0000921557us-gaap:~~ResidentialPortfolioSegmentMemberrbcaa:OwnerOccupiedResidentialRealEstateLoansMemberrbcaa:TraditionalBankingMember2021-01-012021-03-31~~ConsumerPortfolioSegmentMemberus-gaap:PaymentDeferralMember2020-01-012020-12-31

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 ~~March 31,~~September 30, 2021

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

Commission File Number: 0-24649

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)


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

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

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

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

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

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

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

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


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

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

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

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of ~~April 30,~~October 31, 2021, was ~~18,593,543~~18,042,274 and ~~2,197,634.~~2,165,064.

Table of Contents

GLOSSARY OF TERMS

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


Term		Definition

ACH		Automated Clearing House
ACL		Allowance for Credit Losses
ACLC		Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
ACLL		Allowance for Credit Losses on Loans
ACLS		Allowance for Credit Losses on Securities
AFS		Available for Sale
AOCI		Accumulated Other Comprehensive Income
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Basic EPS		Basic earnings per Class A Common Share
BOLI		Bank Owned Life Insurance
BPO		Brokered Price Opinion
C&D		Construction and Development
C&I		Commercial and Industrial
CARES Act		Coronavirus Aid, Relief, and Economic Security Act
CECL		Current Expected Credit Loss
CMO		Collateralized Mortgage Obligation
Core Bank		The Traditional Banking, Warehouse Lending, and Mortgage Banking reportable segments
COVID-19		Coronavirus Disease of 2019
CRE		Commercial Real Estate
Diluted EPS		Diluted earnings per Class A Common Share
EA		Easy Advance
Economic Aid Act		The Economic Aid to Hard Hit Small Business, Not for Profits and Venues Act
ESPP		Employee Stock Purchase Plan
EVP		Executive Vice President
FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
FFTR		Federal Funds Target Rate
FHLB		Federal Home Loan Bank
FHLMC		Federal Home Loan Mortgage Corporation
FICO		Fair Isaac Corporation
FNMA		Federal National Mortgage Association
FOMC		Federal Open Market Committee
FRB		Federal Reserve Bank
FTE		Full Time Equivalent
FTP		Funds Transfer Pricing
GAAP		Generally Accepted Accounting Principles in the United States
Green Dot		Green Dot Corporation
HEAL		Home Equity Amortizing Loan
HELOC		Home Equity Line of Credit
HTM		Held to Maturity
IRS		Internal Revenue Service
ITM		Interactive Teller Machine
LGD		Loss Given Default
LIBOR		London Interbank Offered Rate
~~LPO~~LOC I		~~Loan Production Office~~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~~Mortgage Backed Securities
MSRs		Mortgage Servicing Rights
NA		Not Applicable
NM		Not Meaningful
OBS		Off-Balance Sheet
OCI		Other Comprehensive Income
OREO		Other Real Estate Owned
OTTI		Other than Temporary Impairment
PCD		Purchased with Credit Deterioration
~~PCI~~		~~Purchased Credit Impaired~~
PD		Probability of Default
PPP		SBA's Paycheck Protection Program
PPPLF		The FRB's Paycheck Protection Program Liquidity Facility
Prime		The Wall Street Journal Prime Interest Rate
Provision		Provision for Expected Credit Loss Expense
PSU		Performance Stock Unit
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
QF		Qualitative Factor
R&D		Research and Development
RB&T / the Bank		Republic Bank & Trust Company
RBCT		Republic Bancorp Capital Trust
RCS		Republic Credit Solutions segment
Republic / the Company		Republic Bancorp, Inc.
RPG		Republic Processing Group
RPS		Republic Payment Solutions
RT		Refund Transfer
Sale Transaction		Sale contemplated in the May 13, 2021 Purchase Agreement between the Bank and Green Dot
SBA		U.S. Small Business Administration
SEC		Securities and Exchange Commission
SSUAR		Securities Sold Under Agreements to Repurchase
SVP		Senior Vice President
TDR		Troubled Debt Restructuring
The Captive		Republic Insurance Services, Inc.
TPS		Trust Preferred Securities
TRS		Tax Refund Solutions segment
TRUP		TPS Investment
Warehouse		Warehouse Lending segment

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)

