,322		(148)		—		7		4,181		3,768		82		—		124		3,974
Lease financing receivables		825		265		—		10		1,100		119		—		—		—		119
Aircraft		521		46		—		—		567		400		16		—		—		416
Home equity		4,770		375		—		1		5,146		4,113		279		—		7		4,399
Consumer:
Credit cards		1,103		3		(30)		16		1,092		994		(41)		(27)		33		959
Overdrafts		706		128		(243)		49		640		901		57		(288)		53		723
Automobile loans		53		16		(30)		2		41		122		(30)		—		9		101
Other consumer		382		39		(20)		13		414		200		(24)		(38)		15		153
Total Traditional Banking		55,567		1,567		(332)		129		56,931		49,727		(683)		(353)		540		49,231
Warehouse lines of credit		1,346		(203)		—		—		1,143		1,491		(386)		—		—		1,105
Total Core Banking		56,913		1,364		(332)		129		58,074		51,218		(1,069)		(353)		540		50,336

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—		(1,939)		—		1,939		—		—		(1,296)		—		1,296		—
Other TRS commercial & industrial loans		—		(28)		—		29		1		—		—		—		—		—
Republic Credit Solutions		15,289		4,333		(3,340)		219		16,501		13,231		4,008		(2,922)		266		14,583
Total Republic Processing Group		15,289		2,366		(3,340)		2,187		16,502		13,231		2,712		(2,922)		1,562		14,583

Total	$	72,202	$	3,730	$	(3,672)	$	2,316	$	74,576	$	64,449	$	1,643	$	(3,275)	$	2,102	$	64,919

Table of Contents


	ACLL Roll-forward
	Nine Months Ended September 30,
	2023												2022
	Beginning			CBank			Charge-				Ending				Beginning			Charge-				Ending
(in thousands)	Balance			Adjustment*	Provision		offs		Recoveries		Balance				Balance	Provision		offs		Recoveries		Balance

Traditional Banking:
Residential real estate:
Owner occupied	$	8,909	$	—	$	1,298	$	(24)	$	48	$	10,231		$	8,647	$	(272)	$	—	$	91	$	8,466
Nonowner occupied		2,831		—		203		—		2		3,036			2,700		94		—		2		2,796
Commercial real estate		23,739		—		1,542		—		66		25,347			23,769		(843)		—		277		23,203
Construction & land development		4,123		—		1,013		—		—		5,136			4,128		(206)		—		—		3,922
Commercial & industrial		3,976		—		89		—		116		4,181			3,487		346		—		141		3,974
Lease financing receivables		110		216		764		—		10		1,100			91		28		—		—		119
Aircraft		449		—		118		—		—		567			357		59		—		—		416
Home equity		4,628		—		516		—		2		5,146			4,111		169		—		119		4,399
Consumer:
Credit cards		996		—		158		(103)		41		1,092			934		50		(97)		72		959
Overdrafts		726		—		437		(676)		153		640			683		560		(696)		176		723
Automobile loans		87		—		(16)		(37)		7		41			186		(98)		—		13		101
Other consumer		135		—		289		(62)		52		414			314		(137)		(68)		44		153
Total Traditional Banking		50,709		216		6,411		(902)		497		56,931			49,407		(250)		(861)		935		49,231
Warehouse lines of credit		1,009		—		134		—		—		1,143			2,126		(1,021)		—		—		1,105
Total Core Banking		51,718		216		6,545		(902)		497		58,074			51,533		(1,271)		(861)		935		50,336

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		3,797		—		19,615		(25,823)		2,411		—			—		7,583		(11,505)		3,922		—
Other TRS commercial & industrial loans		91		—		7		(128)		31		1			96		(607)		(154)		665		—
Republic Credit Solutions		14,807		—		10,468		(9,459)		685		16,501			12,948		8,836		(8,005)		804		14,583
Total Republic Processing Group		18,695		—		30,090		(35,410)		3,127		16,502			13,044		15,812		(19,664)		5,391		14,583

Total	$	70,413	$	216	$	36,635	$	(36,312)	$	3,624	$	74,576		$	64,577	$	14,541	$	(20,525)	$	6,326	$	64,919

The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of September 30, 2023 was primarily based on a static pool analysis of each of the Company’s loan pools using the Company’s loss experience from 2013 through 2023, supplemented by qualitative factor adjustments for current and forecasted conditions. The Company employs one-year forecasts of unemployment and CRE values within its ACLL model, with reversion to long-term averages following the forecasted period. The cumulative loss rate within the Company’s ACLL also includes estimated losses based on an individual evaluation of loans which are either collateral dependent or which do not share risk characteristics with pooled loans, e.g., Loan Modifications.

Nonperforming Loans and Nonperforming Assets

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


(dollars in thousands)	September 30, 2023			December 31, 2022

Loans on nonaccrual status*	$	18,127		$	15,562
Loans past due 90-days-or-more and still on accrual**		1,037			756
Total nonperforming loans		19,164			16,318
Other real estate owned		1,423			1,581
Total nonperforming assets	$	20,587		$	17,899

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans		0.38	%		0.36	%
Nonperforming assets to total loans (including OREO)		0.41			0.40
Nonperforming assets to total assets		0.32			0.31

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans		0.37	%		0.37	%
Nonperforming assets to total loans (including OREO)		0.39			0.40
Nonperforming assets to total assets		0.33			0.32

*	Loans on nonaccrual status include collateral-dependent loans.

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

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)	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022

Traditional Banking:
Residential real estate:
Owner occupied	$	14,396	$	13,388	$	—	$	—
Nonowner occupied		68		117		—		—
Commercial real estate		883		1,001		—		—
Construction & land development		—		—		—		—
Commercial & industrial		1,159		—		—		—
Lease financing receivables		13		—		—		—
Aircraft		—				—		—
Home equity		1,591		815		—		—
Consumer:
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Automobile loans		16		31		—		—
Other consumer		1		210		—		—
Total Traditional Banking		18,127		15,562		—		—
Warehouse lines of credit		—		—		—		—
Total Core Banking		18,127		15,562		—		—

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—		—		—		—
Other TRS commercial & industrial loans		—		—		—		—
Republic Credit Solutions		—		—		1,037		756
Total Republic Processing Group		—		—		1,037		756

Total	$	18,127	$	15,562	$	1,037	$	756

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


							Three Months Ended		Nine Months Ended
	As of September 30, 2023						September 30, 2023		September 30, 2023
	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	$	624	$	13,772	$	14,396	$	224	$	664
Nonowner occupied		22		46		68		7		8
Commercial real estate		883		—		883		31		142
Construction & land development		—		—		—		—		—
Commercial & industrial		338		821		1,159		23		23
Lease financing receivables		13		—		13		—		—
Aircraft		—		—		—		—		—
Home equity		—		1,591		1,591		45		106
Consumer		8		9		17		—		6
Total	$	1,888	$	16,239	$	18,127	$	330	$	949

* 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		Nine Months Ended
	As of December 31, 2022						September 30, 2022		September 30, 2022
	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	$	2,252	$	11,136	$	13,388	$	154	$	257
Nonowner occupied		56		61		117		1		1
Commercial real estate		1,001		—		1,001		14		644
Construction & land development		—		—		—		—		—
Commercial & industrial		—		—		—		—		—
Lease financing receivables		—		—		—		—		—
Aircraft		—		—		—		—		—
Home equity		—		815		815		84		146
Consumer		15		226		241		48		52
Total	$	3,324	$	12,238	$	15,562	$	301	$	1,100

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

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

Delinquent Loans

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


	30 - 59			60 - 89			90 or More
September 30, 2023	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner occupied	$	2,241		$	1,521		$	822		$	4,584		$	1,124,161	$	1,128,745
Nonowner occupied		231			—			—			231			344,451		344,682
Commercial real estate		23			—			—			23			1,745,164		1,745,187
Construction & land development		—			—			—			—			189,756		189,756
Commercial & industrial		186			27			1,159			1,372			472,418		473,790
Lease financing receivables		4			—			12			16			85,226		85,242
Aircraft		—			—			—			—			226,947		226,947
Home equity		137			147			83			367			275,383		275,750
Consumer:
Credit cards		11			16			1			28			16,922		16,950
Overdrafts		131			—			1			132			508		640
Automobile loans		—			—			4			4			3,376		3,380
Other consumer		38			10			1			49			5,625		5,674
Total Traditional Banking		3,002			1,721			2,083			6,806			4,489,937		4,496,743
Warehouse lines of credit		—			—			—			—			457,033		457,033
Total Core Banking		3,002			1,721			2,083			6,806			4,946,970		4,953,776

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—			—			—			—			—		—
Other TRS commercial & industrial loans		—			—			—			—			354		354
Republic Credit Solutions		8,020			3,271			1,037			12,328			114,641		126,969
Total Republic Processing Group		8,020			3,271			1,037			12,328			114,995		127,323

Total	$	11,022		$	4,992		$	3,120		$	19,134		$	5,061,965	$	5,081,099
Delinquency ratio***		0.22	%		0.10	%		0.06	%		0.38	%

* 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.

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	30 - 59			60 - 89			90 or More
December 31, 2022	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner occupied	$	2,382		$	1,185		$	1,267		$	4,834		$	906,593	$	911,427
Nonowner occupied		—			—			—			—			321,358		321,358
Commercial real estate		604			—			—			604			1,598,906		1,599,510
Construction & land development		—			—			—			—			153,875		153,875
Commercial & industrial		177			—			—			177			413,210		413,387
Lease financing receivables		—			—			—			—			10,505		10,505
Aircraft		—			—			—			—			179,785		179,785
Home equity		56			93			26			175			241,564		241,739
Consumer:
Credit cards		50			5			—			55			15,418		15,473
Overdrafts		158			1			1			160			566		726
Automobile loans		8			—			3			11			6,720		6,731
Other consumer		43			1			—			44			582		626
Total Traditional Banking		3,478			1,285			1,297			6,060			3,849,082		3,855,142
Warehouse lines of credit		—			—			—			—			403,560		403,560
Total Core Banking		3,478			1,285			1,297			6,060			4,252,642		4,258,702

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—			—			—			—			97,505		97,505
Other TRS commercial & industrial loans		—			—			—			—			51,767		51,767
Republic Credit Solutions		6,488			1,956			756			9,200			98,628		107,828
Total Republic Processing Group		6,488			1,956			756			9,200			247,900		257,100

Total	$	9,966		$	3,241		$	2,053		$	15,260		$	4,500,542	$	4,515,802
Delinquency ratio***		0.22	%		0.07	%		0.05	%		0.34	%

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

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

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

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Collateral-Dependent Loans

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


	September 30, 2023				December 31, 2022
	Secured		Secured		Secured		Secured
	by Real		by Personal		by Real		by Personal
(in thousands)	Estate		Property		Estate		Property

Traditional Banking:
Residential real estate:
Owner occupied	$	16,122	$	—	$	18,057	$	—
Nonowner occupied		68		—		150		—
Commercial real estate		909		—		1,041		—
Construction & land development		—		—		—		—
Commercial & industrial		—		1,226		—		—
Lease financing receivables		—		—		—		—
Aircraft		—		—		—		210
Home equity		1,548		—		967		—
Consumer		—		20		—		26
Total Traditional Banking	$	18,647	$	1,246	$	20,215	$	236

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

Loan and Lease Modification Disclosures Pursuant to ASU 2022-02

The following table shows the amortized cost of loans and leases as of September 30, 2023 that were both experiencing financial difficulty and modified during the three months ended September 30, 2023, segregated by portfolio segment and type of modification. The following tables shows the amortized cost of loans and leases modified by type.


	Amortized Cost Basis of Modified Financing Receivables
	Three Months Ended September 30, 2023
(in thousands)	Loans (#)	Rate Reduction ($)		Loans (#)	Term Extension ($)		Loans (#)	Principal Deferral ($)

Residential real estate:
Owner occupied	—	$	—	—	$	—	4	$	239
Nonowner occupied	—		—	—		—	—		—
Home equity	—		—	—		—	1		433
Republic Processing Group	—		—	—		—	383		84
Total Loan Modifications	—	$	—	—	$	—	388	$	756


	Total Loan Modification by Type
	Accruing			Nonaccruing

	Three Months Ended September 30, 2023
(in thousands)	Loans (#)	Recorded investment ($)		Loans (#)	Recorded investment ($)

Term extension	—	$	—	—	$	—
Principal deferral	383		84	5		672
Total Loan Modifications	383	$	84	5	$	672

The following table shows the amortized cost of loans and leases as of September 30, 2023 that were both experiencing financial difficulty and modified during the nine months ended September 30, 2023, segregated by portfolio segment and type of modification. The following tables shows the amortized cost of loans and leases modified by type.


	Amortized Cost Basis of Modified Financing Receivables
	Nine Months Ended September 30, 2023
(in thousands)	Loans (#)	Rate Reduction ($)		Loans (#)	Term Extension ($)		Loans (#)	Principal Deferral ($)

Residential real estate:
Owner occupied	—	$	—	2	$	258	13	$	1,006
Nonowner occupied	—		—	—		—	—		—
Home equity	—		—	—		—	4		566
Republic Processing Group	—		—	—		—	383		84
Total Loan Modifications	—	$	—	2	$	258	400	$	1,656

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	Total Loan Modification by Type
	Accruing			Nonaccruing

	Nine Months Ended September 30, 2023
(in thousands)	Loans (#)	Recorded investment ($)		Loans (#)	Recorded investment ($)

Term extension	—	$	—	—	$	—
Principal deferral	383		84	19		1,830
Total Loan Modifications	383	$	84	19	$	1,830

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


	Accruing Loan Modifications
	Three Months Ended September 30, 2023					Nine Months Ended September 30, 2023
				% of Total					% of Total
		Amortized		of Financing			Amortized		of Financing
(dollars in thousands)	Loans (#)	Cost Basis ($)		Receivable		Loans	Cost Basis		Receivable

Republic Processing Group	383	$	84	0.07	%	383		84	0.07
Total Accruing Loan Modifications	383	$	84	0.00		383	$	84	0.00


	Nonaccruing Loan Modifications
	Three Months Ended September 30, 2023					Nine Months Ended September 30, 2023
				% of Total					% of Total
		Amortized		of Financing			Amortized		of Financing
(dollars in thousands)	Loans (#)	Cost Basis ($)		Receivable		Loans	Cost Basis		Receivable

Residential real estate:
Owner occupied	4	$	239	0.02	%	4	$	566	0.05	%
Home equity	1		433	0.16		15		1,264	0.46
Total Nonaccruing Loan Modifications	5	$	672	0.01	%	19	$	1,830	0.04

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

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the three and nine months ended September 30, 2023.


	Accruing Loan Modifications
	Three Months Ended September 30, 2023						Nine Months Ended September 30, 2023
			30-89 Days		90+ Days				30-89 Days		90+ Days
(in thousands)	Current		Past Due		Past Due		Current		Past Due		Past Due

Republic Processing Group	$	84	$	—	$	—		84		—		—
Total Accruing Loan Modifications	$	84	$	—	$	—	$	84	$	—	$	—


	Nonaccruing Loan Modifications
	Three Months Ended September 30, 2023						Nine Months Ended September 30, 2023
			30-89 Days		90+ Days				30-89 Days		90+ Days
(in thousands)	Current		Past Due		Past Due		Current		Past Due		Past Due

Residential real estate:
Owner occupied	$	75	$	164	$	—	$	932	$	188	$	168
Nonowner occupied		—		—		—		—		—		—
Home equity		433		—		—		542		—		—
Total Nonaccruing Loan Modifications	$	508	$	164	$	—	$	1,474	$	188	$	168

There were three loans and leases with a total balance of $188,000 that had a payment default during the three months ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. There were five loans and leases with a total balance of $356,000 that had a payment default during the nine months ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

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

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

A summary of the categories of TDR loan modifications by respective performance as of September 30, 2022 that were modified during the three months ended September 30, 2022 follows:


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
September 30, 2022 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Legal modification	10	$	443	1	$	47	11	$	490
Total residential TDRs	10		443	1		47	11		490

Consumer loans:
Principal deferral	332		62	—		—	332		62
Total consumer TDRs	332		62	—		—	332		62

Total troubled debt restructurings	342	$	505	1	$	47	343	$	552

A summary of the categories of TDR loan modifications by respective performance as of September 30, 2022 that were modified during the nine months ended September 30, 2022 follows:


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
September 30, 2022 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Legal modification	17	$	954	1	$	47	18	$	1,001
Total residential TDRs	17		954	1		47	18		1,001

Consumer loans:
Principal deferral	605		109	—		—	605		109
Total consumer TDRs	605		109	—		—	605		109

Total troubled debt restructurings	622	$	1,063	1	$	47	623	$	1,110

The classification between nonperforming and performing was determined at the time of modification. Modification programs focus on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions. Modifications do not result in the contractual forgiveness of principal or interest. There were no modifications during the three months or nine months ended September 30, 2022 that resulted in an interest rate below market rate.

There was one TDRs with a recorded investment of $47,000 which had a payment default within the twelve months following modification during the three months ended September 30, 2022. There were four TDRs with a recorded investment of $93,000 which had a payment default within the twelve months following modification during the nine months ended September 30, 2022. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.

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


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
December 31, 2022 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Rate reduction	67	$	6,305	3	$	242	70	$	6,547
Principal deferral	7		699	—		—	7		699
Legal modification	67		3,149	6		377	73		3,526
Total residential TDRs	141		10,153	9		619	150		10,772

Commercial related and construction/land development loans:
Rate reduction	1		847	—		—	1		847
Principal deferral	1		1	—		—	1		1
Total commercial TDRs	2		848	—		—	2		848

Consumer loans:
Principal deferral	2,320		393	—		—	2,320		393
Legal modification	3		13	—		—	3		13
Total consumer TDRs	2,323		406	—		—	2,323		406

Total troubled debt restructurings	2,466	$	11,407	9	$	619	2,475	$	12,026

There was no significant change between the pre and post modification loan balances for the three months ending September 30, 2022.

Foreclosures

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


(in thousands)	September 30, 2023		December 31, 2022

Commercial real estate	$	1,423	$	1,581

Total other real estate owned	$	1,423	$	1,581

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

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Refund Advances

The Company’s TRS segment offered its RA product during the first two months of 2023 and 2022, along with its ERA product which was offered during December 2022 and the first two weeks of 2023. The ERA originations during December 2022 and the first two weeks of 2023 were made in relation to estimated tax returns that were anticipated to be filed during the first quarter 2023 tax season. The Company originated $98 million of ERAs during December 2022 that were made in anticipation of the first quarter 2023 tax season. Each year, all unpaid RAs, including ERAs, are charged off by June 30^th, and each quarter thereafter, any credits to the Provision for RAs, including ERAs, match the recovery of previously charged-off accounts.

Information regarding calendar year activities for RAs follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	2023		2022		2023			2022

Refund Advances originated	$	—	$	—	$	737,047		$	311,207
Net charge to the Provision for RAs, including ERAs		(1,939)		(1,296)		19,615			7,583
Provision as a percentage of RAs, including ERAs, originated during the first quarter		NA		NA		2.66	%		2.44	%
Refund Advances net charge-offs (recoveries)	$	(1,939)	$	(1,296)	$	23,412		$	7,583
Refund Advances net charge-offs (recoveries) to total Refund Advances originated		NA		NA		3.18	%		2.44	%

6. DEPOSITS

The composition of the deposit portfolio follows:


(in thousands)	September 30, 2023		December 31, 2022

Core Bank:
Demand	$	1,233,328	$	1,336,082
Money market accounts		939,499		707,272
Savings		263,249		323,015
Reciprocal money market		206,347		28,635
Individual retirement accounts (1)		33,823		38,640
Time deposits, $250 and over (1)		94,521		54,855
Other certificates of deposit (1)		207,481		129,324
Reciprocal time deposits (1)		94,629		7,405
Wholesale brokered deposits (1)		805		—
Total Core Bank interest-bearing deposits		3,073,682		2,625,228
Total Core Bank noninterest-bearing deposits		1,269,643		1,464,493
Total Core Bank deposits		4,343,325		4,089,721

Republic Processing Group:
Money market accounts		16,921		3,849
Total RPG interest-bearing deposits		16,921		3,849

Brokered prepaid card deposits		326,505		328,655
Other noninterest-bearing deposits		106,831		115,620
Total RPG noninterest-bearing deposits		433,336		444,275
Total RPG deposits		450,257		448,124

Total deposits	$	4,793,582	$	4,537,845

(1)	Includes time deposits.