March 31,

December 31,

2021

2020

ASSETS

Cash and cash equivalents

$
984,857

$
485,587

Available-for-sale debt securities, at fair value (amortized cost of $468,144 in 2021 and $512,518 in 2020, allowance for credit losses of $0 in 2021 and $0 in 2020)

477,475

523,863

Held-to-maturity debt securities (fair value of $52,909 in 2021 and $54,190 in 2020, allowance for credit losses of $103 in 2021 and $178 in 2020)

52,147

53,324

Equity securities with readily determinable fair value

2,821

3,083

Mortgage loans held for sale, at fair value

63,636

46,867

Consumer loans held for sale, at fair value

3,970

3,298

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

11,701

1,478

Loans (loans carried at fair value of $417 in 2021 and $497 in 2020)

4,666,593

4,813,103

Allowance for credit losses

(75,336)

(61,067)

Loans, net

4,591,257

4,752,036

Federal Home Loan Bank stock, at cost

13,153

17,397

Premises and equipment, net

38,324

39,512

Right-of-use assets

41,911

43,345

Goodwill

16,300

16,300

Other real estate owned

2,015

2,499

Bank owned life insurance

68,408

68,018

Other assets and accrued interest receivable

108,565

111,718

TOTAL ASSETS

$
6,476,540

$
6,168,325

LIABILITIES

Deposits:

Noninterest-bearing

$
2,276,348

$
1,890,416

Interest-bearing

2,995,144

2,842,765

Total deposits

5,271,492

4,733,181

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

175,580

211,026

Operating lease liabilities

42,854

44,340

Federal Home Loan Bank advances

25,000

235,000

Subordinated note

41,240

41,240

Other liabilities and accrued interest payable

82,665

80,215

Total liabilities

5,638,831

5,345,002

Commitments and contingent liabilities (Footnote 9)

—

—

STOCKHOLDERS’ EQUITY

Preferred stock, 0 par value

—

—

Class A Common Stock and Class B Common Stock, 0 par value

4,884

4,899

Additional paid in capital

143,563

143,637

Retained earnings

682,264

666,278

Accumulated other comprehensive income

6,998

8,509

Total stockholders’ equity

837,709

823,323

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
6,476,540

$
6,168,325


	September 30,		December 31,
	2021		2020
ASSETS

Cash and cash equivalents	$	1,011,247	$	485,587
Available-for-sale debt securities, at fair value (amortized cost of $489,015 in 2021 and $512,518 in 2020, allowance for credit losses of $0 in 2021 and $0 in 2020)		495,880		523,863
Held-to-maturity debt securities (fair value of $45,590 in 2021 and $54,190 in 2020, allowance for credit losses of $54 in 2021 and $178 in 2020)		44,991		53,324
Equity securities with readily determinable fair value		2,578		3,083
Mortgage loans held for sale, at fair value		25,791		46,867
Consumer loans held for sale, at fair value		10,779		3,298
Consumer loans held for sale, at the lower of cost or fair value		3,976		1,478
Loans for discontinued operations, at the lower of cost or fair value		24		23,765
Loans (loans carried at fair value of $254 in 2021 and $497 in 2020)		4,343,782		4,789,338
Allowance for credit losses		(63,024)		(61,067)
Loans, net		4,280,758		4,728,271
Federal Home Loan Bank stock, at cost		10,311		17,397
Premises and equipment, net		37,499		39,512
Right-of-use assets		39,257		43,345
Goodwill		16,300		16,300
Other real estate owned		1,845		2,499
Bank owned life insurance		99,634		68,018
Other assets and accrued interest receivable		106,764		111,718

TOTAL ASSETS	$	6,187,634	$	6,168,325

LIABILITIES

Deposits:
Noninterest-bearing	$	2,053,485	$	1,871,539
Interest-bearing		2,861,399		2,842,765
Deposits of discontinued operations		33,063		18,877
Total deposits		4,947,947		4,733,181

Securities sold under agreements to repurchase and other short-term borrowings		260,583		211,026
Operating lease liabilities		40,151		44,340
Federal Home Loan Bank advances		25,000		235,000
Subordinated note		—		41,240
Other liabilities and accrued interest payable		75,296		80,215

Total liabilities		5,348,977		5,345,002

Commitments and contingent liabilities (Footnote 9)		—		—

STOCKHOLDERS’ EQUITY

Preferred stock, 0 par value		—		—
Class A Common Stock and Class B Common Stock, 0 par value		4,752		4,899
Additional paid in capital		140,842		143,637
Retained earnings		687,915		666,278
Accumulated other comprehensive income		5,148		8,509

Total stockholders’ equity		838,657		823,323

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,187,634	$	6,168,325

See accompanying footnotes to consolidated financial statements.

Table of Contents

CONSOLIDATED ~~STATEMENTS~~STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

Three Months Ended

March 31,

2021

2020

INTEREST INCOME:

Loans, including fees
$
67,386

$
77,513

Taxable investment securities

1,952

2,783

Federal Home Loan Bank stock and other

219

863

Total interest income

69,557

81,159

INTEREST EXPENSE:

Deposits

1,565

6,302

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

9

119

Federal Home Loan Bank advances

31

1,648

Subordinated note

172

352

Total interest expense

1,777

8,421

NET INTEREST INCOME

67,780

72,738

Provision for expected credit loss expense

15,262

22,760

NET INTEREST INCOME AFTER PROVISION

52,518

49,978

NONINTEREST INCOME:

Service charges on deposit accounts

2,873

3,136

Net refund transfer fees

12,721

15,823

Mortgage banking income

7,193

4,795

Interchange fee income

3,027

2,552

Program fees

2,225

2,624

Increase in cash surrender value of bank owned life insurance

390

389

Net gains (losses) on other real estate owned

(11)

3

Other

619

1,247

Total noninterest income

29,037

30,569

NONINTEREST EXPENSE:

Salaries and employee benefits

29,337

26,622

Technology, equipment, and communication

7,043

6,870

Occupancy

3,559

3,217

Marketing and development

773

833

FDIC insurance expense

446

—

Bank franchise tax expense

328

2,506

Interchange related expense

1,144

1,076

Other real estate owned and other repossession expense

(34)

18

Legal and professional fees

1,214

1,237

Other

4,001

4,590

Total noninterest expense

47,811

46,969

INCOME BEFORE INCOME TAX EXPENSE

33,744

33,578

INCOME TAX EXPENSE

7,691

6,881

NET INCOME
$
26,053

$
26,697

BASIC EARNINGS PER SHARE:

Class A Common Stock
$
1.26

$
1.29

Class B Common Stock

1.14

1.17

DILUTED EARNINGS PER SHARE:

Class A Common Stock
$
1.25

$
1.28

Class B Common Stock

1.14

1.16


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
INTEREST INCOME:

Loans, including fees	$	51,409	$	53,447	$	153,433	$	164,302
Taxable investment securities		1,845		2,266		5,655		7,761
Federal Home Loan Bank stock and other		446		192		1,178		2,379
Total interest income		53,700		55,905		160,266		174,442

INTEREST EXPENSE:

Deposits		1,148		2,876		4,037		12,298
Securities sold under agreements to repurchase and other short-term borrowings		71		92		350		1,701
Federal Reserve Payment Protection Plan Liquidity Facility		—		48		—		153
Federal Home Loan Bank advances		6		658		47		3,128
Subordinated note		166		182		507		829
Total interest expense		1,391		3,856		4,941		18,109

NET INTEREST INCOME		52,309		52,049		155,325		156,333

Provision for expected credit loss expense		3,553		5,842		4,381		15,555

NET INTEREST INCOME AFTER PROVISION		48,756		46,207		150,944		140,778

NONINTEREST INCOME:

Service charges on deposit accounts		3,277		3,017		9,221		8,604
Mortgage banking income		5,280		10,775		16,655		23,968
Interchange fee income		3,200		2,874		9,539		8,093
Program fees		4,530		1,487		10,304		5,249
Increase in cash surrender value of bank owned life insurance		626		400		1,616		1,184
Net losses on other real estate owned		(52)		(14)		(107)		(10)
Other		1,134		861		2,769		2,673
Total noninterest income		17,995		19,400		49,997		49,761

NONINTEREST EXPENSE:

Salaries and employee benefits		25,948		25,207		79,470		75,405
Technology, equipment, and communication		7,226		7,402		21,479		20,966
Occupancy		3,195		3,367		10,004		9,885
Marketing and development		1,234		864		3,085		2,574
FDIC insurance expense		325		345		1,039		644
Bank franchise tax expense		329		972		1,106		2,665
Interchange related expense		1,275		1,056		3,707		3,305
Other real estate owned and other repossession expense		—		6		(32)		45
Legal and professional fees		581		1,240		2,182		3,337
Other		2,481		3,319		7,953		10,262
Total noninterest expense		42,594		43,778		129,993		129,088

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE		24,157		21,829		70,948		61,451
INCOME TAX EXPENSE		5,745		4,554		15,708		12,107
INCOME FROM CONTINUING OPERATIONS		18,412		17,275		55,240		49,344
DISCONTINUED OPERATIONS:
Income from discontinued operations before income taxes		2,070		3,997		19,584		17,550
Income tax expense		473		883		4,840		4,004
Income from discontinued operations, net of tax		1,597		3,114		14,744		13,546

NET INCOME	$	20,009	$	20,389	$	69,984	$	62,890

BASIC EARNINGS PER SHARE:
Class A Common Stock - continuing operations	$	0.91	$	0.83	$	2.69	$	2.37
Class A Common Stock - discontinued operations		0.08		0.15		0.71		0.65
Class A Common Stock	$	0.99	$	0.98	$	3.40	$	3.02

Class B Common Stock - continuing operations	$	0.83	$	0.75	$	2.45	$	2.16
Class B Common Stock - discontinued operations		0.07		0.14		0.65		0.59
Class B Common Stock	$	0.90	$	0.89	$	3.10	$	2.75

DILUTED EARNINGS PER SHARE:
Class A Common Stock - continuing operations	$	0.91	$	0.83	$	2.68	$	2.37
Class A Common Stock - discontinued operations		0.08		0.15		0.71		0.65
Class A Common Stock	$	0.99	$	0.98	$	3.39	$	3.02

Class B Common Stock - continuing operations	$	0.83	$	0.75	$	2.44	$	2.15
Class B Common Stock - discontinued operations		0.07		0.14		0.65		0.59
Class B Common Stock	$	0.90	$	0.89	$	3.09	$	2.74

See accompanying footnotes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three Months Ended

March 31,

2021

2020

Net income
$
26,053

$
26,697

OTHER COMPREHENSIVE INCOME (LOSS)

Change in fair value of derivatives used for cash flow hedges

—

(161)

Reclassification amount for net derivative losses realized in income

—

29

Change in unrealized gains and losses on AFS debt securities

(2,029)

7,777

Change in unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings

15

1

Total other comprehensive income (loss) before income tax

(2,014)

7,646

Tax effect

503

(1,913)

Total other comprehensive income (loss), net of tax

(1,511)

5,733

COMPREHENSIVE INCOME
$
24,542

$
32,430


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

Net income	$	20,009	$	20,389	$	69,984	$	62,890

OTHER COMPREHENSIVE INCOME (LOSS)

Change in fair value of derivatives used for cash flow hedges		—		(1)		—		(173)
Reclassification amount for net derivative losses realized in income		—		103		—		211
Unrealized gains and (losses) on AFS debt securities		(1,899)		(258)		(4,542)		8,618
Unrealized gain (loss) of AFS debt security for which a portion of OTTI has been recognized in earnings		13		61		62		(46)
Total other comprehensive income (loss) before income tax		(1,886)		(95)		(4,480)		8,610
Tax effect		471		24		1,119		(2,153)
Total other comprehensive income (loss), net of tax		(1,415)		(71)		(3,361)		6,457

COMPREHENSIVE INCOME	$	18,594	$	20,318	$	66,623	$	69,347

See accompanying footnotes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


	Three Months Ended September 30, 2021

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

Balance, July 1, 2021	18,421	2,166	$	4,841	$	142,884	$	690,802	$	6,563	$	845,090

Net income	—	—		—		—		20,009		—		20,009
Net change in accumulated other comprehensive income	—	—		—		—		—		(1,415)		(1,415)
Dividends declared on Common Stock:
Class A Shares ($0.308 per share)	—	—		—		—		(5,557)		—		(5,557)
Class B Shares ($0.280 per share)	—	—		—		—		(606)		—		(606)
Conversion of Class B to Class A Common Shares	1	(1)		—		—		—		—		—
Repurchase of Class A Common Stock	(387)	—		(90)		(2,855)		(16,733)		—		(19,678)
Net change in notes receivable on Class A Common Stock	—	—		—		100		—		—		100
Deferred compensation - Class A Common Stock:
Directors	—	—		—		121		—		—		121
Designated key employees	—	—		—		175		—		—		175
Employee stock purchase plan - Class A Common Stock	4	—		1		191		—		—		192
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		32		—		—		32
Restricted stock	1	—		—		64		—		—		64
Stock options	—	—		—		130		—		—		130