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

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

As of September 30, 2023 and December 31, 2022, all securities sold under agreements to repurchase had overnight maturities. Additional information regarding securities sold under agreements to repurchase and other short-term borrowings follows:


(dollars in thousands)	September 30, 2023			December 31, 2022

Outstanding balance at end of period	$	80,797		$	216,956
Weighted average interest rate at end of period		0.56	%		0.41	%

Fair value of securities pledged:
U.S. Treasury securities and U.S. Government agencies	$	82,376		$	254,296
Total securities pledged	$	82,376		$	254,296


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2023			2022			2023			2022

Average outstanding balance during the period	$	90,063		$	220,149		$	136,528		$	271,276
Weighted average interest rate during the period		0.87	%		0.17	%		0.60	%		0.08	%
Maximum outstanding at any month end during the period	$	88,862		$	209,376		$	224,067		$	303,315

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

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

As of September 30, 2023, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 40 of its offices, with 12 such operating leases contracted with a related party of the Company. As of September 30, 2023, payments on 22 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.

The Company recorded two third-party lease renewals during the first nine months of 2023 with a total right-of-use asset value of $1.5 million and recorded five new third-party leases during the first nine months of 2023 with a total right-of-use asset value of $2.0 million.

The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	2023		2022		2023		2022

Operating lease expense:
Related Party:
Variable lease expense	$	1,202	$	1,101	$	3,631	$	3,635
Fixed lease expense		58		57		175		149
Third-Party:
Variable lease expense		390		222		1,070		639
Fixed lease expense		409		346		1,184		1,040
Total operating lease expense	$	2,059	$	1,726	$	6,060	$	5,463

Other information concerning operating leases:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,667	$	1,709	$	5,168	$	5,121
Cash paid for variable rent payments not included in measurement of operating lease liabilities		151		151		453		453
Short-term lease payments not included in the measurement of lease liabilities		—		—		—		—

The following table presents the weighted average remaining term and weighted average discount rate for the Company’s non-short-term operating leases as of September 30, 2023 and December 31, 2022:


	September 30, 2023			December 31, 2022

Weighted average remaining term in years		7.78			8.44
Weighted average discount rate		2.28	%		2.10	%

The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of September 30, 2023:


Year (in thousands)	Related Party		Third-Party		Total

2023	$	961	$	720	$	1,681
2024		3,726		2,826		6,552
2025		3,569		2,244		5,813
2026		3,640		1,925		5,565
2027		3,680		1,603		5,283
Thereafter		11,750		4,698		16,448
Total undiscounted cash flows	$	27,326	$	14,016	$	41,342
Discount applied to cash flows		(2,884)		(1,732)		(4,616)
Total discounted cash flows reported as operating lease liabilities	$	24,442	$	12,284	$	36,726

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9. FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:


(in thousands)	September 30, 2023		December 31, 2022

Overnight advances	$	195,000	$	75,000
Fixed interest rate advances		270,000		20,000
Total FHLB advances	$	465,000	$	95,000

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. FHLB advances are collateralized by a blanket pledge of eligible real estate loans. As of September 30, 2023 and December 31, 2022, Republic had available borrowing capacity of $639 million and $900 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million available through various other financial institutions as of September 30, 2023 and December 31, 2022.

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


			Weighted
			Average
Year (dollars in thousands)	Principal		Rate

2023	$	195,000	5.37	%
2024		—	—
2025		—	—
2026		30,000	4.82
2027		80,000	4.01
2028		160,000	4.39
Total	$	465,000	4.76	%

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


	Three Months Ended							Nine Months Ended
	September 30,							September 30,
(dollars in thousands)	2023				2022			2023			2022

Average outstanding balance during the period	$	250,348			$	—		$	150,833		$	5,641
Weighted average interest rate during the period		5.20	%			—	%		7.75	%		0.15	%
Maximum outstanding at any month end during the period	$	365,000		`	$	—		$	485,000		$	25,000

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


(in thousands)	September 30, 2023		December 31, 2022

First lien, single family residential real estate	$	1,336,038	$	1,106,287
Home equity lines of credit		249,819		219,644
Multi-family commercial real estate		141,133		—

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10. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

Commitments to Extend Credit

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

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

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

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


(in thousands)	September 30, 2023		December 31, 2022

Unused warehouse lines of credit	$	557,467	$	733,940
Unused home equity lines of credit		439,107		410,057
Unused loan commitments - other		1,202,822		951,021
Standby letters of credit		11,921		9,735
FHLB letter of credit		—		643
Total commitments	$	2,211,317	$	2,105,396

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

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The following tables present a roll-forward of the ACLC for the three and nine months ended September 30, 2023 and 2022:


	ACLC Roll-forward
	Three Months Ended
	2023										2022
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance

Loan Commitments
Unused warehouse lines of credit	$	145	$	(43)	$	—	$	—	$	102	$	162	$	28	$	—	$	—	$	190
Unused home equity lines of credit		353		(315)		—		—		38		277		20		—		—		297
Unused construction lines of credit		633		225		—		—		858		—		—		—		—		—
Unused loan commitments - other		399		(57)		—		—		342		661		32		—		—		693

Total	$	1,530	$	(190)	$	—	$	—	$	1,340	$	1,100	$	80	$	—	$	—	$	1,180


	ACLC Roll-forward
	Nine Months Ended September 30,
	2023										2022
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance

Loan Commitments
Unused warehouse lines of credit	$	190	$	(88)	$	—	$	—	$	102	$	154	$	36	$	—	$	—	$	190
Unused home equity lines of credit		332		(294)		—		—		38		247		50		—		—		297
Unused construction lines of credit		384		474		—		—		858		—		—		—		—		—
Unused loan commitments - other		344		(2)		—		—		342		651		42		—		—		693

Total	$	1,250	$	90	$	—	$	—	$	1,340	$	1,052	$	128	$	—	$	—	$	1,180

The Company increased its ACLC during the three and nine months ended September 30, 2023 based primarily on a change in the loan mix to loans with higher reserve rates.

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11. FAIR VALUE

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

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

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

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

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

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

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

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

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

For its TRUP investment, the Company considered the most recent bid price for the same instrument to approximate market value as of September 30, 2023. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

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

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

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

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

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

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

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

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

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

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Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below. Information as of September 30, 2023 is presented net of any applicable ACL.


	Fair Value Measurements at
	September 30, 2023 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	175,623	$	239,989	$	—	$	415,612
Private label mortgage-backed security		—		—		1,885		1,885
Mortgage-backed securities - residential		—		155,549		—		155,549
Collateralized mortgage obligations		—		22,163		—		22,163
Corporate bonds		—		2,016		—		2,016
Trust preferred security		—		—		3,995		3,995
Total available-for-sale debt securities	$	175,623	$	419,717	$	5,880	$	601,220

Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	137	$	—	$	137
Total equity securities with readily determinable fair value	$	—	$	137	$	—	$	137

Mortgage loans held for sale	$	—	$	2,711	$	—	$	2,711
Consumer loans held for sale		—		—		8,443		8,443
Rate lock loan commitments		—		95		—		95
Interest rate swap agreements		—		8,935		—		8,935

Financial liabilities:
Mandatory forward contracts	$	—	$	77	$	—	$	77
Interest rate swap agreements		—		8,935		—		8,935


	Fair Value Measurements at
	December 31, 2022 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	193,385	$	217,756	$	—	$	411,141
Private label mortgage-backed security		—		—		2,127		2,127
Mortgage-backed securities - residential		—		171,873		—		171,873
Collateralized mortgage obligations		—		21,368		—		21,368
Corporate bonds		—		10,001		—		10,001
Trust preferred security		—		—		3,855		3,855
Total available-for-sale debt securities	$	193,385	$	420,998	$	5,982	$	620,365

Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	111	$	—	$	111
Total equity securities with readily determinable fair value	$	—	$	111	$	—	$	111

Mortgage loans held for sale	$	—	$	1,302	$	—	$	1,302
Consumer loans held for sale		—		—		4,706		4,706
Consumer loans held for investment		—		—		2		2
Rate lock loan commitments		—		2		—		2
Interest rate swap agreements		—		8,128		—		8,128

Financial liabilities:
Mandatory forward contracts	$	—	$	67	$	—	$	67
Interest rate swap agreements		—		8,128		—		8,128

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All transfers between levels are generally recognized at the end of each quarter. There were no transfers into or out of Level 1, 2, or 3 assets during the three months and nine months ended September 30, 2023 and 2022.

Private Label Mortgage-Backed Security

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Balance, beginning of period	$	1,988	$	2,478	$	2,127	$	2,731
Total gains or losses included in earnings:
Net change in unrealized gain		(6)		1		26		10
Principal paydowns		(97)		(195)		(268)		(457)
Balance, end of period	$	1,885	$	2,284	$	1,885	$	2,284

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

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

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


	Fair		Valuation
September 30, 2023 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage-backed security	$	1,885	Discounted cash flow	(1) Constant prepayment rate	2.8% - 4.5%

				(2) Probability of default	1.8% - 9.3%

				(3) Loss severity	12% - 35%


	Fair		Valuation
December 31, 2022 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage-backed security	$	2,127	Discounted cash flow	(1) Constant prepayment rate	4.5% - 4.7%

				(2) Probability of default	1.8% - 9.3%

				(3) Loss severity	25% - 35%

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Trust Preferred Security

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Balance, beginning of period	$	3,746	$	3,824	$	3,855	$	3,847
Total gains or losses included in earnings:
Discount accretion		15		14		44		42
Net change in unrealized gain		234		72		96		21
Balance, end of period	$	3,995	$	3,910	$	3,995	$	3,910

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

Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of September 30, 2023 and December 31, 2022.

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


(in thousands)	September 30, 2023		December 31, 2022

Aggregate fair value	$	2,711	$	1,302
Contractual balance		2,671		1,265
Unrealized gain		40		37

The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2023 and 2022 for mortgage loans held for sale are presented in the following table:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Interest income	$	84	$	112	$	206	$	469
Change in fair value		(36)		(141)		3		(738)
Total included in earnings	$	48	$	(29)	$	209	$	(269)

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 September 30, 2023 and December 31, 2022.

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

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


	Fair		Valuation
September 30, 2023 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	8,443	Contract Terms	(1) Net Premium	0.15%

				(2) Discounted Sales	10.00%


	Fair		Valuation
December 31, 2022 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	4,706	Contract Terms	(1) Net Premium	0.15%

				(2) Discounted Sales	10.00%

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


(in thousands)	September 30, 2023		December 31, 2022

Aggregate fair value	$	8,443	$	4,706
Contractual balance		8,494		4,734
Unrealized loss		(51)		(28)

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Interest income	$	1,077	$	3,009	$	2,790	$	8,889
Change in fair value		(16)		32		(23)		(186)
Total included in earnings	$	1,061	$	3,041	$	2,767	$	8,703

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


	Fair Value Measurements at
	September 30, 2023 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	973	$	973
Commercial real estate		—		—		818		818
Total collateral-dependent loans*	$	—	$	—	$	1,791	$	1,791

Other real estate owned:
Commercial real estate	$	—	$	—	$	1,423	$	1,423
Total other real estate owned	$	—	$	—	$	1,423	$	1,423

*	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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	Fair Value Measurements at
	December 31, 2022 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	1,456	$	1,456
Commercial real estate		—		—		906		906
Total collateral-dependent loans*	$	—	$	—	$	2,362	$	2,362

Other real estate owned:
Residential real estate	$	—	$	—	$	1,581	$	1,581
Total other real estate owned	$	—	$	—	$	1,581	$	1,581

*	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.

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


					Range
	Fair		Valuation	Unobservable	(Weighted
September 30, 2023 (dollars in thousands)	Value		Technique	Inputs	Average)

Collateral-dependent loans - residential real estate owner occupied	$	973	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 27% (5%)

Collateral-dependent loans - commercial real estate	$	818	Sales comparison approach	Adjustments determined for differences between comparable sales	11% (11%)

Other real estate owned - commercial real estate	$	1,423	Sales comparison approach	Adjustments determined for differences between comparable sales	39% (39%)


					Range
	Fair		Valuation	Unobservable	(Weighted
December 31, 2022 (dollars in thousands)	Value		Technique	Inputs	Average)

Collateral-dependent loans - residential real estate owner occupied	$	1,456	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 41% (11%)

Collateral-dependent loans - commercial real estate	$	906	Sales comparison approach	Adjustments determined for differences between comparable sales	16% (16%)

Other real estate owned - commercial real estate	$	1,581	Sales comparison approach	Adjustments determined for differences between comparable sales	39% (39%)

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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.

The Provision on collateral-dependent loans follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Provision on collateral-dependent loans	$	—	$	(7)	$	(20)	$	(11)

Other Real Estate Owned

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



(in thousands)	September 30, 2023		December 31, 2022

Other real estate owned carried at fair value	$	1,423	$	1,581
Total carrying value of other real estate owned	$	1,423	$	1,581
Other real estate owned write-downs during the years ended	$	158	$	211


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Other real estate owned write-downs during the period	$	53	$	53	$	158	$	158

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


			Fair Value Measurements at
			September 30, 2023:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	219,653	$	219,653	$	—	$	—	$	219,653
Available-for-sale debt securities		601,220		175,623		419,717		5,880		601,220
Held-to-maturity debt securities		101,650		—		101,202		—		101,202
Equity securities with readily determinable fair values		137		—		137		—		137
Mortgage loans held for sale, at fair value		2,711		—		2,711		—		2,711
Consumer loans held for sale, at fair value		8,443		—		—		8,443		8,443
Consumer loans held for sale, at the lower of cost or fair value		13,529		—		—		13,529		13,529
Loans, net		5,006,523		—		—		4,692,640		4,692,640
Federal Home Loan Bank stock		31,420		—		—		—		NA
Accrued interest receivable		18,938		—		4,588		14,350		18,938
Mortgage servicing rights		7,710		—		17,300		—		17,300
Rate lock loan commitments		95		—		95		—		95
Interest rate swap agreements		8,935		—		8,935		—		8,935

Liabilities:
Noninterest-bearing deposits	$	1,702,979	$	—	$	1,702,979	$	—	$	1,702,979
Transaction deposits		2,660,149		—		2,660,149		—		2,660,149
Time deposits		430,454		—		426,808		—		426,808
Securities sold under agreements to repurchase and other short-term borrowings		82,376		—		82,376		—		82,376
Federal Home Loan Bank advances		465,000		—		458,487		—		458,487
Accrued interest payable		2,017		—		2,017		—		2,017
Rate lock loan commitments		95		—		95		—		95
Mandatory forward contracts		77		—		77		—		77
Interest rate swap agreements		8,935		—		8,935		—		8,935

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			Fair Value Measurements at
			December 31, 2022:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	313,689	$	313,689	$	—	$	—	$	313,689
Available-for-sale debt securities		620,365		193,385		420,998		5,982		620,365
Held-to-maturity debt securities		87,386		—		87,357		—		87,357
Equity securities with readily determinable fair values		111		—		111		—		111
Mortgage loans held for sale, at fair value		1,302		—		1,302		—		1,302
Consumer loans held for sale, at fair value		4,706		—		—		4,706		4,706
Consumer loans held for sale, at the lower of cost or fair value		13,169		—		—		13,169		13,169
Loans, net		4,445,389		—		—		4,276,423		4,276,423
Federal Home Loan Bank stock		9,146		—		—		—		NA
Accrued interest receivable		13,572		—		2,462		11,110		13,572
Mortgage servicing rights		8,769		—		17,592		—		17,592
Rate lock loan commitments		2		—		2		—		2
Interest rate swap agreements		8,128		—		8,128		—		8,128

Liabilities:
Noninterest-bearing deposits	$	1,908,768	$	—	$	1,908,768	$	—	$	1,908,768
Transaction deposits		2,398,853		—		2,398,853		—		2,398,853
Time deposits		230,224		—		223,912		—		223,912
Securities sold under agreements to repurchase and other short-term borrowings		216,956		—		216,956		—		216,956
Federal Home Loan Bank advances		95,000		—		93,044		—		93,044
Accrued interest payable		239		—		239		—		239
Mandatory forward contracts		67		—		67		—		67
Interest rate swap agreements		8,128		—		8,128		—		8,128

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12. MORTGAGE BANKING ACTIVITIES

Mortgage Banking activities primarily include residential mortgage originations and servicing.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Balance, beginning of period	$	4,038	$	8,491	$	1,302	$	29,393
Origination of mortgage loans held for sale		23,860		32,856		53,750		195,006
Proceeds from the sale of mortgage loans held for sale		(25,681)		(39,220)		(53,794)		(226,191)
Net gain on sale of mortgage loans held for sale		494		785		1,453		4,704
Balance, end of period	$	2,711	$	2,912	$	2,711	$	2,912

The following table presents the components of Mortgage Banking income:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Net gain realized on sale of mortgage loans held for sale	$	608	$	1,041	$	1,213	$	6,448
Net change in fair value recognized on loans held for sale		(36)		(141)		3		(738)
Net change in fair value recognized on rate lock loan commitments		(94)		(395)		93		(1,579)
Net change in fair value recognized on forward contracts		16		280		144		573
Net gain recognized		494		785		1,453		4,704

Loan servicing income		824		894		2,546		2,643
Amortization of mortgage servicing rights		(466)		(525)		(1,440)		(1,773)
Change in mortgage servicing rights valuation allowance		—		—		—		—
Net servicing income recognized		358		369		1,106		870
Total Mortgage Banking income	$	852	$	1,154	$	2,559	$	5,574

Activity for capitalized mortgage servicing rights was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Balance, beginning of period	$	7,995	$	9,407	$	8,770	$	9,196
Additions		182		296		381		1,755
Amortized to expense		(466)		(525)		(1,440)		(1,773)
Change in valuation allowance		—		—		—		—
Balance, end of period	$	7,711	$	9,178	$	7,711	$	9,178

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

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

2023

2022

2023

2022

Beginning valuation allowance

—

Charge during the period

—

Ending valuation allowance

—

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Other information relating to mortgage servicing rights follows:


(dollars in thousands)	September 30, 2023			December 31, 2022

Fair value of mortgage servicing rights portfolio	$	17,300		$	17,145
Monthly weighted average prepayment rate of unpaid principal balance*		120	%		127	%
Discount rate		10.39	%		10.21	%
Weighted average foreclosure rate		0.11	%		0.10	%
Weighted average life in years		7.69			7.54

*	Rates are applied to individual tranches with similar characteristics.

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

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

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

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


	September 30, 2023				December 31, 2022
	Notional				Notional
(in thousands)	Amount		Fair Value		Amount		Fair Value

Included in Mortgage loans held for sale:
Mortgage loans held for sale, at fair value	$	2,671	$	2,711	$	1,265	$	1,302

Included in other assets:
Rate lock loan commitments	$	9,487	$	95	$	4,118	$	2
Mandatory forward contracts		—		—		—		—

Included in other liabilities:
Mandatory forward contracts	$	9,325	$	77	$	4,009	$	67

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13. INTEREST RATE SWAPS

Non-hedge Interest Rate Swaps

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

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

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


		September 30, 2023				December 31, 2022
		Notional				Notional
(in thousands)	Bank Position	Amount		Fair Value		Amount		Fair Value

Interest rate swaps with Bank clients - Assets	Pay variable/receive fixed	$	13,413	$	202	$	40,032	$	1,386
Interest rate swaps with Bank clients - Liabilities	Pay variable/receive fixed		155,242		(8,733)		91,636		(6,742)
Interest rate swaps with Bank clients - Total	Pay variable/receive fixed	$	168,655	$	(8,531)	$	131,668	$	(5,356)

Offsetting interest rate swaps with institutional swap dealer - Assets	Pay fixed/receive variable		153,132		8,733		91,636		6,742
Offsetting interest rate swaps with institutional swap dealer - Liabilities	Pay fixed/receive variable		15,523		(202)		40,032		(1,386)
Offsetting interest rate swaps with institutional swap dealer - Total	Pay fixed/receive variable	$	168,655	$	8,531	$	131,668	$	5,356

Total		$	337,310	$	—	$	263,336	$	—

The Bank is required to pledge securities as collateral when the Bank is in a net loss position for all swaps with dealer counterparties when such net loss positions exceed $250,000. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $9 million and $560,000 as of September 30, 2023 and December 31, 2022.

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14. EARNINGS PER SHARE

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

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2023		2022		2023		2022

Net income	$	21,571	$	19,896	$	70,715	$	72,593
Dividends declared on Common Stock:
Class A Shares		(6,456)		(5,995)		(19,574)		(18,123)
Class B Shares		(733)		(669)		(2,200)		(2,010)
Undistributed net income for basic earnings per share		14,382		13,232		48,941		52,460
Weighted average potential dividends on Class A shares upon exercise of dilutive options		(25)		(21)		(62)		(70)
Undistributed net income for diluted earnings per share	$	14,357	$	13,211	$	48,879	$	52,390

Weighted average shares outstanding:
Class A Shares		17,549		17,759		17,697		17,904
Class B Shares		2,157		2,160		2,158		2,162
Effect of dilutive securities on Class A Shares outstanding		68		62		55		68
Weighted average shares outstanding including dilutive securities		19,774		19,981		19,910		20,134

Basic earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.37	$	0.34	$	1.12	$	1.02
Undistributed earnings per share*		0.74		0.67		2.49		2.64
Total basic earnings per share - Class A Common Stock	$	1.11	$	1.01	$	3.61	$	3.66

Class B Common Stock:
Per share dividends distributed	$	0.34	$	0.31	$	1.02	$	0.93
Undistributed earnings per share*		0.67		0.61		2.26		2.40
Total basic earnings per share - Class B Common Stock	$	1.01	$	0.92	$	3.28	$	3.33

Diluted earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.37	$	0.34	$	1.12	$	1.02
Undistributed earnings per share*		0.73		0.67		2.48		2.63
Total diluted earnings per share - Class A Common Stock	$	1.10	$	1.01	$	3.60	$	3.65

Class B Common Stock:
Per share dividends distributed	$	0.34	$	0.31	$	1.02	$	0.93
Undistributed earnings per share*		0.67		0.61		2.25		2.39
Total diluted earnings per share - Class B Common Stock	$	1.01	$	0.92	$	3.27	$	3.32

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

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


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2023	2022	2023	2022

Antidilutive stock options	121,781	180,000	193,398	180,000
Average antidilutive stock options	117,998	177,000	193,398	174,000

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15. OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Available-for-Sale Debt Securities:
Unrealized gain (loss) on AFS debt securities	$	1,024	$	(15,510)	$	1,812	$	(46,892)
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings		(7)		1		27		10
Net gains (losses)		1,017		(15,509)		1,839		(46,882)
Income tax benefit (expense) related to items of other comprehensive income		(250)		3,875		(461)		11,720
Net of tax		767		(11,634)	$	1,378	$	(35,162)

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


			2023
(in thousands)	December 31, 2022		Change		September 30, 2023

Unrealized gain (loss) on AFS debt securities	$	(32,934)	$	1,351	$	(31,583)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		955		27		982
Total unrealized gain (loss)	$	(31,979)	$	1,378	$	(30,601)


			2022
(in thousands)	December 31, 2021		Change		September 30, 2022

Unrealized gain (loss) on AFS debt securities	$	890	$	(35,169)	$	(34,279)
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		984		7		991
Total unrealized gain (loss)	$	1,874	$	(35,162)	$	(33,288)

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16. REVENUE FROM CONTRACTS WITH CUSTOMERS

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


	Three Months Ended September 30, 2023
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income (1)	$	47,409		$	2,467		$	84		$	49,960		$	4,525		$	10,340		$	14,865		$	64,825

Noninterest income:
Service charges on deposit accounts		3,547			11			—			3,558			—			1			1			3,559
Net refund transfer fees		—			—			—			—			242			—			242			242
Mortgage banking income (1)		—			—			852			852			—			—			—			852
Interchange fee income		3,258			—			—			3,258			23			1			24			3,282
Program fees (1)		—			—			—			—			705			3,336			4,041			4,041
Increase in cash surrender value of BOLI (1)		690			—			—			690			—			—			—			690
Death benefits in excess of cash surrender value of life insurance		—			—			—			—			—			—			—			—
Net losses on OREO		(53)			—			—			(53)			—			—			—			(53)
Legal settlement		—			—			—			—			—			—			—			—
Other		1,306			—			15			1,321			59			26			85			1,406
Total noninterest income		8,748			11			867			9,626			1,029			3,364			4,393			14,019

Total net revenue	$	56,157		$	2,478		$	951		$	59,586		$	5,554		$	13,704		$	19,258		$	78,844

Net-revenue concentration (2)		72	%		3	%		1	%		76	%		7	%		17	%		24	%		100	%


	Three Months Ended September 30, 2022
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income (1)	$	46,562		$	3,011		$	112		$	49,685		$	1,709		$	7,203		$	8,912		$	58,597

Noninterest income:
Service charges on deposit accounts		3,397			13			—			3,410			(1)			—			(1)			3,409
Net refund transfer fees		—			—			—			—			593			—			593			593
Mortgage banking income (1)		—			—			1,154			1,154			—			—			—			1,154
Interchange fee income		3,292			—			—			3,292			30			—			30			3,322
Program fees (1)		—			—			—			—			724			4,208			4,932			4,932
Increase in cash surrender value of BOLI (1)		617			—			—			617			—			—			—			617
Net losses on OREO		(53)			—			—			(53)			—			—			—			(53)
Other		1,068			—			33			1,101			33			—			33			1,134
Total noninterest income		8,321			13			1,187			9,521			1,379			4,208			5,587			15,108

Total net revenue	$	54,883		$	3,024		$	1,299		$	59,206		$	3,088		$	11,411		$	14,499		$	73,705

Net-revenue concentration (2)		75	%		4	%		2	%		81	%		4	%		15	%		19	%		100	%

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

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

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	Nine Months Ended September 30, 2023
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income (1)	$	146,198		$	7,196		$	206		$	153,600		$	40,300		$	28,096		$	68,396		$	221,996

Noninterest income:
Service charges on deposit accounts		10,351			33			—			10,384			—			1			1			10,385
Net refund transfer fees		—			—			—			—			15,528			—			15,528			15,528
Mortgage banking income (1)		—			—			2,559			2,559			—			—			—			2,559
Interchange fee income		9,639			—			—			9,639			112			1			113			9,752
Program fees (1)		—			—			—			—			2,140			8,881			11,021			11,021
Increase in cash surrender value of BOLI (1)		2,014			—			—			2,014			—			—			—			2,014
Death benefits in excess of cash surrender value of life insurance (1)		1,728			—			—			1,728			—			—			—			1,728
Net losses on OREO		(158)			—			—			(158)			—			—			—			(158)
Other		3,158			—			59			3,217			214			91			305			3,522
Total noninterest income		26,732			33			2,618			29,383			17,994			8,974			26,968			56,351

Total net revenue	$	172,930		$	7,229		$	2,824		$	182,983		$	58,294		$	37,070		$	95,364		$	278,347

Net-revenue concentration (2)		62	%		3	%		1	%		66	%		21	%		13	%		34	%		100	%


	Nine Months Ended September 30, 2022
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income (1)	$	121,868		$	11,412		$	469		$	133,749		$	18,751		$	21,078		$	39,829		$	173,578

Noninterest income:
Service charges on deposit accounts		9,971			38			—			10,009			(11)			—			(11)			9,998
Net refund transfer fees		—			—			—			—			16,594			—			16,594			16,594
Mortgage banking income (1)		—			—			5,574			5,574			—			—			—			5,574
Interchange fee income		9,693			—			—			9,693			160			—			160			9,853
Program fees (1)		—			—			—			—			2,187			10,484			12,671			12,671
Increase in cash surrender value of BOLI (1)		1,852			—			—			1,852			—			—			—			1,852
Net losses on OREO		(158)			—			—			(158)			—			—			—			(158)
Contract termination fee		—			—			—			—			5,000			—			5,000			5,000
Legal settlement		—			—			—			—			13,000			—			13,000			13,000
Other		1,939			—			113			2,052			250			—			250			2,302
Total noninterest income		23,297			38			5,687			29,022			37,180			10,484			47,664			76,686

Total net revenue	$	145,165		$	11,450		$	6,156		$	162,771		$	55,931		$	31,562		$	87,493		$	250,264

Net-revenue concentration (2)		58	%		5	%		2	%		65	%		22	%		13	%		35	%		100	%

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

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

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

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

Net refund transfer fees – An RT is a fee-based product offered by the Bank through third-party tax preparers located throughout the United States, as well as tax-preparation software providers (collectively, the “Tax Providers”), with the Bank acting as an independent contractor of the Tax Providers. An RT allows a taxpayer to pay any applicable tax preparation and filing related fees directly from the taxpayer’s federal or state government tax refund, with the remainder of the tax refund disbursed directly to the taxpayer. RT fees and all applicable tax preparation, transmitter, audit, and any other taxpayer authorized amounts are deducted from the tax refund by either the Bank or the Bank’s service provider and automatically forwarded to the appropriate party as authorized by

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the taxpayer. RT fees generally receive first priority when applying fees against the taxpayer’s refund, with the Bank’s share of RT fees generally superior to the claims of other third-party service providers, including the Tax Providers. The remainder of the refund is disbursed to the taxpayer by a Bank check, direct deposit to the taxpayer’s personal bank account, or loaded to a prepaid card.

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

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

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

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

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

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

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

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

Legal settlement – During the second quarter of 2022, Green Dot paid Republic Bank $13 million in settlement of a lawsuit.

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17. SEGMENT INFORMATION

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

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


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

Core Banking:

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

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

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

Republic Processing Group:

Tax Refund Solutions	TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax refunds through Refund Transfer products. The RPS division of TRS offers general-purpose reloadable cards. TRS and RPS products are primarily provided to clients outside of the Bank’s market footprint.	Loans, refund transfers, and prepaid cards.

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

The accounting policies used for Republic’s reportable segments are generally the same as those described in the summary of significant accounting policies in the Company’s 2022 Annual Report on Form 10-K. Republic evaluates segment performance using operating income. The Company allocates goodwill to the Traditional Banking segment. Republic generally allocates income taxes based on income before income tax expense unless reasonable and specific segment allocations can be made. The Company makes transactions among reportable segments at carrying value.

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Segment information follows:


	Three Months Ended September 30, 2023
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	47,409		$	2,467		$	84		$	49,960		$	4,525		$	10,340		$	14,865		$	64,825

Provision for expected credit loss expense		1,567			(203)			—			1,364			(1,967)			4,333			2,366			3,730

Net refund transfer fees		—			—			—			—			242			—			242			242
Mortgage banking income		—			—			852			852			—			—			—			852
Program fees		—			—			—			—			705			3,336			4,041			4,041
Other noninterest income		8,748			11			15			8,774			82			28			110			8,884
Total noninterest income		8,748			11			867			9,626			1,029			3,364			4,393			14,019

Total noninterest expense		39,381			640			1,793			41,814			3,116			3,112			6,228			48,042

Income (loss) before income tax expense		15,209			2,041			(842)			16,408			4,405			6,259			10,664			27,072
Income tax expense (benefit)		2,942			456			(185)			3,213			896			1,392			2,288			5,501

Net income (loss)	$	12,267		$	1,585		$	(657)		$	13,195		$	3,509		$	4,867		$	8,376		$	21,571

Period-end assets	$	5,375,648		$	458,542		$	14,457		$	5,848,647		$	403,733		$	134,095		$	537,828		$	6,386,475

Net interest margin		3.52	%		2.33	%		NM			3.43	%		NM			NM			NM			4.35	%

Net-revenue concentration*		72	%		3	%		1	%		76	%		7	%		17	%		24	%		100	%


	Three Months Ended September 30, 2022
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	46,562		$	3,011		$	112		$	49,685		$	1,709		$	7,203		$	8,912		$	58,597

Provision for expected credit loss expense		(753)			(386)			—			(1,139)			(1,296)			4,008			2,712			1,573

Net refund transfer fees		—			—			—			—			593			—			593			593
Mortgage banking income		—			—			1,154			1,154			—			—			—			1,154
Program fees		—			—			—			—			724			4,208			4,932			4,932
Other noninterest income		8,321			13			33			8,367			62			—			62			8,429
Total noninterest income		8,321			13			1,187			9,521			1,379			4,208			5,587			15,108

Total noninterest expense		37,838			851			2,005			40,694			3,248			2,224			5,472			46,166

Income before income tax expense		17,798			2,559			(706)			19,651			1,136			5,179			6,315			25,966
Income tax expense		4,299			572			(156)			4,715			202			1,153			1,355			6,070

Net income	$	13,499		$	1,987		$	(550)		$	14,936		$	934		$	4,026		$	4,960		$	19,896

Period-end assets	$	5,036,343		$	441,885		$	16,418		$	5,494,646		$	395,873		$	109,144		$	505,017		$	5,999,663

Net interest margin		3.63	%		2.54	%		NM			3.54	%		NM			NM			NM			4.09	%

Net-revenue concentration*		75	%		4	%		2	%		81	%		4	%		15	%		19	%		100	%

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

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	Nine Months Ended September 30, 2023
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	146,198		$	7,196		$	206		$	153,600		$	40,300		$	28,096		$	68,396		$	221,996

Provision for expected credit loss expense		6,411			134			—			6,545			19,622			10,468			30,090			36,635

Net refund transfer fees		—			—			—			—			15,528			—			15,528			15,528
Mortgage banking income		—			—			2,559			2,559			—			—			—			2,559
Program fees		—			—			—			—			2,140			8,881			11,021			11,021
Contract termination fee		—			—			—			—			—			—			—			—
Legal settlement		—			—			—			—			—			—			—			—
Other noninterest income		26,732			33			59			26,824			326			93			419			27,243
Total noninterest income		26,732			33			2,618			29,383			17,994			8,974			26,968			56,351

Total noninterest expense		122,386			2,616			6,669			131,671			11,907			8,440			20,347			152,018

Income (loss) before income tax expense		44,133			4,479			(3,845)			44,767			26,765			18,162			44,927			89,694
Income tax expense (benefit)		8,965			1,001			(846)			9,120			5,828			4,031			9,859			18,979

Net income (loss)	$	35,168		$	3,478		$	(2,999)		$	35,647		$	20,937		$	14,131		$	35,068		$	70,715

Period-end assets	$	5,375,648		$	458,542		$	14,457		$	5,848,647		$	403,733		$	134,095		$	537,828		$	6,386,475

Net interest margin		3.76	%		2.37	%		NM			3.68	%		NM			NM			NM			5.09	%

Net-revenue concentration*		62	%		3	%		1	%		66	%		21	%		13	%		34	%		100	%


	Nine Months Ended September 30, 2022
	Core Banking												Republic Processing Group
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	121,868		$	11,412		$	469		$	133,749		$	18,751		$	21,078		$	39,829		$	173,578

Provision for expected credit loss expense		(287)			(1,021)			—			(1,308)			6,976			8,836			15,812			14,504

Net refund transfer fees		—			—			—			—			16,594			—			16,594			16,594
Mortgage banking income		—			—			5,574			5,574			—			—			—			5,574
Program fees		—			—			—			—			2,187			10,484			12,671			12,671
Contract termination fee		—			—			—			—			5,000			—			5,000			5,000
Legal settlement		—			—			—			—			13,000			—			13,000			13,000
Other noninterest income		23,297			38			113			23,448			399			—			399			23,847
Total noninterest income		23,297			38			5,687			29,022			37,180			10,484			47,664			76,686

Total noninterest expense		114,381			2,838			7,527			124,746			11,928			5,729			17,657			142,403

Income before income tax expense		31,071			9,633			(1,371)			39,333			37,027			16,997			54,024			93,357
Income tax expense		6,419			2,168			(302)			8,285			8,573			3,906			12,479			20,764

Net income	$	24,652		$	7,465		$	(1,069)		$	31,048		$	28,454		$	13,091		$	41,545		$	72,593

Period-end assets	$	5,036,343		$	441,885		$	16,418		$	5,494,646		$	395,873		$	109,144		$	505,017		$	5,999,663

Net interest margin		3.20	%		2.79	%		NM			3.16	%		NM			NM			NM			3.99	%

Net-revenue concentration*		58	%		5	%		2	%		65	%		22	%		13	%		35	%		100	%

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

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

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

Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-member financial institution that provides both traditional and non-traditional banking products through five reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives for which insurance may not be available or economically feasible. In May 2023, the Company’s Board of Directors voted to dissolve the Captive. The dissolution of the Captive is expected to occur during the fourth quarter of 2023.

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

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

Broadly speaking, forward-looking statements include:

●

the potential impact of inflation on Company operations;

●

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

●

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

●

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

●

forecasts of future economic performance; and

●

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

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

●

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

●

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

●

natural disasters impacting the Company’s operations;

●

changes in political and economic conditions;

●

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

●

the discontinuation of LIBOR;

●

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

●

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

●

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

●

equity and fixed income market fluctuations;

●

client bankruptcies and loan defaults;

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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;

●

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

●

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

●

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

●

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

●

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

Accounting Standards Update

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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

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

ACLL and Provision — As of September 30, 2023, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the ACLL monthly and presents and discusses the ACLL with the Audit Committee and the Board of Directors quarterly.

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

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

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

BUSINESS SEGMENT COMPOSITION

(I) Traditional Banking segment

The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of September 30, 2023, Republic had 46 banking centers with locations as follows:

●

Kentucky — 29

●

Metropolitan Louisville — 18

●

Central Kentucky — 7

●

Georgetown — 1

●

Lexington — 5

●

Shelbyville — 1

●

Northern Kentucky — 4

●Bellevue— 1

●

Covington — 1

●

Crestview Hills — 1

●

Florence — 1

●

Indiana — 3

●

Southern Indiana — 3

●

Floyds Knobs — 1

●

Jeffersonville — 1

●

New Albany — 1

●

Florida — 7

●

Metropolitan Tampa — 7

●

Ohio — 4

●

Metropolitan Cincinnati — 4

●

Tennessee — 3

●

Metropolitan Nashville — 3

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(II) Warehouse

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

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temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank. Individual loans are expected to remain on the warehouse line for an average of 15 to 30 days. Advances for Reverse mortgage loans and construction loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each individual advance during the time the advance remains on the warehouse line and collected when the loan is sold. The Core Bank receives the sale proceeds of each loan directly from the investor and applies the funds to pay off the warehouse advance and related accrued interest and fees. The remaining proceeds are credited to the mortgage-banking client.

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

(III) Mortgage Banking segment

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

See additional detail regarding the Mortgage Banking segment under Footnote 12 “Mortgage Banking Activities” and Footnote 17 “Segment Information” of Part I Item 1 “Financial Statements.”

(IV) Tax Refund Solutions segment

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

●

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;

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

●

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

●

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

●

If an insufficient refund to repay the RA occurs:

there is no recourse to the taxpayer,

no negative credit reporting on the taxpayer, and

no collection efforts against the taxpayer.

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

●

Offered only during December 2022 and January 2023;

●

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

●

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

●

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

●

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

●

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

there is no recourse to the taxpayer,

no negative credit reporting on the taxpayer, and

no collection efforts against the taxpayer.

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

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Cancelled Sale Transaction - As previously disclosed, Green Dot Corporation paid RB&T a contract termination fee of $5.0 million during the first quarter of 2022 and a legal settlement of $13.0 million during the second quarter of 2022 related to the cancelled Sale Transaction.

Republic Payment Solutions division

(V) Republic Credit Solutions segment

●

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.

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

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

●

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this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intention to sell these loans to a third-party, who is an affiliate of the Bank’s third-party service provider, generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.

●

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

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

OVERVIEW (Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022)

Total Company net income for the third quarter of 2023 was $21.6 million, an increase of $1.7 million over the same period in 2022. Diluted EPS also increased to $1.10 for the third quarter of 2023 compared to $1.01 for the same period in 2022. The increase in net income primarily reflected the following by reportable segment:

Traditional Banking segment

●

Net income decreased $1.2 million, 9%, for the third quarter of 2023 compared to the same period in 2022.

●

Net interest income increased $847,000, or 2%, for the third quarter of 2023 compared to the same period in 2022.

●

Provision was a net charge of $1.6 million for the third quarter of 2023 compared to a net credit of $753,000 for the same period in 2022.

●

Noninterest income increased $427,000, or 5%, for the third quarter of 2023 compared to the same period in 2022.

●

Noninterest expense increased $1.5 million, or 4%, for the third quarter of 2023 compared to the same period in 2022.

Warehouse

●

Net income decreased $402,000 or 20%, for the third quarter of 2023 compared to the same period in 2022.

●

Net interest income decreased $544,000, or 18%, for the third quarter of 2023 compared to the same period in 2022.

●

The Warehouse Provision was a net credit of $203,000 for the third quarter of 2023 compared to a net credit of $386,000 for the same period in 2022.

●

Average committed Warehouse lines decreased to $1.0 billion in the third quarter of 2023 compared to $1.3 billion in the third quarter of 2022.

●

Average line usage was 42% during the third quarter of 2023 compared to 38% during the same period in 2022.

Mortgage Banking segment

●

Within the Mortgage Banking segment, mortgage banking income decreased $302,000, or 26%, during the third quarter of 2023 compared to the same period in 2022.

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●

Overall, Republic’s proceeds from the sale of secondary market loans totaled $26 million during the third quarter of 2023 compared to $39 million during the same period in 2022, with the Company’s cash-gain-as-a-percent-of-loans-sold increased to 2.33% for the third quarter of 2023 from 2.23% for the third quarter of 2022.

Tax Refund Solutions segment

●

Net income increased $2.6 million, or 276%, for the third quarter of 2023 compared to the same period in 2022.

●

Net interest income increased $2.8 million for the third quarter of 2023 compared to the same period in 2022.

●

Overall, TRS recorded a net credit to the Provision of $2.0 million during the third quarter of 2023 compared to a net credit to the Provision of $1.3 million for the same period in 2022.

●

Noninterest income decreased $350,000, or 25%, for the third quarter of 2023 compared to the same period in 2022.

●

Within noninterest income, net RT revenue decreased $351,000, or 59%, for the third quarter of 2023 compared to the same period in 2022.

●

Noninterest expense was $3.1 million for the third quarter of 2023 compared to $3.2 million for the same period in 2022.

Republic Credit Solutions segment

●

Net income increased $841,000, or 21%, for the third quarter of 2023 compared to the same period in 2022.

●

Net interest income increased $3.1 million, or 44%, for the third quarter of 2023 compared to the same period in 2022.

●

Overall, RCS recorded a net charge to the Provision of $4.3 million during the third quarter of 2023 compared to a net charge of $4.0 million for the same period in 2022.

●

Noninterest income decreased $844,000, or 20%, from the third quarter of 2022 to the third quarter of 2023.

●

Noninterest expense was $3.1 million for the third quarter of 2023 and $2.2 million for the same period in 2022.

RESULTS OF OPERATIONS (Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022)

Net Interest Income

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

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

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

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Table 1 — Increases to the Federal Funds Target Rate from January 1, 2022 through September 30, 2023


	Increase to		FFTR
Date	the FFTR		after Increase

March 17, 2022	0.25	%	0.50	%
May 5, 2022	0.50		1.00
June 16, 2022	0.75		1.75
July 27, 2022	0.75		2.50
September 21, 2022	0.75		3.25
November 2, 2022	0.75		4.00
December 15, 2022	0.50		4.50
February 2, 2023	0.25		4.75
March 23, 2023	0.25		5.00
May 4, 2023	0.25		5.25
July 26, 2023	0.25		5.50

The FOMC’s actions and signals continued to place upward pressure on short-term market interest rates throughout the second half of 2022 and the first nine months of 2023. While long-term interest rates initially rose in tandem with the increases to the FFTR through the middle part of 2022, they generally moved lower than short-term rates during the second half of 2022 and maintained a relative lower level into 2023 as the market generally began to anticipate a recession to take place in 2023. As a result of the increase in short-term interest rates and the moderation of long-term interest rates, the yield curve has been inverted for several months, with short-term rates generally higher than long-term rates on the yield curve.

During the third quarter of 2023, long-term rates began to increase meaningfully with short-term rates remaining relatively stable by comparison. As a result, the inversion of the yield curve became less extreme during the third quarter of 2023 as the yields on longer-term interest rates approached the yields on shorter-term interest rates. While the inversion did become less extreme during the quarter, the yield curve remained inverted as of September 30, 2023. Because banks generally price customer deposits based on the shorter-end of the yield curve and price many loans based on the longer-end of the yield curve, an inverted yield curve is generally negative for banks’ net interest income while a steep yield curve, in which long-term rates exceed short-term rates, is generally favorable for banks.

At this time, the near-term shape of the yield curve is uncertain. The Federal Reserve continues to signal its willingness to implement appropriate monetary policy to reduce inflation. Any further monetary tightening by the FOMC in the future will likely cause short-term interest rates to increase. The impact additional short-term rate increases by the FOMC could have on long-term market interest rates is unknown.

Total Company net interest income was $64.8 million during the third quarter of 2023 and represented an increase of $6.2 million, or 11%, from the third quarter of 2022. The Total Company net interest margin increased to 4.35% during the third quarter of 2023 compared to 4.09% for the same period in 2022.

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

Traditional Banking segment

Net interest income within the Traditional Bank was slightly higher from the third quarter of 2022 to the third quarter of 2023 with a slight decrease in NIM over the same periods. Overall, the Traditional Bank’s net interest income increased $847,000, or 2%, while its NIM declined 13 basis points from the third quarter of 2022 to 3.50% for the third quarter of 2023.

The small increase in net interest income at the Traditional Bank from the third quarter of 2022 to the third quarter of 2023 is a continuing change in trend from early 2023, when the Traditional Bank’s net interest income was much higher on a period-over-same-period-last-year basis. The on-going drivers of this change in trend, which began to emerge late in the first quarter of 2023, were a reduction in average interest-earning cash balances compared to the same period in the prior year combined with an on-going shift in funding mix away from noninterest-bearing deposit balances into higher-costing, interest-bearing deposits and Federal Home Loan Bank advances. As a result of these factors, the Traditional Bank’s yield on its interest earning assets increased 120 basis points from the third quarter of 2022 to the third quarter of 2023, while the cost of its interest-bearing liabilities increased 203 basis points over the same periods.

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Further detailing this change in net interest income and NIM between the third quarter of 2022 and the third quarter of 2023 were the following:

●

Traditional Bank average loans grew from $3.7 billion with a weighted-average yield of 4.23% during the third quarter of 2022 to $4.4 billion with a weighted average yield of 5.23% during the third quarter of 2023. As previously noted, loan growth remained particularly strong within the Core Bank during the first nine months of 2023, with the acquisition of CBank adding approximately $217 million to the Core Bank’s average loans during the third quarter of 2023.

●

Average investments were $772 million with a weighted-average yield of 2.75% during the third quarter of 2023 compared to $695 million with a weighted-average yield of 1.88% for the third quarter of 2022. As part of its overall interest rate risk management strategy, the Traditional Bank generally maintains an investment portfolio with a shorter overall duration as compared to its peers. This strategy is generally favorable to net interest income in a rising interest rate environment.

●

The Traditional Bank’s average noninterest-bearing deposits decreased from $1.6 billion during the third quarter of 2022 to $1.4 billion for the third quarter of 2023. This decrease in average noninterest-bearing deposits was primarily funded through a decrease in interest-earning cash balances and an increase in FHLB borrowings.

●

The Traditional Bank’s weighted-average cost of interest-bearing liabilities increased from 0.02% during the third quarter of 2022 to 2.05% for the third quarter of 2023. Further segmenting the Traditional Bank’s interest-bearing liabilities:

The weighted-average cost of total interest-bearing deposits increased from 0.26% during the third quarter of 2022 to 2.08% for the third quarter of 2023. In addition, average interest-bearing deposits grew $199 million from the third quarter of 2022 to the third quarter of 2023.

The average balance of FHLB borrowings increased from $20 million for the third quarter of 2022 to $442 million for the third quarter of 2023. In addition, the weighted-average cost of these borrowings increased from 1.91% to 4.85% for the same time periods. As noted above, this increase in the average balance of borrowings was generally driven by a period-to-period decline in average deposit balances.

●

Average interest-earning cash was $173 million with a weighted-average yield of 5.53% during the third quarter of 2023 compared to $724 million with a weighted-average yield of 2.31% for the third quarter of 2022. The decline in average cash balances was driven generally by a decrease in average deposit balances in combination with n an increase in average loans for the same periods.

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

As a result of the declining cash balances, the increasing cost of deposits and the increasing balances of higher costing FHLB advances, the Bank began to experience a diminishing benefit to its net interest income and net interest margin with additional increases in the FFTR during the first quarter of 2023. This trend continued during the third quarter of 2023, as the increase in Traditional Bank interest income only slightly exceeded the increase in Traditional Bank interest expense.

Management believes the Traditional Bank will continue to experience net interest margin compression during the fourth quarter of 2023 as a result of the negative impact of 1) lower interest-earning cash and low-cost deposit balances; 2) larger, higher-costing average balances of FHLB borrowings; and 3) a continuing rise in the cost of interest-bearing deposits in order to maintain client balances. Additional variables which may also impact the Traditional Bank’s net interest income and net interest margin in the future include, but are not limited to, the actual steepness and shape of the yield curve, future demand for the Traditional Bank’s financial products, and the Traditional Bank’s overall future liquidity needs.

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

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Warehouse

Net interest income within Warehouse decreased $544,000, or 18%, from the third quarter of 2022 to the third quarter of 2023, driven by decreases in both average outstanding balances and net interest margin. Overall average outstanding Warehouse balances declined from $474 million during the third quarter of 2022 to $423 million for the third quarter of 2023, as home-mortgage refinancing dipped from a significantly higher volume in early 2022. Driving this decrease in average outstanding balances was a decline in committed lines-of-credit to $1.0 billion as September 30, 2023 from $1.2 billion as of September 30, 2022. Concurrent with the decline in committed lines of credit, the average usage rates for Warehouse lines increased to 42% during the third quarter of 2023 from 38% for the first quarter of 2022.

The Warehouse net interest margin compressed 21 basis points from 2.54% during the third quarter of 2022 to 2.33% during the third quarter of 2023. The decline in the Warehouse net interest margin occurred as its funding costs, as charged through the Company’s internal FTP methodology, generally rose in tandem with the increase in short-term interest rates since rates began rising in March 2022, while its yield increases were delayed until the adjustable rates on its clients’ lines of credit surpassed their contractual interest rate floors. These interest rate floors benefited the Warehouse’s net interest margin substantially during 2020 and 2021 when market rates declined to historical lows but have produced margin compression since the onset of the FFTR increases during the first quarter of 2022.

Additional increases in long-term market interest rates will likely lead to a continued reduction in average outstanding balances driven by a decline in demand from Warehouse clients, as higher long-term interest rates generally drive lower demand for Warehouse borrowings. In addition, because the yields on Warehouse lines of credit are generally tied to short-term interest rates, additional increases in short-term interest rates could cause further competitive pricing pressures for the industry and the Core Bank, driving down the yield Warehouse earns on its lines of credits.

Tax Refund Solutions segment

TRS’s net interest income increased $2.8 million for the third quarter of 2023 compared to the same period in 2022, driven primarily by an increase interest income on TRS’s prepaid card balances as a function of the Company’s FTP methodology and a rise in interest rates.

The prepaid card product component of TRS drove a $3 million increase to net interest income for the segment. This increase was generally driven by a higher crediting rate applied through the Company’s internal FTP. The prepaid card FTP credit yield was 5.00% for average prepaid card-related balances of $343 million during the third quarter of 2023 compared to 1.70% for average prepaid card-related balances of $338 million during the third quarter of 2022.

Republic Credit Solutions segment

RCS’s net interest income increased $3.1 million, or 44%, from the third quarter of 2022 to the third quarter of 2023. The increase was driven primarily by an increase in fee income from RCS’s LOC II product.

RCS’s LOC II loan fees, which are recorded as interest income on loans, increased to $9.8 million during the third quarter of 2023 compared to $6.6 million during the same period in 2022. The Company first piloted this product during the first quarter of 2021 with limited outstanding balances during the pilot phase. It began to ramp up origination volume for the product during early 2022 and has steadily increased its volume since then, leading to corresponding higher year-over-year revenue.

Overall customer demand for the RCS segment’s products is not assumed to be interest rate sensitive and therefore management does not believe a rising interest rate environment will impact origination volume for its various consumer loan products. A rising interest rate environment, however, likely will impact the Company’s internal FTP cost allocated to this segment. As a result, the impact of rising interest rates to RCS during 2023 will be negative to the segment’s financial results, although the exact amount of the negative impact will depend on the internal FTP cost assigned as well as the overall volume and mix of loans it generates.

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The following table presents the average balance sheets for the three-month periods ended September 30, 2023 and 2022, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

Table 2 — Total Company Average Balance Sheets and Interest Rates



	Three Months Ended September 30, 2023						Three Months Ended September 30, 2022
	Average				Average		Average				Average
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate

ASSETS

Interest-earning assets:
Federal funds sold and other interest-earning deposits	$	177,003	$	2,395	5.41	%	$	727,626	$	4,175	2.30	%
Investment securities, including FHLB stock (1)		771,453		5,298	2.75			694,781		3,275	1.89
RCS LOC products (2)		37,319		9,762	104.63			30,919		7,196	93.09
Other RPG loans (3) (6)		99,036		2,079	8.40			77,429		1,102	5.69
Outstanding Warehouse lines of credit (4) (6)		423,141		8,154	7.71			473,923		5,491	4.63
All other Core Bank loans (5) (6)		4,446,585		58,180	5.23			3,723,898		39,378	4.23

Total interest-earning assets		5,954,537		85,868	5.77			5,728,576		60,617	4.23

Allowance for credit losses		(73,438)						(65,262)

Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		96,303						108,069
Premises and equipment, net		34,013						33,307
Bank owned life insurance		102,825						100,740
Other assets (1)		220,595						170,693
Total assets	$	6,334,835					$	6,076,123

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:
Transaction accounts	$	1,455,193	$	3,552	0.98	%	$	1,703,020	$	495	0.12	%
Money market accounts		905,089		6,391	2.82			787,523		601	0.31
Time deposits		328,071		2,706	3.30			238,149		703	1.18
Reciprocal money market and time deposits		281,277		2,748	3.91			48,432		31	0.26
Brokered deposits		7,222		100	5.54			—		—	—

Total interest-bearing deposits		2,976,852		15,497	2.08			2,777,124		1,830	0.26

SSUARs and other short-term borrowings		90,063		196	0.87			220,149		94	0.17
Federal Home Loan Bank advances and other long-term borrowings		441,543		5,350	4.85			20,000		96	1.92

Total interest-bearing liabilities		3,508,458		21,043	2.40			3,017,273		2,020	0.27

Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		1,794,874						2,096,206
Other liabilities		133,237						108,965
Stockholders’ equity		898,266						853,679
Total liabilities and stockholders’ equity	$	6,334,835					$	6,076,123

Net interest income			$	64,825					$	58,597

Net interest spread					3.37	%					3.96	%

Net interest margin					4.35	%					4.09	%

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

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

(3)	Interest income includes loan fees of $0 and $0 for the three months ended September 30, 2023 and 2022.

(4)	Interest income includes loan fees of $254,000 and $402,000 for the three months ended September 30, 2023 and 2022.

(5)	Interest income includes loan fees of $1.7 million and $911,000 for the three months ended September 30, 2023 and 2022.

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

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

Table 3 — Total Company Volume/Rate Variance Analysis


		Three Months Ended September 30, 2023
		Compared to
		Three Months Ended September 30, 2022
	Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate

Interest income:

Federal funds sold and other interest-earning deposits	$	(1,780)	$	(4,695)	$	2,915
Investment securities, including FHLB stock		2,023		394		1,629
RCS LOC products		2,566		1,605		961
Other RPG loans		977		362		615
Outstanding Warehouse lines of credit		2,663		(643)		3,306
All other Core Bank loans		18,802		8,458		10,344
Net change in interest income		25,251		5,481		19,770

Interest expense:

Transaction accounts		3,057		(82)		3,139
Money market accounts		5,790		103		5,687
Time deposits		2,003		348		1,655
Reciprocal money market and time deposits		2,717		685		2,032
Brokered deposits		100		100		—
SSUARs and other short-term borrowings		102		(84)		186
Federal Home Loan Bank advances		5,254		4,900		354
Net change in interest expense		19,023		5,970		13,053

Net change in net interest income	$	6,228	$	(489)	$	6,717

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Provision

Total Company Provision was a net charge of $3.7 million for the third quarter of 2023 compared to a net charge of $1.6 million for the same period in 2022.

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

Traditional Banking segment

The Traditional Banking Provision during the third quarter of 2023 was a net charge of $1.6 million compared to a net credit of $753,000 for the third quarter of 2022.

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

●

The Traditional Bank recorded a net charge to the Provision of $1.6 million for general formula reserves applied to $101 million of Traditional Bank loan growth for the quarter.

The net credit during the third quarter of 2022 was primarily driven by the following:

●

The Traditional Bank recorded a net credit to the Provision of $1.7 million during the quarter substantially all of which was related to the favorable payoff of one large, classified loan.

●

Offsetting the above, the Traditional Bank recorded a net charge to the Provision of $974,000 resulting primarily from general formula reserves applied to $81 million of growth for the quarter in non-PPP Traditional Bank loans.

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.27% as of September 30, 2023 compared to 1.32% as of December 31, 2022 and 1.31% as of September 30, 2022. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of September 30, 2023.

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

Warehouse

Warehouse recorded a net credit to the Provision of $203,000 for the third quarter of 2023 compared to a net credit of $386,000 for the same period in 2022. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances increased $81 million during the third quarter of 2023 compared to a decrease of $93 million during the third quarter of 2022.

As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% as of September 30, 2023, December 31, 2022, and September 30, 2022. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses as of September 30, 2023.

Tax Refund Solutions segment

TRS recorded a net credit to the Provision of $2.0 million during the third quarter of 2023 compared to a net credit of $1.3 million for the same period in 2022. Substantially all TRS Provision in both periods was related to its RA product.

RAs related to the first quarter 2023 tax filing season were only originated during December of 2022 and the first two months of 2023. RAs related to the first quarter 2022 tax filing season were only originated during the first two months of 2022. As is the case each year as of March 31^st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30th. RAs collected during the second half of a year are recorded as recoveries of previously charged-off loans unless they were covered under a loss guaranty arrangement. Any RAs subject to a loss guaranty arrangement that are recovered during the second half of the year are distributed to the guarantor.

As of September 30, 2023, TRS’s incurred loss rate related to RAs that were associated with the first quarter 2023 tax filing season was 3.79% of the $835 million of the total loans originated during December 2022 and the first two months of 2023. TRS’s incurred

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loss rate for RAs as of September 30, 2022 was 2.87% of total originations and it finished 2022 with a final RA loss rate of 2.20% of total RAs originated.

For factors affecting the comparison of the TRS results of operations for the third quarter of 2023 and the third quarter of 2022, see section titled “OVERVIEW (Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022) - Tax Refund Solutions.”

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

Table 4 — Refund Advance Performance



(dollars in thousands)		2023 Tax Season			2022 Tax Season			2023/2022 Change

RAs originated during the tax season (1)	(a)	$	834,552		$	311,207		$	523,345

RA net charge-offs (recoveries) recorded ($):
RA net losses recognized for the six months ended June 30,	(b)	$	25,823		$	7,583		$	18,240
Provision expense recorded during the six months ended June 30,	(c)		25,798			8,879			16,919
Second quarter Provision true-up for three months ended June 30,	(d)	$	25		$	(1,296)		$	1,321

RA net charge-offs (recoveries) recorded (%):
RA net losses recognized for the six months ended June 30,	(b)/(a)		3.09	%		2.44	%		0.65	%
Provision expense recorded during the six months ended June 30,	(c)/(a)		3.09			2.85			0.24
Second quarter Provision true-up for three months ended June 30,	(d)/(a)		-	%		(0.41)	%		0.41	%

(1)

The Company originated $98 million of ERAs in December of 2022 related to the 2023 Tax Season. ERAs were not offered in December of 2021 related to the 2022 Tax Season.

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

Republic Credit Solutions segment

As illustrated in Table 5 below, RCS recorded a net charge to the Provision of $4.3 million during the third quarter of 2023 compared to a net charge to the Provision of $4.0 million for the same period in 2022. The increase in the Provision was driven primarily by a $965,000 increase in net charge-offs for RCS’s LOC II product, which resulted in a higher reserve percentage being applied to the outstanding balances. Partially offsetting the increase in Provision related to the RCS LOC II product, net charge-offs for RCS’s LOC I product decreased $500,000 for the third quarter of 2023 compared to third quarter of 2022.

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 13.00% as of September 30, 2023, 12.88% as of June 30, 2023, 13.73% as of December 31, 2022, and 14.73% as of September 30, 2022. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of September 30, 2023.

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

Table 5 — RCS Provision by Product


	Three Months Ended Sep. 30,
(dollars in thousands)	2023		2022		$ Change		% Change
Product:
Lines of credit	$	4,320	$	3,996	$	324	8	%
Healthcare receivables		13		12		1	8
Total	$	4,333	$	4,008	$	325	8	%

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Table 6 — Summary of Loan and Lease Loss Experience


	Three Months Ended
	September 30,
(dollars in thousands)	2023			2022

ACLL at beginning of period	$	72,202		$	64,449

Charge-offs:

Traditional Banking:
Residential real estate		(9)			—
Consumer		(323)			(353)
Total Traditional Banking		(332)			(353)
Warehouse lines of credit		—			—
Total Core Banking		(332)			(353)

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		—			—
Other TRS loans		—			—
Republic Credit Solutions		(3,340)			(2,922)
Total Republic Processing Group		(3,340)			(2,922)
Total charge-offs		(3,672)			(3,275)

Recoveries:

Traditional Banking:
Residential real estate		24			24
Commercial real estate		7			275
Commercial & industrial		7			124
Lease financing receivables		10			—
Home equity		1			7
Consumer		80			110
Total Traditional Banking		129			540
Warehouse lines of credit		—			—
Total Core Banking		129			540

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		1,939			1,296
Other TRS commercial & industrial loans		29			—
Republic Credit Solutions		219			266
Total Republic Processing Group		2,187			1,562

Total recoveries		2,316			2,102

Net loan recoveries (charge-offs)		(1,356)			(1,173)

Provision - Core Banking		1,364			(1,069)
Provision - RPG		2,366			2,712
Total Provision		3,730			1,643
ACLL at end of period	$	74,576		$	64,919


Credit Quality Ratios - Total Company:

ACLL to total loans		1.47	%		1.51	%
ACLL to nonperforming loans		389			397
Net loan charge-offs (recoveries) to average loans		0.11			0.11

Credit Quality Ratios - Core Banking:

ACLL to total loans		1.17	%		1.20	%
ACLL to nonperforming loans		320			308
Net loan charge-offs (recoveries) to average loans		0.02			(0.02)

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Table 7 — Annualized Net Loan Charge-offs (Recoveries) to Average Loans by Loan Category


	Net Loan Charge-Offs (Recoveries) to Average Loans
	Three Months Ended
	September 30,
	2023		2022

Traditional Banking:
Residential real estate:
Owner occupied	(0.01)	%	(0.01)	%
Nonowner occupied	—		—
Commercial real estate	—		(0.07)
Construction & land development	—		—
Commercial & industrial	(0.01)		(0.13)
Lease financing receivables	(0.05)		—
Aircraft	—		—
Home equity	—		(0.01)
Consumer:
Credit cards	0.30		0.15
Overdrafts	89.88		111.26
Automobile loans	3.78		(0.47)
Other consumer	0.41		3.49
Total Traditional Banking	0.02		(0.02)
Warehouse lines of credit	—		—
Total Core Banking	0.02		(0.02)

Republic Processing Group:
Tax Refund Solutions:
Refund Advances*	NM		NM
Other TRS commercial & industrial loans	NM		NM
Republic Credit Solutions	2.45		2.77
Total Republic Processing Group	0.91		1.42
Total	0.11	%	0.11	%

* All loss rates above are based on net charge-offs as a function of average outstanding portfolio balances. Refund Advances are originated during the first two months of each year, with all RAs charged-off by June 30^th of each year. Due to their relatively short life, RA net charge-offs are typically analyzed by the Company as a percentage of total RA originations, not as a percentage of average outstanding balances.

The Company’s net charge-offs to total average loans remained at 0.11% from the third quarter of 2022 to the third quarter of 2023.

From the third quarter of 2022 to the third quarter of 2023, TRS experienced a $643,000 increase in net RA recoveries due to the $523 million increase in year-over-year tax-season origination volume.

From the third quarter of 2022 to the third quarter of 2023, RCS experienced a $465,000 increase in net charge-offs primarily driven by an increase in net charge-offs within RCS’s LOC II product. Net charge-offs within this product increased $965,000 from the third quarter of 2022 to the third quarter of 2023. This product was first piloted during the first quarter of 2021. RCS began to ramp up origination volume for the RCS LOC II product during early 2022 and has steadily increased its volume since then, leading to a continuing increase in the period-over-previous-period net charge-offs for the product.

During the third quarters of 2023 and 2022, the Company’s Core Bank net charge-offs to average Core Bank loans remained near zero.

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Noninterest Income

Total Company noninterest income decreased $1.1 million during the third quarter of 2023 compared to the same period in 2022.

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

Traditional Banking segment

Traditional Banking’s noninterest income increased $427,000, or 5%, for the third quarter of 2023 compared to the same period in 2022, with no material fluctuations to note.

The Traditional Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the three months ended September 30, 2023 and 2022 were $1.9 million and $1.8 million. The total daily overdraft charges, net of refunds, included in interest income for the three months ended September 30, 2023 and 2022 were $327,000 and $337,000.

Mortgage Banking segment

A decrease in Mortgage banking income for the third quarter of 2023 was generally caused by substantially higher long-term market interest rates, which led to a significant slowdown in the origination of mortgage loans to be sold into the secondary market. For the third quarter of 2023, the 30-year mortgage rate was fluctuating within a range between 7.0% and 7.50% for most of the entire quarter. As a result, the Core Bank sold $26 million in secondary market loans and achieved an average cash-gain-as-a-percent-of-loans-sold of 2.33% during the third quarter of 2023 compared to sales of $39 million with comparable cash-gain-as-a-percent-of-loans-sold of 2.23% during the third quarter of 2022 when mortgage rates were notably lower.

With long term interest rates trending during the third quarter of 2023, management believes it is likely that the Core Bank’s mortgage origination volume will continue to be negatively impacted by higher interest rates causing additional declines in mortgage banking income during the fourth quarter of 2023.

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Republic Credit Solutions segment

RCS’s noninterest income decreased $844,000, or 20%, during the third quarter of 2023 compared to the same period in 2022, with program fees representing the entirety of RCS’s noninterest income. The decrease in RCS program fees primarily reflected lower sales volume and corresponding gains from RCS’s installment loan product which were substantially offset by higher sales volume and gains from RCS’s LOC II product.

Proceeds from the sale of RCS’s installment loan products totaled $33 million during the third quarter of 2023, a 66% decrease from the same period in 2022. Proceeds from the sale of RCS's loan products totaled $290 million during the third quarter of 2023, a 21% decrease from the same period in 2022. Partially offsetting the decrease, RCS sold approximately $133 million of balances for the LOC II product during the third quarter of 2023, an increase of 109% over the third quarter of 2022. This increase in sales volume for the LOC II product contributed to a $702,000 increase in RCS program fee revenue, which partially offset the decline in revenue from the installment product. RCS began to ramp up origination volume for the LOC II product during early 2022 and has steadily increased its volume since then, leading to corresponding higher year-over-year net program revenue.

The following table presents RCS program fees by product:

Table 8 — RCS Program Fees by Product


	Three Months Ended Sep. 30,
(dollars in thousands)	2023		2022		$ Change		% Change
Product:
Lines of credit	$	2,335	$	1,828	$	507	28	%
Healthcare receivables		50		38		12	32
Installment loans*		951		2,342		(1,391)	(59)
Total	$	3,336	$	4,208	$	(872)	(21)	%

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

Noninterest Expense

Total Company noninterest expense increased $1.9 million, or 4%, during the third quarter of 2023 compared to the same period in 2022.

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

Traditional Banking segment

Traditional Banking noninterest expense increased $1.5 million, or 4%, for the third quarter of 2023 compared to the same period in 2022. The following primarily drove the change in noninterest expense:

●

Noninterest expense associated with the former CBank operations acquired in March 2023 totaled $913,000 across all categories for the third quarter of 2023, with no such expenses for the third quarter of 2022.

●

Legacy Salaries and Benefits expense increased $1.2 million, or 6%, to $23.6 million for the third quarter of 2023. The most notable changes within this category were as follows:

Direct Legacy salaries increased a net $1.4 million, or 8%, due primarily to the additional cost of annual merit increases.

Legacy Overhead salaries increased $244,000, as a greater portion of overhead salaries was allocated to the Traditional Banking segment than the Mortgage Banking segment during the third quarter of 2023 compared to the same period in 2022. Overhead salaries are allocated to the Traditional Banking and the Mortgage Banking segments each period based on each segment’s pro rata mortgage production, with Mortgage Banking production disproportionately and negatively impacted more during 2023 following a rise in interest rates.

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Mortgage Banking segment

Noninterest expense at the Mortgage Banking segment decreased $212,000, or 27%, during the third quarter of 2023 compared to the same period in 2022, primarily due to a $128,000 reduction in overhead salaries allocated to the Mortgage Banking segment and a $65,000 decrease in other overhead shared costs, with both reductions resulting from the previously discussed slowdown in mortgage origination volume.

Republic Credit Solutions segment

Noninterest expense at the RCS segment increased $888,000, or 40%, during the third quarter of 2023 compared to the same period in 2022. Approximately $792,000 of this increase was concentrated within the LOC II product and was primarily a result of a year-over-year increase in marketing activity for the product.

OVERVIEW (Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022)

Total Company net income for the first nine months of 2023 was $70.7 million, a $1.9 million, or 3%, decrease from the same period in 2022. Diluted EPS decreased to $3.60 for the first nine months of 2023 compared to $3.65 for the same period in 2022. The decrease in net income primarily reflected the following:

Traditional Banking segment

●

Net income increased $10.5 million, or 43%, for the first nine months of 2023 compared to the same period in 2022.

●

Net interest income increased $24.3 million, or 20%, for the first nine months of 2023 compared to the same period in 2022.

●

Provision was a net charge of $6.4 million for the first nine months of 2023 compared to a net credit of $287,000 for the same period in 2022.

●

Noninterest income increased $3.5 million, or 15%, for the first nine months of 2023 compared to the same period in 2022.

●

Noninterest expense increased $8.1 million, or 7%, for the first nine months of 2023 compared to the same period in 2022.

●

Total Traditional Bank loans increased $642 million, or 17%, during the first nine months of 2023.

●

Total nonperforming loans to total loans for the Traditional Banking segment was 0.40% as of September 30, 2023 compared to 0.40% as of December 31, 2022.

●

Delinquent loans to total loans for the Traditional Banking segment was 0.15% as of September 30, 2023 compared to 0.16% as of December 31, 2022.

●

Total Traditional Bank deposits increased $254 million from December 31, 2022 to $4.3 billion as of September 30, 2023.

Warehouse

●

Net income decreased $4.0 million, or 53%, for the first nine months of 2023 compared to the same period in 2022.

●

Net interest income decreased $4.2 million, or 37%, for the first nine months of 2023 compared to the same period in 2022.

●

The Warehouse Provision was a net charge of $134,000 for the first nine months of 2023 compared to a net credit of $1.0 million for the same period in 2022.

●

Average committed Warehouse lines declined to $1.0 billion for the first nine months of 2023 from $1.4 billion for first nine months of 2022.

●

Average line usage was 41% during the first nine months of 2023 compared to 40% during the same period in 2022.

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Mortgage Banking segment

●

Within the Mortgage Banking segment, mortgage banking income decreased $3.0 million, or 54%, during the first nine months of 2023 compared to the same period in 2022.

●

Overall, Republic’s proceeds from sale of secondary market loans totaled $54 million during the first nine months of 2023 compared to $226 million during the same period in 2022, with the Company’s cash-gain-as-a-percent-of-loans-sold increasing to 2.25% from 2.23% from period to period.

Tax Refund Solutions segment

●

Net income decreased $7.5 million, or 26%, for the first nine months of 2023 compared to the same period in 2022.

●

Net interest income increased $21.5 million, or 115%, for the first nine months of 2023 compared to the same period in 2022.

●

Total RA originations were $737 million during the first nine months of 2023 compared to $311 million for the first nine months of 2022. Originations for both nine month periods all occurred during the first quarter of these periods.

●

In addition to the originations for the first nine months of 2023 and 2022 noted in the preceding bullet, TRS originated $98 million of ERAs related to the first quarter 2023 tax season during December 2022. No ERAs were originated during December 2021 related to the first quarter 2022 tax season.

●

Overall, TRS recorded a net charge to the Provision of $19.6 million during the first nine months of 2023 compared to a net charge to the Provision of $7.0 million for the same period in 2022.

●

Noninterest income decreased $19.2 million for the first nine months of 2023 compared to the same period in 2022.

●

Net RT revenue decreased $1.1 million for the first nine months of 2023 compared to the same period in 2022.

●

Noninterest expense was $11.9 million for the first nine months of 2023 compared to $11.9 million for the same period in 2022.

Republic Credit Solutions segment

●

Net income increased $1.0 million, or 8%, for the first nine months of 2023 compared to the same period in 2022.

●

Net interest income increased $7.0 million, or 33%, for the first nine months of 2023 compared to the same period in 2022.

●

Overall, RCS recorded a net charge to the Provision of $10.5 million during the first nine months of 2023 compared to a net charge of $8.8 million for the same period in 2022.

●

Noninterest income decreased $1.5 million, or 14%, from the first nine months of 2022 to the first nine months of 2023.

●

Noninterest expense was $8.4 million for the first nine months of 2023 and $5.7 million for the same period in 2022.

●

Total nonperforming loans to total loans for the RCS segment was 0.82% as of September 30, 2023 compared to 0.70% as of December 31, 2022.

●

Delinquent loans to total loans for the RCS segment was 9.71% as of September 30, 2023 compared to 8.53% as of December 31, 2022.

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RESULTS OF OPERATIONS (Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022)

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.

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

Table 9 — Increases to the Federal Funds Target Rate since January 1, 2022


	Increase to		FFTR
Date	the FFTR		after Increase

March 17, 2022	0.25	%	0.50	%
May 5, 2022	0.50		1.00
June 16, 2022	0.75		1.75
July 27, 2022	0.75		2.50
September 21, 2022	0.75		3.25
November 2, 2022	0.75		4.00
December 15, 2022	0.50		4.50
February 2, 2023	0.25		4.75
March 23, 2023	0.25		5.00
May 4, 2023	0.25		5.25
July 26, 2023	0.25		5.50

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Total Company net interest income was $222.0 million during the first nine months of 2023 and represented an increase of $48.4 million from the first nine months of 2022. Total Company net interest margin expanded to 5.09% during the first nine months of 2022 compared to 3.99% for the same period in 2022.

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

Traditional Banking segment

The Traditional Banking’s net interest income increased $24.3 million, or 20%, for the first nine months of 2023 compared to the same period in 2022. Traditional Banking’s net interest margin was 3.76% for the first nine months of 2023, an increase of 56 basis points from the same period in 2022.

The increase in the Traditional Bank’s net interest income during the first nine months of 2023 was primarily attributable to the following factors:

●

Traditional Bank average loans grew from $3.6 billion with a weighted-average yield of 4.03% for the first nine months of 2022 to $4.2 billion with a weighted average yield of 4.91% for the first nine months of 2023. In addition, the acquisition of CBank added approximately $111 million to the Traditional Bank’s average loans during the first nine months of 2023. As discussed in the section titled “Loans” within this document, loan growth remained particularly strong within the Traditional Bank during the first nine months of 2023.

●

Average investments grew to $773 million with a weighted-average yield of 2.70% during the first nine months of 2023 from $664 million with a weighted-average yield of 1.64% for the first nine months of 2022. As part of its overall interest rate risk management strategy, the Traditional Bank generally maintains an investment portfolio with a shorter overall duration as compared to its peers.

●

The Traditional Bank’s average noninterest bearing deposits decreased from $1.6 billion during the first nine months of 2022 to $1.4 billion for the first nine months of 2023. This decrease in average noninterest-bearing deposits was funded through a decrease in interest-earning cash balances and an increase in FHLB borrowings.

●

The Traditional Bank’s average cost of interest-bearing liabilities increased from 0.09% during the first nine months of 2022 to 1.28% for the first nine months of 2023. The following two bullets further segments this impact in the Traditional Bank’s cost of interest-bearing liabilities.

The weighted-average cost of total interest-bearing deposits increased from 0.17% during the first nine months of 2022 to 1.49% for the first nine months of 2023. In addition, average interest-bearing deposits increased $33 million from the first nine months of 2022 to the first nine months of 2023.

The average balance of FHLB borrowings increased from $21 million for the first nine months of 2022 to $315 million for the first nine months of 2023. In addition, the weighted-average cost of these borrowings increased from 1.43% to 4.69% for the same time periods. This increase in the average balance of borrowings was generally driven by the period-to-period decline in average deposit balances.

●

Average interest-earning cash was $174 million with a weighted-average yield of 5.11% during the first nine months of 2023 compared to $797 million with a weighted-average yield of 1.04% for the first nine months of 2022. The decline in average cash balances was driven generally by a decline in average deposit balances for the same periods.

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Warehouse

Net interest income within Warehouse decreased $4.2 million, or 37%, from the first nine months of 2022 to the first nine months of 2023, driven by decreases in both average outstanding balances and net interest margin. Overall average outstanding Warehouse balances declined from $545 million during the first nine months of 2022 to $406 million for the first nine months of 2023, driven largely by the sharp rise in long-term interest rates during 2022, which depressed mortgage-refinancing demand and resulted in a sharp drop in Warehouse line usage.

In addition, the Warehouse net interest margin decreased 42 basis points from 2.79% during the first nine months of 2022 to 2.37% during the first nine months of 2023. The decline in the Warehouse net interest margin occurred as its funding costs, as charged through the Company’s internal FTP methodology, generally rose in tandem with the increase in short-term interest rates since rates began rising in March 2022, while its yield increases were delayed until the adjustable rates on its clients’ lines of credit surpassed their contractual interest rate floors. These interest rate floors benefited the Warehouse net interest margin substantially during 2020 and 2021 when market rates declined to historical lows but have produced margin compression since the onset of the FFTR increases during the first quarter of 2022.

Committed Warehouse lines-of-credit decreased from $1.2 billion as September 30, 2022 to $1.0 billion as of September 30, 2023, while average usage rates for Warehouse lines were 41% and 40%, respectively, during the first nine months of 2023 and 2022.

Additional increases in long-term market interest rates will likely lead to a continued reduction in average outstanding balances driven by a decline in demand from Warehouse clients, as higher long-term interest rates generally drive lower demand for Warehouse borrowings. In addition, because the yield on Warehouse lines of credit are generally tied to short-term interest rates, additional increases in short-term interest rates could cause further competitive pricing pressures for the industry and the Core Bank, driving down the yield Warehouse earns on its lines of credits.

Tax Refund Solutions segment

Net interest income within the TRS segment was up $21.5 million from the first nine months of 2022 to the first nine months of 2023. Net interest income at TRS includes income from its prepaid card products as well as the income associated with its tax-related credit products.

The prepaid card product component of TRS drove a $9.0 million increase to net interest income for the segment. This increase was generally driven by a higher crediting rate applied through the Company’s internal FTP. The prepaid card FTP credit yield was 3.26% for average prepaid card-related balances of $350 million during the first nine months of 2023 compared to 0.62% for average prepaid card-related balances of $359 million during the first nine months of 2022.

Related to the segment’s tax-related products, net interest income increased $21.5 million for the first nine months of 2023 compared to the first nine months of 2022. Loan-related interest and fees increased $17.0 million for the period and was driven primarily by a $426 million increase in RA origination volume, most of which resulted from a new contract with a large national tax preparation provider. This increase in loan revenue was partially offset by a $4.7 million increase to the segment’s net cost of funds as applied through its internal FTP.

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

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Republic Credit Solutions segment

RCS’s net interest income increased $7.0 million, or 33%, from the first nine months of 2022 to the first nine months of 2023. The increase was driven primarily by an increase in fee income from RCS’s LOC II product.

RCS’s LOC II loan fees, which are recorded as interest income on loans, increased to $13.2 million during the first nine months of 2023 compared to $5.7 million during the same period in 2022. The Company first piloted this product during the first quarter of 2021 with limited outstanding balances during the pilot phase. It began to ramp up origination volume for the product during early 2022 and has steadily increased its volume since then, leading to corresponding higher year-over-year revenue.

Overall customer demand for the RCS segment’s products is not assumed to be interest rate sensitive and therefore management does not believe a rising interest rate environment will impact origination volume for its various consumer loan products. A rising interest rate environment, however, likely will impact the Company’s internal FTP cost allocated to this segment. As a result, the impact of rising interest rates to RCS during 2023 will be negative to the segment’s financial results, although the exact amount of the negative impact will depend on the internal FTP cost assigned, as well as the overall volume and mix of loans it generates.

The following table presents the average balance sheets for the nine-month periods ended September 30, 2023 and 2022, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

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Table 11 — Total Company Average Balance Sheets and Interest Rates


	Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2022
	Average				Average		Average				Average
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate

ASSETS

Interest-earning assets:
Federal funds sold and other interest-earning deposits	$	177,292	$	6,653	5.00	%	$	800,643	$	6,242	1.04	%
Investment securities, including FHLB stock (1)		773,145		15,641	2.70			664,455		8,152	1.64
TRS Refund Advance loans (2)		91,493		31,476	45.87			31,946		13,606	56.79
RCS LOC products (2)		33,783		26,141	103.17			28,123		19,817	93.95
Other RPG loans (3) (6)		113,954		6,621	7.75			96,448		4,392	6.07
Outstanding Warehouse lines of credit (4) (6)		405,546		22,395	7.36			545,301		15,444	3.78
All other Core Bank loans (5) (6)		4,215,069		156,351	4.95			3,631,621		109,976	4.04

Total interest-earning assets		5,810,282		265,278	6.09			5,798,537		177,629	4.08

Allowance for credit loss		(84,415)						(68,847)

Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		167,960						210,637
Premises and equipment, net		33,411						34,355
Bank owned life insurance		102,479						100,146
Other assets (1)		205,828						171,819
Total assets	$	6,235,545					$	6,246,647

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:
Transaction accounts	$	1,526,490	$	7,858	0.69	%	$	1,698,005	$	762	0.06	%
Money market accounts		830,731		13,236	2.12			791,625		862	0.15
Time deposits		280,715		5,466	2.60			244,412		1,917	1.05
Reciprocal money market and time deposits		171,481		4,469	3.47			60,627		113	0.25
Brokered deposits		14,626		562	5.12			—		—	—

Total interest-bearing deposits		2,824,043		31,591	1.49			2,794,669		3,654	0.17

SSUARs and other short-term borrowings		136,528		618	0.60			271,276		171	0.08
Federal Home Loan Bank advances and other long-term borrowings		315,015		11,073	4.69			21,099		226	1.43

Total interest-bearing liabilities		3,275,586		43,282	1.76			3,087,044		4,051	0.17

Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		1,936,096						2,200,953
Other liabilities		133,081						107,214
Stockholders’ equity		890,782						851,436
Total liabilities and stock-holders’ equity	$	6,235,545					$	6,246,647

Net interest income			$	221,996					$	173,578

Net interest spread					4.33	%					3.91	%

Net interest margin					5.09	%					3.99	%

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

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

(3)	Interest income includes loan fees of $957,000 and $663,000 for the nine months ended September 30, 2023 and 2022.

(4)	Interest income includes loan fees of $796,000 and $1.5 million for the nine months ended September 30, 2023 and 2022.

(5)	Interest income includes loan fees of $4.2 million and $5.1 million for the nine months ended September 30, 2023 and 2022.

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

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Table 12 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 12 — Total Company Volume/Rate Variance Analysis


		Nine Months Ended September 30, 2023
		Compared to
		Nine Months Ended September 30, 2022
	Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate

Interest income:

Federal funds sold and other interest-earning deposits	$	411	$	(8,003)	$	8,414
Investment securities, including FHLB stock		7,489		1,508		5,981
TRS Refund Advance loans*		17,870		20,942		(3,072)
RCS LOC products		6,324		4,252		2,072
Other RPG loans		2,229		884		1,345
Outstanding Warehouse lines of credit		6,951		(4,757)		11,708
All other Core Bank loans		46,375		19,325		27,050
Net change in interest income		87,649		34,151		53,498

Interest expense:

Transaction accounts		7,096		(85)		7,181
Money market accounts		12,374		45		12,329
Time deposits		3,549		323		3,226
Reciprocal money market and time deposits		4,356		537		3,819
Brokered deposits		562		562		—
SSUARs and other short-term borrowings		447		(124)		571
Federal Home Loan Bank advances		10,847		9,320		1,527
Net change in interest expense		39,231		10,578		28,653

Net change in net interest income	$	48,418	$	23,573	$	24,845

* Since interest income for Refund Advances is composed entirely of loan fees and RAs are only offered during the first two months of each year, volume and rate measurements for this product are not a meaningful metric for the periods presented above.

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Provision

Total Company Provision was a net charge of $36.6 million for the first nine months of 2023 compared to a net charge of $14.5 million for the same period in 2022.

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

Traditional Banking segment

The Traditional Banking Provision during the first nine months of 2023 was a net charge of $6.4 million compared to a net credit of $287,000 for the first nine months of 2022. An analysis of the Provision for the first nine months of 2023 compared to the same period in 2022 follows:

●

For the first nine months of 2023, the Traditional Bank Provision primarily reflected the following:

The Traditional Bank incurred a net charge of $2.7 million during the first quarter of 2023 for the Day-1 Provision associated with the acquired CBank non-PCD loans. A net credit of $1.4 million was recorded during the second quarter of 2023 to reflect a change in estimated fair value based upon further evaluation of PCD loans.

The Traditional Bank recorded approximately $5.0 million in general formula reserves for $642 million of loan growth during the first nine months of 2023. Approximately $1.0 million of these general formula reserves was due to an increase in the Traditional Bank’s qualitative factor reserves generally related to uncertain market conditions brought about by high inflation, government actions to combat inflation, and elevated vacancy rates for commercial office space.

Offsetting the above, the Traditional Bank recognized a $2.7 million credit to the Provision during the first nine months of 2023 driven primarily by the release of $1.5 million in COVID-related reserves. The release of these reserves coincided with the federal government’s declaration of the official end to the COVID pandemic in May of 2023.

●

For the first nine months of 2022, the Traditional Bank Provision primarily reflected the following:

Approximately $3.4 million of additional Provision driven by formula reserves tied to general loan growth. Non-PPP Traditional Bank loans grew $294 million from December 31, 2021 to September 30, 2022.

Offsetting the above was the release of approximately $3.7 million of reserves following the payoff or upgrade of loans previously downgraded during the height of the pandemic.

Warehouse

Warehouse recorded a net charge to the Provision of $134,000 for the first nine months of 2023 compared to a net credit of $1.0 million for the same period in 2022. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances increased $53 million during the first nine months of 2023 compared to a decrease of $408 million during the first nine months of 2022.

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Tax Refund Solutions segment

TRS recorded a net charge to the Provision of $19.6 million during the first nine months of 2023 compared to a net charge of $7.0 million for the same period in 2022. Substantially all TRS Provision in both periods was related to its RA product.

TRS recorded a charge to the Provision for RA loans of $21.6 million, or 2.92% of its $737 million in RAs originated during the first nine months of 2022 compared to a charge to the Provision of $7.6 million, or 2.44% of its $311 million of RAs originated during the first nine months of 2022. The increase in Provision for the first nine months of 2023 was primarily due to the increased volume from the previously mentioned new contract with a large national tax preparation provider, which generated approximately $462 million in new RA volume related to the first quarter 2023 tax filing season.

With all unpaid RAs charged off as of June 30, 2023, any payments received for unguaranteed RAs during the third and fourth quarter of 2023 will represent recovery credits directly to income.

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

Republic Credit Solutions segment

As illustrated in Table 13 below, RCS recorded a net charge to the Provision of $10.5 million during the first nine months of 2023 compared to a net charge to the Provision of $8.8 million for the same period in 2022. The increase in the Provision was driven primarily by a $2.1 million increase in net charge-offs, which resulted in a higher reserve percentage being applied to the outstanding balances, and a $401,000 Allowance build for RCS’s LOC II product. Net charge-offs for RCS’s LOC II product were $4.3 million for the first nine months of 2023 compared to $2.2 million of net charge-offs during the first nine months of 2022. As previously disclosed in the quarterly discussion, this product was first piloted during the first quarter of 2021. RCS began to ramp up origination volume for the RCS LOC II product during early 2022 and has steadily increased its volume since then leading to corresponding higher year-over-year net charge-offs in the product.

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 13.0% as of September 30, 2023, 12.88% as of June 30, 2023, 13.73% as of December 31, 2022, and 14.73% as of September 30, 2022. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of September 30, 2023.

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

Table 13 — RCS Provision by Product


	Nine Months Ended Sep. 30,
(in thousands)	2023			2022	$ Change		% Change
Product:
Lines of credit	$	10,431	$	8,827	$	1,604	18	%
Hospital receivables		37		9		28	311
Total	$	10,468	$	8,836	$	1,632	18	%

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Table 14 — Summary of Loan and Lease Loss Experience


	Nine Months Ended
	September 30,
(dollars in thousands)	2023			2022

ACLL at beginning of period	$	70,413		$	64,577

CBank Initial Recognition of ACLL and Fair Value Adjustment		216			—

Charge-offs:

Traditional Banking:
Residential real estate		(24)			—
Consumer		(878)			(861)
Total Traditional Banking		(902)			(861)
Warehouse lines of credit		—			—
Total Core Banking		(902)			(861)

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		(25,823)			(11,505)
Other TRS commercial & industrial loans		(128)			(154)
Republic Credit Solutions		(9,459)			(8,005)
Total Republic Processing Group		(35,410)			(19,664)
Total charge-offs		(36,312)			(20,525)

Recoveries:

Traditional Banking:
Residential real estate		50			93
Commercial real estate		66			277
Commercial & industrial		116			141
Lease financing receivables		10			—
Home equity		2			119
Consumer		253			305
Total Traditional Banking		497			935
Warehouse lines of credit		—			—
Total Core Banking		497			935

Republic Processing Group:
Tax Refund Solutions:
Refund Advances		2,411			3,922
Other TRS commercial & industrial loans		31			665
Republic Credit Solutions		685			804
Total Republic Processing Group		3,127			5,391
Total recoveries		3,624			6,326

Net loan charge-offs		(32,688)			(14,199)

Provision - Core Banking		6,545			(1,271)
Provision - RPG		30,090			15,812
Total Provision		36,635			14,541
ACLL at end of period	$	74,576		$	64,919

Credit Quality Ratios - Total Company:

ACLL to total loans		1.47	%		1.51	%
ACLL to nonperforming loans		389			397
Net loan charge-offs to average loans		0.90			0.44

Credit Quality Ratios - Core Banking:

ACLL to total loans		1.17	%		1.20	%
ACLL to nonperforming loans		320			308
Net loan charge-offs to average loans		0.01			(0.00)

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Table 15 — Annualized Net Loan Charge-offs (Recoveries) to Average Loans by Loan Category


	Net Loan Charge-Offs (Recoveries) to Average Loans
	Nine Months Ended
	September 30,
	2023		2022

Traditional Banking:
Residential real estate:
Owner occupied	—	%	(0.01)	%
Nonowner occupied	—		—
Commercial real estate	(0.01)		(0.02)
Construction & land development	—		—
Commercial & industrial	(0.03)		(0.05)
Lease financing receivables	(0.04)		—
Aircraft	—		—
Home equity	—		(0.07)
Consumer:
Credit cards	0.46		0.21
Overdrafts	84.97		90.38
Automobile loans	1.01		(0.02)
Other consumer	0.22		1.19
Total Traditional Banking	0.01		—
Warehouse lines of credit	—		—
Total Core Banking	0.01		—

Republic Processing Group:
Tax Refund Solutions:
Refund Advances*	32.93		30.29
Other TRS loans	0.67		(6.49)
Republic Credit Solutions	9.74		10.32
Total Republic Processing Group	18.37		13.89
Total	0.90	%	0.44	%

The Company’s net charge-offs to average total Company loans increased from 0.44% during the first nine months of 2022 to 0.90% during the first nine months of 2023, with net charge-offs increasing $18.5 million and average total Company loans increasing $4.9 million, or 12%. As discussed in more detail above, the increase in net charge-offs was primarily driven by a $18.0 million increase in net charge-offs within the Company’s TRS and RCS operations.

During the first nine months of 2023 and 2022, the Company’s Core Bank net charge-offs to average Core Bank loans remained near zero.

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Noninterest Income

Total Company noninterest income decreased $20.3 million during the first nine months of 2023 compared to the same period in 2022.

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

Traditional Banking segment

Traditional Banking’s noninterest income increased $3.4 million, or 15%, for the first nine months of 2023 compared to the same period in 2022, driven primarily by a $1.7 million death benefit payment received during the second quarter of 2023 in excess of the cash surrender value of a BOLI policy.

The Traditional Bank also earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the nine months ended September 30, 2023 and 2022 were $5.3 million and $5.1 million. The total daily overdraft charges, net of refunds, included in interest income for the nine months ended September 30, 2023 and 2022 were $937,000 and $933,000.

Mortgage Banking segment

A decrease in Mortgage banking income for the first nine months of 2023 was generally caused by substantially higher market long-term interest rates, which led to a significant slowdown in the origination of mortgage loans to be sold into the secondary market. For the first nine months of 2023, the 30-year mortgage rate fluctuated in a range between 6.00% and 7.50% for most of the entire period. As a result, the Bank sold $53 million in secondary market loans and achieved an average cash-gain-as-a-percent-of-loans-sold of 2.25% during the first nine months of 2023. During the first two months of 2022, however, long-term interest rates were closer to historical lows, driving secondary market loan sales of $226 million with comparable cash-gain-as-a-percent-of-loans-sold of 2.23%. With the FOMC continuing its quantitative tightening program during the second half of 2023, management believes it is likely that the Core Bank’s mortgage origination volume will continue to be negatively impacted by higher interest rates causing additional declines in mortgage banking income throughout 2023.

Tax Refund Solutions segment

TRS’s noninterest income decreased $19.2 million, or 52%, during the first nine months of 2023 compared to the same period in 2022. Green Dot paid RB&T a total of $18 million in nonrecurring payments during the first nine months of 2022 related to the now-cancelled TRS Purchase Agreement. These nonrecurring payments included the following:

●

A contract termination fee of $5.0 million in January 2022 after RB&T provided Green Dot a notice of termination of the May 2021 TRS Purchase Agreement for the sale of substantially all of RB&T’s TRS assets and operations to Green Dot.

●

A legal settlement of $13.0 million in June 2022 regarding RB&T’s lawsuit against Green Dot.

Regarding the noninterest income from TRS’s RT product, net RT revenue decreased 6% from $16.6 million during the first nine months of 2022 to $15.5 million during the same period in 2023. RT revenue for 2023 was negatively impacted by a general decline in overall RT demand across the industry.

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Republic Credit Solutions segment

RCS’s noninterest income decreased $1.5 million, or 14%, during the first nine months of 2023 compared to the same period in 2022, with program fees representing the substantial majority of RCS’s noninterest income. The decrease in RCS program fees primarily reflected lower sales volume and corresponding gains from RCS’s installment loan product which were substantially offset by higher sales volume and gains from RCS’s LOC II product.

Proceeds from the sale of RCS’s installment loan products totaled $86 million during the third quarter of 2023, a 71% decrease from the same period in 2022. Proceeds from the sale of RCS's loan products totaled $761 million during the first nine months of 2023, a 8% decrease from the same period in 2022. Partially offsetting the decrease, RCS sold approximately $363 million of balances for the LOC II product during the first nine months 2023, an increase of 137% over the first nine months of 2022. This increase in sales volume for the LOC II product contributed to a $1.8 million increase in RCS program fee revenue, which partially offset the decline in revenue from the installment product. RCS began to ramp up origination volume for the LOC II product during early 2022 and has steadily increased its volume since then, leading to corresponding higher year-over-year net program revenue.

The following table presents RCS program fees by product:

Table 16 — RCS Program Fees by Product


	Nine Months Ended Sep. 30,
(dollars in thousands)	2023		2022		$ Change		% Change
Product:
Lines of credit	$	6,227	$	4,647	$	1,580	34	%
Hospital receivables		147		125		22	18
Installment loans*		2,507		5,712		(3,205)	(56)
Total	$	8,881	$	10,484	$	(1,603)	(15)	%

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

Noninterest Expense

Total Company noninterest expense increased $9.7 million, or 7%, during the first nine months of 2023 compared to the same period in 2022.

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

Traditional Banking segment

Traditional Banking noninterest expense increased $8.1 million for the first nine months of 2023 compared to the same period in 2022. The following primarily drove the change in noninterest expense:

●

Noninterest expenses associated with the acquired CBank operations were $5.4 million across all categories for the first nine months of 2023, with no such expenses for the first nine months of 2022. The figure for the first nine months of 2023 includes $2.2 million in merger related expenses that are not expected to recur in the future.

●

Legacy Salaries and Benefits expense increased a net $2.5 million, or 3.69%, to $70.9 million for the first nine months of 2022. The most notable changes within this category were as follows:

Direct legacy salaries increased a net $697,000, or 1%, due primarily to the cost of annual merit increases.

Legacy Overhead salaries increased $2.1 million, as a greater portion of overhead salaries was allocated to the Traditional Banking segment than the Mortgage Banking segment during the first nine months 2023 compared to the same period in 2022. Overhead salaries are allocated to the Traditional Banking and the Mortgage Banking segments each period based on each segment’s pro rata mortgage production, with Mortgage Banking production disproportionately and negatively impacted during 2022 following a rise in interest rates.

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●

Legacy technology expenses declined $887,000 as the Traditional Bank continued to combine technology platforms as part of a Company-wide efficiency initiative.

●

Interchange related expenses increased $709,000 due to higher debit card and credit card purchasing activity.

●

FDIC Insurance expense increased $443,000 due to higher premiums charged by the FDIC in 2023.

Mortgage Banking segment

Noninterest expense at the Mortgage Banking segment decreased $858,000, or 11%, during the first nine months of 2023 compared to the same period in 2022, primarily due to a $383,000 reduction in overhead salaries allocated to the Mortgage Banking segment and a $369,000 decrease in other shared overhead costs.

The Company records a credit offset to salary expense for each loan it originates and recognizes the cost of that credit as an adjustment to the loan’s yield over its estimated life. The amount of credit benefit to salary expense during a given period is determined by the overall loan origination volume during that period.

Republic Credit Solutions segment

Noninterest expense at the RCS segment increased $2.7 million, or 47%, during the first nine months of 2023 compared to the same period in 2022. Approximately $2.0 of this increase was concentrated within the LOC II product and was a result of a year-over-year increase in marketing activity for the product. Approximately $538,000 of the increase was within Salaries and Benefits and was primarily the result of annual merit increases and an increase in headcount.

COMPARISON OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022

Cash and Cash Equivalents

Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Republic had $220 million in cash and cash equivalents as of September 30, 2023 compared to $314 million as of December 31, 2022. Comparing average balances for the third quarters of 2023 and 2022, the Company had average interest-earning cash and cash equivalent balances of $177 million for the third quarter of 2023 compared to $801 million for the third quarter of 2022. The decline in average interest-earning cash balances from period to period was driven generally by a decrease in average deposits and an increase in average loan balances.

For cash held at the FRB, the Bank earns a yield on amounts more than required reserves. This cash earned a weighted-average yield of 5.00% during the first nine months of 2023 with a spot balance yield of approximately 5.40% on September 30, 2023. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.

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Investment Securities

Table 17 — Purchases of Investment Securities


	Nine Months Ended September 30, 2023
	Purchase		Yield to		Average
(in thousands)	Cost		Maturity		Life

Purchases by Class for the Three Months Ended March 31, 2023
Corporate (acquired as a part of the CBank acquisition)	$	2,017	6.05	%	2.60	yrs
U.S. Government Agencies		25,000	5.38		2.50
Mortgage-backed securities - residential (acquired as a part of the CBank acquisition)		14,442	4.56		9.10
Total	$	41,459	5.38		2.50	yrs

Purchases by Class for the Three Months Ended June 30, 2023
U.S. Government Agencies	$	15,000	5.75	%	2.91	yrs
Total	$	15,000	5.75		2.91	yrs

Purchases by Class for the Three Months Ended September 30, 2023
U.S. Government Agencies	$	15,000	6.00	%	3.00	yrs
Total	$	15,000	6.00		3.00	yrs

Total Purchases for the Nine Months Ended September 30, 2023	$	71,459	5.44	%	4.03	yrs

Republic’s investment portfolio increased $17 million from December 31, 2022 to September 30, 2023, driven by $55 million in portfolio purchases, $16 million of investments acquired as part of the CBank merger, and a $22 million increase in FHLB stock. These increases were offset by portfolio declines of $50 million from calls and maturities of debt securities, $28 million in paydowns on mortgage-backed securities, and a $2 million increase in the portfolio market value.

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Table 18 — Loan Portfolio Composition


(dollars in thousands)	September 30, 2023		December 31, 2022		$ Change		% Change

Traditional Banking:
Residential real estate:
Owner occupied	$	1,128,745	$	911,427	$	217,318	24	%
Nonowner occupied		344,682		321,358		23,324	7
Commercial real estate		1,745,187		1,599,510		145,677	9
Construction & land development		189,756		153,875		35,881	23
Commercial & industrial		473,790		413,387		60,403	15
Lease financing receivables		85,242		10,505		74,737	711
Aircraft		226,947		179,785		47,162	26
Home equity		275,750		241,739		34,011	14
Consumer:
Credit cards		16,950		15,473		1,477	10
Overdrafts		640		726		(86)	(12)
Automobile loans		3,380		6,731		(3,351)	(50)
Other consumer		5,674		626		5,048	806
Total Traditional Banking		4,496,743		3,855,142		641,601	17
Warehouse lines of credit*		457,033		403,560		53,473	13
Total Core Banking		4,953,776		4,258,702		695,074	16

*Republic Processing Group:**
Tax Refund Solutions:
Refund Advances		—		97,505		(97,505)	(100)
Other TRS commercial & industrial loans		354		51,767		(51,413)	(99)
Republic Credit Solutions		126,969		107,828		19,141	18
Total Republic Processing Group		127,323		257,100		(129,777)	(50)

Total loans**		5,081,099		4,515,802		565,297	13
Allowance for credit losses		(74,576)		(70,413)		(4,163)	6

Total loans, net	$	5,006,523	$	4,445,389	$	561,134	13

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

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

Gross loans increased by $565 million, or 13%, during the first nine months of 2022 to $5.1 billion as of September 30, 2023. The most significant components comprising the change in loans by reportable segment follow:

Traditional Banking segment

Period-end balances for Traditional Banking loans increased $642 million, or 17%, from December 31, 2022 to September 30, 2023. The following primarily drove the change in loan balances during the first nine months of 2023:

●

The Traditional Bank acquired loans and leases with a fair value of $216 million in connection with the CBank acquisition as of September 30, 2023, CBank related loan balances were approximately $211 million.

●

The Traditional Bank’s legacy CRE portfolio, which excludes the CRE loans acquired from CBank, grew $143 million, or 9%, during the first nine months of 2023, as the Traditional Bank experienced strong loan demand within its Corporate Lending, Private Banking and Commercial Real Estate divisions in its Louisville market.

●

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

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legacy residential real estate portfolio, which excludes the residential real estate loans acquired from CBank, increased $227 million during the first nine months of 2023.

●

After a multi-year pause in operations, the Traditional Bank’s Corresponding Lending Division began purchasing loans again during the first quarter of 2023. The loans purchased are all 1-4 Family, first-lien mortgages with fixed rate terms of generally five or seven years. Through September 30, 2023, this division had acquired approximately $111 million of loans with an expected average yield of approximately 5.94%.

Warehouse

Outstanding Warehouse period-end balances increased $53 million from December 31, 2022 to September 30, 2023. Due to the volatility and seasonality of the mortgage market, it is difficult to project future outstanding balances of Warehouse lines of credit. The growth of the Bank’s Warehouse business greatly depends on the overall mortgage market and typically follows industry trends. Since its entrance into this business during 2011, the Bank has experienced volatility in the Warehouse portfolio consistent with overall demand for mortgage products. Weighted average quarterly usage rates on the Bank’s Warehouse lines have ranged from a low of 31% during the first quarter of 2023 to a high of 71% during the fourth quarter of 2019. On an annual basis, weighted average usage rates on the Bank’s Warehouse lines have ranged from a low of 40% during 2013 to a high of 66% during 2020.

As previously discussed, additional increases in long-term market interest rates will likely lead to a continued reduction in average outstanding balances driven by a decline in demand from Warehouse clients, as higher long-term interest rates generally drive lower demand for Warehouse borrowings. In addition, because the yield on Warehouse lines of credit are generally tied to short-term interest rates, additional increases in short-term interest rates could cause further competitive pricing pressures for the industry and the Core Bank, driving down the yield Warehouse earns on its lines of credits.

Tax Refund Solutions segment

Outstanding TRS loans decreased $149 million from December 31, 2022 to September 30, 2023 primarily reflecting the substantial paydown of RAs originated during the 2023 tax season. In addition, TRS also received substantial paydowns of commercial loans made during the fourth quarter of 2022 to third-party tax-related businesses for their cash flow needs for the first quarter tax season. RAs, including ERAs, are only made during the December of the previous year and the first two months of each year, with all unpaid RAs charged off by June 30^th of each year.

Allowance for Credit Losses

As of September 30, 2023, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. The Bank also maintained an ACLS and an ACLC for expected losses in its securities portfolio and its off-balance sheet credit exposures, respectively. Management evaluates the adequacy of the ACLL monthly, and the adequacy of the ACLS and ACLC quarterly. All ACLs are presented and discussed with the Audit Committee and the Board of Directors quarterly.

The Company’s ACLL increased from $70 million as of December 31, 2022 to $75 million as of September 30, 2023. As a percent of total loans, the total Company’s ACLL decreased to 1.47% as of September 30, 2023 compared to 1.56% as of December 31, 2022. An analysis of the ACL by reportable segment follows:

Traditional Banking segment

The Traditional Banking ACLL increased approximately $6 million to $57 million as of September 30, 2023, generally driven primarily by formula reserves tied to loan growth during the first nine months of 2023 partially offset by the $1.5 million release of COVID-related reserves. The release of these reserves coincided with the federal government’s declaration of the official end to the COVID pandemic in May of 2023.

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Warehouse

The Warehouse ACLL remained at approximately $1 million, and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparing September 30, 2023 to December 31, 2022. As of September 30, 2023, the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for the first nine months of 2023.

Tax Refund Solutions

The TRS ACLL decreased $4 million from December 31, 2022 to $1,000 as of September 30, 2023, with this decrease driven by the June 30, 2023 charge-off of all unpaid RAs originated during December 2022.

Republic Credit Solutions segment

The RCS ACLL increased $2 million to $17 million as of September 30, 2023, with this increase driven by an increase in the RCS LOC II spot balance and a change in the RCS loan mix as the outstanding healthcare receivables spot balance increased and the RCS LOC I spot balance decreased.

RCS maintained an ACLL for two distinct credit products offered as of September 30, 2023, including its line-of-credit products and its healthcare-receivables products. As of September 30, 2023, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables products to as high as 48.96% 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.

Table 19 — Management’s Allocation of the Allowance for Credit Losses on Loans


	September 30, 2023							December 31, 2022
				Percent of		Percent of					Percent of		Percent of
				Loans to		ACLL to					Loans to		ACLL to
				Total		Total					Total		Total
(in thousands)		ACLL		Loans*		Loan Class			ACLL		Loans*		Loan Class*

Traditional Banking:
Residential real estate:
Owner occupied		$	10,231	22	%	0.91	%		$	8,909	21	%	0.98	%
Nonowner occupied			3,036	7		0.88				2,831	7		0.88
Commercial real estate			25,347	35		1.45				23,739	36		1.48
Construction & land development			5,136	4		2.71				4,123	3		2.68
Commercial & industrial			4,181	9		0.88				3,976	9		0.97
Lease financing receivables			1,100	2		1.29				110	—		1.05
Aircraft			567	4		0.25				449	4		0.25
Home equity			5,146	5		1.87				4,628	5		1.91
Consumer:
Credit cards			1,092	—		6.44				996	—		6.44
Overdrafts			640	—		100.00				726	—		100.00
Automobile loans			41	—		1.21				87	—		1.29
Other consumer			414	—		7.30				135	—		21.57
Total Traditional Banking			56,931	88		1.27				50,709	85		1.32
Warehouse lines of credit			1,143	9		0.25				1,009	9		0.25
Total Core Banking			58,074	97		1.17				51,718	94		1.18

Republic Processing Group:
Tax Refund Solutions:
Refund Advances			—	—		—				3,797	2		4
Other TRS commercial & industrial loans			1	—		0.28				91	1		0.18
Republic Credit Solutions			16,501	3		13.00				14,807	3		13.73
Total Republic Processing Group			16,502	3		12.96				18,695	6		7.27
Total		$	74,576	100		1.47			$	70,413	100		1.56

* Values of less than 50 basis points are rounded down to zero.

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Asset Quality

Classified and Special Mention Loans

The Bank applies credit quality indicators, or ratings, to individual loans based on internal Bank policies. Such internal policies are informed by regulatory standards. Loans rated “Loss,” “Doubtful,” “Substandard,” and PCD-Substandard are considered “Classified.” Loans rated “Special Mention” or PCD-Special Mention are considered Special Mention. The Bank’s Classified and Special Mention loans decreased approximately $6 million during the first nine months of 2023, driven primarily by commercial-purpose loans repaid or upgraded to a Pass rating during the first nine months of 2022.

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

Table 20 — Classified and Special Mention Loans


(dollars in thousands)	September 30, 2023		December 31, 2022		$ Change		% Change

Loss	$	—	$	—	$	—	—	%
Doubtful		—		—		—	—
Substandard		18,659		17,010		1,649	10
PCD - Substandard		1,820		1,498		322	21
Total Classified Loans		20,479		18,508		1,971	11

Special Mention		61,853		69,246		(7,393)	(11)
PCD - Special Mention		469		718		(249)	(35)
Total Special Mention Loans		62,322		69,964		(7,642)	(11)

Total Classified and Special Mention Loans	$	82,801	$	88,472	$	(5,671)	(6)	%

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 $0 million and $2 million as of September 30, 2023 and December 31, 2022.

Nonperforming loans to total loans increased to 0.38% at September 30, 2023 from 0.36% at December 31, 2022, as the total balance of nonperforming loans increased by $3 million, or 17%, while total loans increased $561 million, or 13%, during the first nine months of 2023.

The ACLL to total nonaccrual loans decreased to 412% as of September 30, 2023 from 452% as of December 31, 2022, as the total ACLL increased $4 million and the balance of nonaccrual loans increased by $3 million, or 16%. The driver of the increase in ACLL was primarily formula reserves applied to $565 million of loan growth from December 31, 2022 to September 30, 2023.

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Table 21 — Nonperforming Loans and Nonperforming Assets Summary


(dollars in thousands)	September 30, 2023			December 31, 2022

Loans on nonaccrual status*	$	18,127		$	15,562
Loans past due 90-days-or-more and still on accrual**		1,037			756
Total nonperforming loans		19,164			16,318
Other real estate owned		1,423			1,581
Total nonperforming assets	$	20,587		$	17,899

Credit Quality Ratios - Total Company:
ACLL to total loans		1.47	%		1.56	%
Nonaccrual loans to total loans		0.36			0.34
ACLL to nonaccrual loans		411			452
Nonperforming loans to total loans		0.38			0.36
Nonperforming assets to total loans (including OREO)		0.41			0.40
Nonperforming assets to total assets		0.32			0.31

Credit Quality Ratios - Core Bank:
ACLL to total loans		1.17	%		1.21	%
Nonaccrual loans to total loans		0.37			0.37
ACLL to nonaccrual loans		320			332
Nonperforming loans to total loans		0.37			0.37
Nonperforming assets to total loans (including OREO)		0.39			0.40
Nonperforming assets to total assets		0.33			0.32

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

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

Table 22 — Nonperforming Loan Composition


	September 30, 2023					December 31, 2022
				Percent of					Percent of
				Total					Total
(dollars in thousands)	Balance			Loan Class		Balance			Loan Class

Traditional Banking:
Residential real estate:
Owner occupied		$	14,396	1.28	%		$	13,388	1.47	%
Nonowner occupied			68	0.02				117	0.04
Commercial real estate			883	0.05				1,001	0.06
Construction & land development			—	—				—	—
Commercial & industrial			1,159	0.24				—	—
Lease financing receivables			13	0.02				—	—
Aircraft			—	—				—	—
Home equity			1,591	0.58				815	0.34
Consumer:
Credit cards			—	—				—	—
Overdrafts			—	—				—	—
Automobile loans			16	0.47				31	0.46
Other consumer			1	0.02				210	33.55
Total Traditional Banking			18,127	0.40				15,562	0.40
Warehouse lines of credit			—	—				—	—
Total Core Banking			18,127	0.37				15,562	0.37

Republic Processing Group:
Tax Refund Solutions:
Refund Advances			—	—				—	—
Other TRS commercial & industrial loans			—	—				—	—
Republic Credit Solutions			1,037	0.82				756	0.70
Total Republic Processing Group			1,037	0.81				756	0.29

Total nonperforming loans		$	19,164	0.38	%		$	16,318	0.36	%

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Table 23 — Stratification of Nonperforming Loans


	Number of Nonperforming Loans and Recorded Investment
					Balance
September 30, 2023		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance

Traditional Banking:
Residential real estate:
Owner occupied	130	$	4,677	47	$	7,424	2	$	2,295	179	$	14,396
Nonowner occupied	3		68	—		—	—		—	3		68
Commercial real estate	—		—	1		201	1		682	2		883
Construction & land development	—		—	—		—	—		—	—		—
Commercial & industrial	—		—	1		339	1		820	2		1,159
Lease financing receivables	2		13	—		—	—		—	2		13
Aircraft	—		—	—		—	—		—	—		—
Home equity	31		911	3		680	—		—	34		1,591
Consumer:
Credit cards	—		—	—		—	—		—	—		—
Overdrafts	NM		—	—		—	—		—	NM		—
Automobile loans	5		16	—		—	—		—	5		16
Other consumer	1		1	—		—	—		—	1		1
Total Traditional Banking	172		5,686	52		8,644	4		3,797	228		18,127
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	172		5,686	52		8,644	4		3,797	228		18,127

Republic Processing Group:
Tax Refund Solutions:
Refund Advances	—		—	—		—	—		—	—		—
Other TRS commercial & industrial loans	—		—	—		—	—		—	—		—
Republic Credit Solutions	NM		—	—		—	—		1,037	NM		1,037
Total Republic Processing Group	NM		—	—		—	—		1,037	NM		1,037

Total	172	$	5,686	52	$	8,644	4	$	4,834	228	$	19,164


	Number of Nonperforming Loans and Recorded Investment
					Balance
December 31, 2022		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance

Traditional Banking:
Residential real estate:
Owner occupied	134	$	4,650	45	$	7,353	1	$	1,385	180	$	13,388
Nonowner occupied	4		117	—		—	—		—	4		117
Commercial real estate	—		—	1		232	1		769	2		1,001
Construction & land development	—		—	—		—	—		—	—		—
Commercial & industrial	—		—	—		—	—		—	—		—
Lease financing receivables	—		—	—		—	—		—	—		—
Aircraft	—		—	—		—	—		—	—		—
Home equity	28		711	1		104	—		—	29		815
Consumer:
Credit cards	—		—	—		—	—		—	—		—
Overdrafts	NM		—	—		—	—		—	NM		—
Automobile loans	6		31	—		—	—		—	6		31
Other consumer	—		—	1		210	—		—	1		210
Total Traditional Banking	172		5,509	48		7,899	2		2,154	222		15,562
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	172		5,509	48		7,899	2		2,154	222		15,562

Republic Processing Group:
Tax Refund Solutions:
Refund Advances	—		—	—		—	—		—	—		—
Other TRS commercial & industrial loans	—		—	—		—	—		—	—		—
Republic Credit Solutions	NM		—	—		—	—		756	NM		756
Total Republic Processing Group	NM		—	—		—	—		756	NM		756

Total	172	$	5,509	48	$	7,899	2	$	2,910	222	$	16,318

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Table 24 — Roll-forward of Nonperforming Loans


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Nonperforming loans at the beginning of the period	$	17,504	$	16,210	$	16,318	$	20,552
Loans added to nonperforming status during the period that remained nonperforming at the end of the period		2,564		3,554		7,345		5,778
Loans removed from nonperforming status during the period that were nonperforming at the beginning of the period (see table below)		(949)		(3,051)		(3,798)		(9,021)
Principal balance paydowns of loans nonperforming at both period ends		(457)		(349)		(997)		(940)
Net change in principal balance of other loans nonperforming at both period ends*		502		(5)		296		(10)

Nonperforming loans at the end of the period	$	19,164	$	16,359	$	19,164	$	16,359

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

Table 25 — Detail of Loans Removed from Nonperforming Status


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Loans charged off	$	—	$	—	$	—	$	—
Loans transferred to OREO		—		—		—		—
Loan payoffs and paydowns		—		(2,431)		(1,521)		(8,125)
Loans returned to accrual status		(949)		(620)		(2,277)		(1)

Total loans removed from nonperforming status during the period that were nonperforming at the beginning of the period	$	(949)	$	(3,051)	$	(3,798)	$	(8,126)

Based on the Bank’s review as of September 30, 2023, management believes that its reserves are adequate to absorb expected losses on all nonperforming loans.

Delinquent Loans

Total Company delinquent loans to total loans increased to 0.38% as of September 30, 2023 from 0.34% as of December 31, 2022. Core Bank delinquent loans to total Core Bank loans remained unchanged at 0.14% as of September 30, 2023 from December 31, 2022. With the exception of small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of September 30, 2023 and December 31, 2022 were on nonaccrual status.

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Table 26 — Delinquent Loan Composition*


	September 30, 2023					December 31, 2022
				Percent of					Percent of
				Total					Total
(dollars in thousands)	Balance			Loan Class		Balance			Loan Class

Traditional Banking:
Residential real estate:
Owner occupied		$	4,584	0.41	%		$	4,834	0.53	%
Nonowner occupied			231	0.07				—	—
Commercial real estate			23	0.00				604	0.04
Construction & land development			—	—				—	—
Commercial & industrial			1,372	0.29				177	0.04
Lease financing receivables			16	0.02				—	—
Aircraft			—	—				—	—
Home equity			367	0.13				175	0.07
Consumer:
Credit cards			28	0.17				55	0.36
Overdrafts			132	20.63				160	22.04
Automobile loans			4	0.12				11	0.16
Other consumer			49	0.86				44	7.03
Total Traditional Banking			6,806	0.15				6,060	0.16
Warehouse lines of credit			—	—				—	—
Total Core Banking			6,806	0.14				6,060	0.14

Republic Processing Group:
Tax Refund Solutions:
Refund Advances			—	—				—	—
Other TRS commercial & industrial loans			—	—				—	—
Republic Credit Solutions			12,328	9.71				9,200	8.53
Total Republic Processing Group			12,328	9.68				9,200	3.58

Total delinquent loans		$	19,134	0.38	%		$	15,260	0.34	%

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

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Table 27 — Roll-forward of Delinquent Loans


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Delinquent loans at the beginning of the period	$	15,918	$	11,451	$	15,260	$	13,465
Loans added to delinquency status during the period and remained in delinquency status at the end of the period		3,076		2,531		5,668		3,767
Loans removed from delinquency status during the period that were in delinquency status at the beginning of the period (see table below)		(2,087)		(3,466)		(4,833)		(6,803)
Principal balance paydowns of loans delinquent at both period ends		(61)		(20)		(52)		(24)
Net change in principal balance of other loans delinquent at both period ends*		2,288		1,394		3,091		1,485
Delinquent loans at the end of period	$	19,134	$	11,890	$	19,134	$	11,890

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

Table 28 — Detail of Loans Removed from Delinquent Status


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022

Loans charged off	$	—	$	—	$	(1)	$	(1)
Refund Advances paid off or charged off		—		—		—		—
Loans transferred to OREO		—		—		—		—
Loan payoffs and paydowns		—		(2,620)		(1,629)		(6,186)
Loans paid current		(2,087)		(846)		(3,203)		(616)

Total loans removed from delinquency status during the period that were in delinquency status at the beginning of the period	$	(2,087)	$	(3,466)	$	(4,833)	$	(6,803)

Collateral-Dependent Loans and Loan Modifications

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

A loan modification (formerly a TDR prior to the adoption of ASU 2022-02) is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. The majority of the Bank’s loan modifications involve a restructuring of loan terms such as a temporary reduction in the payment amount to require only interest and escrow (if required), reducing the loan’s interest rate, and/or extending the maturity date of the debt. Nonaccrual loans modified as loan modifications remain on nonaccrual status and continue to be reported as nonperforming loans. Accruing loans modified as loan modifications are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. With the adoption of ASU 2022-02 in 2023, all loan modifications will now be recognized as collateral-dependent. As of September 30, 2023 there were $1.9 million collateral-dependent loan modifications.

Table 29 — Collateral-Dependent Loans and Troubled Debt Restructurings


(dollars in thousands)	December 31, 2022

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

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

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Deposits

Table 30 — Deposit Composition


(in thousands)	September 30, 2023		December 31, 2022		$ Change		% Change

Core Bank:
Demand	$	1,233,328	$	1,336,082	$	(102,754)	(8)	%
Money market accounts		939,499		707,272		232,227	33
Savings		263,249		323,015		(59,766)	(19)
Reciprocal money market		206,347		28,635		177,712	621
Individual retirement accounts (1)		33,823		38,640		(4,817)	(12)
Time deposits, $250 and over (1)		94,521		54,855		39,666	72
Other certificates of deposit (1)		207,481		129,324		78,157	60
Reciprocal time deposits (1)		94,629		7,405		87,224	1,178
Wholesale brokered deposits (1)		805		—		805	—
Total Core Bank interest-bearing deposits		3,073,682		2,625,228		448,454	17
Total Core Bank noninterest-bearing deposits		1,269,643		1,464,493		(194,850)	(13)
Total Core Bank deposits		4,343,325		4,089,721		253,604	6

Republic Processing Group:
Money market accounts		16,921		3,849		13,072	340
Total RPG interest-bearing deposits		16,921		3,849		13,072	340

Brokered prepaid card deposits		326,505		328,655		(2,150)	(1)
Other noninterest-bearing deposits		106,831		115,620		(8,789)	(8)
Total RPG noninterest-bearing deposits		433,336		444,275		(10,939)	(2)
Total RPG deposits		450,257		448,124		2,133	0

Total deposits	$	4,793,582	$	4,537,845	$	255,737	6	%

(1)	Includes time deposits

Total deposits increased $256 million from December 31, 2022 to $4.8 billion as of September 30, 2023. Total Core Bank deposits increased by $250 million with the March 2023 CBank acquisition resulting in $182 million of this growth. Core Bank legacy deposits, which excludes the deposits assumed from the CBank acquisition, increased $68 million, or 2%, from December 31, 2022. Within the Core Bank’s legacy deposits, interest-bearing deposits increased $302 million and noninterest-bearing deposits decreased $234 million.

As it relates to the decrease of $234 million in Core Bank legacy noninterest-bearing deposits, Management believes two factors generally drove, and continue to drive, this overall decline. The first is a general decline in liquidity among both businesses and consumers as the excess liquidity created during the COVID pandemic continued to wane. Second, Management believes that the substantial increase in market interest rates over the past year has caused the difference between what a client can earn for an interest-bearing deposit versus the client’s lack of a financial return for a noninterest-bearing deposit to become large enough to cause some clients to pursue other opportunities for their cash both inside and outside the Bank.

Related to the $302 million increase in Core Bank legacy interest-bearing deposits, much of this increase occurred during the second and third quarters of 2023 as Core Bank legacy interest-bearing deposits were down $61 million for the first quarter of 2023. The majority of this increase was in the Bank’s CDARs and ICS product types.

CDARs accounts represent reciprocal, term certificate-of-deposit accounts and ICS accounts represent liquid money market accounts in which:

The Bank receives large client deposits above the FDIC insurance limit of $250,000;

The Bank places these large deposits into like term CDs or money market accounts in a nationwide network of banks in amounts under the FDIC insurance threshold of $250,000 in order to receive full FDIC insurance on the total deposit amount; and

The Bank receives an equivalent amount of deposits back from the network of banks from numerous clients of theirs, under the $250,000 FDIC insurance limit for each of those clients.

These balances grew $228 million for the first nine months of the year with $167 million of this growth occurring during the second and third quarters when the Bank offered significantly higher rates on these products in order to combat deposit run-off. In addition to

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the higher offering rates available through these two products, CDARs and ICS accounts are also attractive to clients because they offer clients the ability to receive full FDIC insurance for their deposit balances up to $50 million per client.

Management believes the higher offering rates it is paying for its interest-bearing deposits as of September 30, 2023 will continue to raise the Traditional Bank's overall cost of funds into the second half of 2023 and cause further contraction to its net interest margin on a linked-quarter basis. This strategy is subject to change depending upon several factors including, but not limited to, the Bank’s current and projected overall liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.

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

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

SSUARs decreased $136 million, or 63%, during the first nine months of 2023 to $81 million as of September 30, 2023. SSUARs generally represent large customer relationships deposited into the Bank that require security collateral above the $250,000 FDIC insurance limit of the Bank. Due to the size of the underlying relationships, large fluctuations in the underlying account balances from period to period are common.

While the Bank has changed its pricing strategy with deposits in order to retain and attract funds, it has not generally changed its pricing strategy with SSUARs. As a result, its SSUAR balances have continued to decline during the first nine months of 2023. At this time, management is not contemplating a change in its pricing strategy for SSUARs, and as a result, a further decline in outstanding balances is possible. The Bank’s SSUAR pricing strategy, however, is subject to change depending upon several factors including, but not limited to, the Bank’s current and projected overall liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.

Federal Home Loan Bank Advances

The Bank’s total FHLB advances were $465 million as of September 30, 2023 compared to $95 million as of December 31, 2022. During the third quarter of 2023, the Bank extended the term of an additional $200 million in overnight borrowings into longer-term, fixed rate advances with a weighted average term of 4.33 years and a weighted average cost of 4.61%. With overnight borrowings costing approximately 5.40% during the quarter, the Bank extended these borrowings to mitigate the risk of rising interest rates to its balance sheet, while also taking advantage of the inverted yield curve by lowering its total borrowings costs. As of September 30, 2023, approximately $270 million of the Bank’s FHLB advances were fixed terms with a weighted average maturity of 4.5 years and a weighted-average cost of 4.33%. In addition, the Bank had remaining $195 million of overnight borrowings with a cost of 5.37% as of September 30, 2023.

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

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

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Liquidity

Table 31 — Liquid Assets and Borrowing Capacity

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


(in thousands)	September 30, 2023		December 31, 2022

Cash and cash equivalents	$	219,653	$	313,689
Unencumbered debt securities		518,844		438,052
Total liquid assets		738,497		751,741

Available borrowing capacity with the FHLB		638,554		899,362
Available borrowing capacity through unsecured credit lines		125,000		125,000
Total available borrowing capacity		763,554		1,024,362

Total liquid assets and available borrowing capacity	$	1,502,051	$	1,776,103

The Company had a loan to deposit ratio (excluding wholesale brokered deposits) of 106% as of September 30, 2023 and 99% as of December 31, 2022. Republic’s banking centers and its website, www.republicbank.com, provide access to retail deposit markets. These retail deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were cancelled, or if the Bank cannot obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.

As noted in the sections above titled “Deposits” and “Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings,” the Bank implemented a general strategy during 2022 and most of the first quarter of 2023 to maintain a low beta for its client-related interest-bearing liabilities as part of its overall strategy to increase its net interest margin and net interest income. As a result of this strategy, however, the Bank did experience a decline in both personal and business deposit balances and SSUAR balances as some clients moved their funds to more attractive offerings outside of the Bank. In response to this deposit outflow, during the third quarter of 2023 the Bank began marketing some deposit products, such as money market accounts and short-term certificates of deposit, with higher offering rates. This strategy appears to have generally reversed the outflow of deposits during late May and June of 2023. These higher offering rates also raised the Traditional Bank's overall cost of funds meaningfully during the third quarter of 2023 and caused contraction to its net interest margin on a linked-quarter basis. Management is unsure if these higher offering rates will continue to prevent future deposit outflows or if the Bank may be required to raise its offering rates more in order to prevent future deposit outflows. The Bank’s overall deposit and SSUAR pricing strategies are subject to change depending upon several factors including, but not limited to, the Bank’s current and projected overall liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.

As of September 30, 2023, the Bank had approximately $681 million in deposits from 133 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded $2 million. Total uninsured deposits for the Bank were $1.7 billion, or 36%, of total deposits as of September 30, 2023. The 20 largest non-sweep deposit relationships represented approximately $224 million, or 5%, of the Bank’s total deposit balances as of September 30, 2023. These accounts do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances were moved from the Bank, the Bank would likely utilize overnight borrowing lines in the short-term to replace the balances. On a longer-term basis, the Bank would likely utilize wholesale-brokered deposits to replace withdrawn balances, or alternatively, higher-cost internet-sourced deposits. Based on past experience utilizing brokered deposits and internet-sourced deposits, the Bank believes it can quickly obtain these types of deposits if needed. The overall cost of gathering these types of deposits, however, could be substantially higher than the Traditional Bank deposits they replace, potentially decreasing the Bank’s earnings.

The Bank’s liquidity is impacted by its ability to sell certain investment securities, which is limited due to the level of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings, and for other

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purposes, as required by law. As of September 30, 2023 and December 31, 2022, these pledged investment securities had a fair value of $82 million and $218 million.

Capital

Total stockholders’ equity increased from $857 million as of December 31, 2022 to $893 million as of September 30, 2023. The increase in stockholders’ equity was primarily attributable to net income earned during 2023 reduced primarily by cash dividends declared.

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

Dividend Restrictions — The Parent Company’s principal source of funds for dividend payments are dividends received from RB&T. Banking regulations limit the amount of dividends that may be paid to the Parent Company by the Bank without prior approval of the respective states’ banking regulators. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. As of October 1, 2023, RB&T could, without prior approval, declare dividends of approximately $126 million. Any payment of dividends in the future will depend, in large part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors.

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

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

Republic continues to exceed the regulatory requirements for Total Risk-Based Capital, Common Equity Tier I Risk-Based Capital, Tier I Risk Based-Capital, and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer. Republic’s average stockholders’ equity to average assets ratio was 14.29% as of September 30, 2023 and 13.82% as of December 31, 2022. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.

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Table 32 — Capital Ratios (1)


	As of September 30, 2023				As of December 31, 2022
(dollars in thousands)	Amount		Ratio		Amount		Ratio

Total capital to risk-weighted assets
Republic Bancorp, Inc.	$	953,455	16.24	%	$	941,865	17.92	%
Republic Bank & Trust Company		920,004	15.68			904,592	17.23

Common equity tier 1 capital to risk-weighted assets
Republic Bancorp, Inc.	$	884,368	15.06	%	$	877,735	16.70	%
Republic Bank & Trust Company		848,512	14.47			840,462	16.01

Tier 1 (core) capital to risk-weighted assets
Republic Bancorp, Inc.	$	884,368	15.06	%	$	877,735	16.70	%
Republic Bank & Trust Company		848,512	14.47			840,462	16.01

Tier 1 leverage capital to average assets
Republic Bancorp, Inc.	$	884,368	14.05	%	$	877,735	14.81	%
Republic Bank & Trust Company		848,512	13.42			840,462	14.09

(1)

The Company and the Bank elected in 2020 to defer the impact of CECL on regulatory capital. The deferral period is five years, with the total estimated CECL impact 100% deferred for the first two years, then phased in over the next three years. If not for this election, the Company’s regulatory capital ratios would have been approximately 6 basis points lower than those presented in the table above as of September 30, 2023 and approximately 10 basis points lower than those presented in the table above as of December 31, 2022.

Asset/Liability Management and Market Risk

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

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

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

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As of September 30, 2023, a dynamic simulation model was run for interest rate changes from “Down 200” basis points to “Up 300” basis points. The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning October 1, 2023 and ending September 30, 2024 based on instantaneous movements in interest rates from Down 200 to Up 300 basis points equally across all points on the yield curve. The Bank’s dynamic earnings simulation model includes secondary market loan fees and excludes Traditional Bank loan fees.

Table 33 — Bank Interest Rate Sensitivity


	Change in Rates
	-200		-100		+100		+200		+300
	Basis Points		Basis Points		Basis Points		Basis Points		Basis Points

% Change from base net interest income as of September 30, 2023	3.0	%	1.8	%	(0.6)	%	(1.2)	%	(1.6)	%
% Change from base net interest income as of December 31, 2022	(2.8)	%	(0.6)	%	1.8	%	3.7	%	5.7	%

Notable changes for the Bank’s interest rate sensitivity projections from December 31, 2022 to September 30, 2023 occurred in all the scenarios.

In general, the period-to-period declines in the up-rate scenarios were tied to the following three main factors.

●

The Company’s average interest-earning cash balances further declined from December to September. As a result, the benefit the Company expects to receive from rising short-term interest rates, as a result of its immediately repricing interest-earning cash, decreased.

●

The Company increased its assumed deposit betas from December to September in anticipation of a more competitive deposit gathering and retention environment. These higher deposit betas resulted in higher projected costs for the Company’s interest-bearing deposits in a rising rate environment.

●

Lastly, net interest income is projected to decline in the up-rate scenarios due to the increased amount of immediately repricing overnight borrowings on the Company’s balance sheet as of September 30, 2023 as compared to December 31, 2022.

Conversely in the down rate scenarios, the Company’s interest rate risk position notably improved. This improvement was generally tied to the following four factors.

●

The Company expects to achieve a notable increase above current levels for mortgage banking income as refinance activity is assumed to increase with a decline in interest rates.

●

Net interest income is expected to improve due to the assumed benefit for interest rate floors related to loans, which are projected to take effect with a substantial drop in interest rates.

●

Net interest income is projected to improve in the down rate scenarios due to the increased amount of immediately repricing overnight borrowings on the Company’s balance sheet as of September 30, 2023 as compared to December 31, 2022.

●

Lastly, a significant portion of the Company’s interest-bearing deposits have repriced higher since December 31, 2022, bringing them more in-line with current market rates. As a result, the Company’s interest sensitivity model as of September 30, 2023 assumes the Company will reprice a significant amount of its deposits lower in the event of a decline in market interest rates. Conversely, as of December 31, 2022, a significant amount of the Company’s deposits was priced below then-current market rates, and as a result, the Company’s interest rate sensitivity model assumed the Company did not have the ability to reprice many of its deposits lower in the event of a decline in market rates.

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

LIBOR Exposure

In July 2017, the Financial Conduct Authority (“FCA”), the authority regulating LIBOR, along with various other regulatory bodies, announced that LIBOR would likely be discontinued at the end of 2021. Subsequent to that announcement, in November 2020, the FCA announced that many tenors of LIBOR would continue to be published through June 2023. In compliance with regulatory

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guidance, the Bank discontinued referencing LIBOR for new financial instruments during 2021 and chose SOFR to be its primary alternative reference rate for most transaction types upon the discontinuance or unavailability of LIBOR.

Regarding its legacy assets that reference LIBOR, the Bank has previously disclosed that the underlying contracts for these assets may not include adequate “fallback” language to use alternative indexes and margins when LIBOR ceased. However, on March 15, 2022, President Biden signed into law the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Law”). The LIBOR Law provides for a statutory transition to a replacement rate selected by the Board of Governors of the Federal Reserve System (the “FRS Board”) based on the SOFR for contracts referencing LIBOR that contain no or ineffective fallback provisions, unless a replacement rate is selected by a determining person as outlined in the statute.

On December 16, 2022, under the LIBOR Law, the FRS Board issued final regulations (the “LIBOR Regulations”) that included the selection of an FRS Board-selected benchmark replacement rate based on SOFR and incorporated an applicable tenor spread adjustment (“Selected Benchmark Rate”). The Selected Benchmark Rate replaced LIBOR in certain financial contracts after September 30, 2023. Substantially all of the Company’s financial instruments transitioned to the Selected Benchmark as of July 1, 2023.

For additional discussion regarding the Bank’s net interest income, see the sections titled “Net Interest Income” in this section of the filing under “RESULTS OF OPERATIONS (Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022) and “RESULTS OF OPERATIONS (Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022.”

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out by Republic Bancorp, Inc.’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were not effective as of the end of the period covered by this report because of material weaknesses in our internal control over financial reporting, as described in Management’s Report on Internal Control over Financial Reporting in “Item 9A. Controls and Procedures” in its Annual Report on Form 10-K for the year ended December 31, 2022.

In addition, other than the measures described below taken in response to the material weaknesses, no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Material Weakness Remediation Efforts

The Company has commenced the implementation of some remediation measures with respect to the material weaknesses as outlined in its Annual Report on Form 10-K for the year ended December 31, 2022. As part of its remediation efforts for its material weaknesses, Management has completed the following:

●

Enhanced its internal monthly financial reporting during the first quarter of 2023 to provide a more detailed yield analysis at the product level for the performance of each RCS product.

●

In July 2023, the Company hired and designated a new Chief Accounting Officer for the RPG operations. This new position reports up through the Chief Financial Officer of the Company and not to the business unit. This position has day-to-day responsibilities overseeing the financial reporting of the RPG segment.

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●

In July 2023, the Company’s Board of Directors approved a new policy with enhanced reconciliation policies and procedures. This revised policy provides better guidance to reconciliation personnel for escalation requirements of reconciliation items as well as internal responsibilities for resolving reconciliation issues.

●

Consistent with the Company’s new policy approved by the Board in July 2023, the Company’s accounting and reconciliation team established a process of regular meetings, with enhanced documentation, to identify and appropriately escalate potential issues within the Company’s reconciliations. In addition, the Company’s accounting and reconciliation team continues to partner with an outside technology company to automate select reconciliation processes to facilitate the timely identification and escalation of reconciling items.

Moreover, the Company continues to evaluate and enhance its product implementation policies and procedures for new third-party products offered through RPG to ensure proper implementation and design, as well as adequate reviews and approvals from all required stakeholders within the Company.

Management cannot determine when all its remediation plans will be fully completed, and Management cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

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

Item 1A.Risk Factors.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Except for the additional risk factor information described below, there have been no material changes in the Company’s risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of its Annual Report on Form 10-K for the year ended December 31, 2022. You should carefully consider the risk factors discussed below and in Republic’s 2022 Form 10-K, which could materially affect the Company’s business, financial condition and results of operations in the future.

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

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

Uninsured deposits historically have been less stable than insured deposits. As a result, in the event of financial distress, uninsured depositors historically have been more likely to withdraw their deposits. The Company estimates that 36% of its total deposits as of September 30, 2023, were uninsured as they were above the FDIC’s insurance limit. If a significant portion of these uninsured deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet

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withdrawal demands, RB&T may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin. Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits. This spread may be exacerbated by higher prevailing interest rates.

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

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

Details of Republic’s Class A Common Stock purchases during the third quarter of 2023 are included in the following table:


				Total Number of	Maximum Number
				Shares Purchased	of Shares that May
				as Part of Publicly	Yet Be Purchased
	Total Number of	Average Price		Announced Plans	Under the Plan
Period	Shares Purchased	Paid Per Share		or Programs	or Programs

July 1 - July 31	59,152	$	44.57	59,152	334,187
August 1 - August 31	85,357		45.87	85,357	248,830
September 1 - September 30	62,323		44.14	62,323	186,507
Total	206,832	$	44.98	206,832	186,507

The Company repurchased 206,832 shares of its Class A Common Stock during the third quarter of 2023. In addition, in connection with employee stock awards, there were no shares withheld upon exercise of stock options to satisfy the withholding taxes. On October 25, 2022, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase shares of its Class A Common Stock to 500,000 shares. The repurchase program will remain effective until the total number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of September 30, 2023, the Company had 186,507 shares which could be repurchased under its current share repurchase programs.

During the third quarter of 2023, there were no shares of Class A Common Stock issued upon conversion of shares of Class B Common Stock by stockholders of Republic in accordance with the share-for-share conversion option of the Class B Common Stock. The exemption from registration of newly issued Class A Common Stock relies upon Section (3)(a)(9) of the Securities Act of 1933.

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

Item 5.Other Information.

Rule 10b5-1 Trading Plans

During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.

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Item 6.Exhibits.

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


Exhibit Number		Description of Exhibit

31.1		Certification of Principal Executive Officer pursuant to the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002

32*		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following financial statements from the Company’s quarterly report on Form 10-Q were formatted in iXBRL(Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, (ii) Consolidated Statements of Income and Comprehensive Income for the Three and nine months ended September 30, 2023 and 2022, (iii) Consolidated Statements of Stockholders’ Equity for the Three and nine months ended September 30, 2023 and 2022, (iv) Consolidated Statements of Cash Flows for the Nine months ended September 30, 2023 and 2022 and (v) Notes to Consolidated Financial Statements

104		Cover Page Interactive Data File formatted in iXBRL and contained in Exhibit 101.

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			REPUBLIC BANCORP, INC.
			(Registrant)

			Principal Executive Officer:


Date: November 3, 2023			/s/ Steven E. Trager
			By: Steven E. Trager
			Executive Chair and Chief Executive Officer


			Principal Financial Officer:


Date: November 3, 2023			/s/ Kevin Sipes
			By: Kevin Sipes
			Executive Vice President, Chief Financial
			Officer and Chief Accounting Officer

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