Balance, September 30, 2021	18,040	2,165	$	4,752	$	140,842	$	687,915	$	5,148	$	838,657


	Three Months Ended September 30, 2020

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

Balance, July 1, 2020	18,708	2,200	$	4,898	$	142,813	$	638,282	$	9,626	$	795,619

Net income	—	—		—		—		20,389		—		20,389
Net change in accumulated other comprehensive income	—	—		—		—		—		(71)		(71)
Dividends declared on Common Stock:
Class A Shares ($0.286 per share)	—	—		—		—		(5,375)		—		(5,375)
Class B Shares ($0.260 per share)	—	—		—		—		(572)		—		(572)
Stock options exercised, net of shares withheld	1	—		1		(6)		—		—		(5)
Net change in notes receivable on Class A Common Stock	—	—		—		(201)		—		—		(201)
Deferred compensation - Class A Common Stock:
Directors	—	—		—		72		—		—		72
Designated key employees	—	—		—		141		—		—		141
Employee stock purchase plan - Class A Common Stock	6	—		1		169		—		—		170
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		—		—		—		—
Restricted stock	—	—		—		69		—		—		69
Stock options	—	—		—		126		—		—		126

Balance, September 30, 2020	18,715	2,200	$	4,900	$	143,183	$	652,724	$	9,555	$	810,362

Table of Contents


	Three Months Ended March 31, 2021												Nine Months Ended September 30, 2021
	Common Stock								Accumulated				Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total		Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’		Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity		Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity

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

Net income	—	—		—		—		26,053		—		26,053	—	—		—		—		69,984		—		69,984
Net change in accumulated other comprehensive income	—	—		—		—		—		(1,511)		(1,511)	—	—		—		—		—		(3,361)		(3,361)
Dividends declared on Common Stock:
Class A Shares ($0.308 per share)	—	—		—		—		(5,743)		—		(5,743)
Class B Shares ($0.280 per share)	—	—		—		—		(616)		—		(616)
Class A Shares ($0.924 per share)													—	—		—		—		(16,980)		—		(16,980)
Class B Shares ($0.840 per share)													—	—		—		—		(1,830)		—		(1,830)
Stock options exercised, net of shares withheld	15	—		8		(92)		—		—		(84)	28	—		13		(155)		—		—		(142)
Conversion of Class B to Class A Common Shares	1	(1)		—		—		—		—		—	34	(34)		—		—		—		—		—
Repurchase of Class A Common Stock	(107)	—		(24)		(736)		(3,708)		—		(4,468)	(749)	—		(165)		(5,205)		(29,537)		—		(34,907)
Net change in notes receivable on Class A Common Stock	—	—		—		94		—		—		94	—	—		—		150		—		—		150
Deferred compensation - Class A Common Stock:
Directors	4	—		—		114		—		—		114	4	—		—		330		—		—		330
Designated key employees	—	—		—		136		—		—		136	—	—		—		478		—		—		478
Employee stock purchase plan - Class A Common Stock	4	—		1		154		—		—		155	11	—		3		507		—		—		510
Stock-based awards - Class A Common Stock:
Performance stock units	—	—		—		32		—		—		32	—	—		—		97		—		—		97
Restricted stock	14	—		—		110		—		—		110	15	—		2		583		—		—		585
Stock options	—	—		—		114		—		—		114	—	—		—		420		—		—		420

Balance, March 31, 2021	18,628	2,198	$	4,884	$	143,563	$	682,264	$	6,998	$	837,709
Balance, September 30, 2021													18,040	2,165	$	4,752	$	140,842	$	687,915	$	5,148	$	838,657


	Three Months Ended March 31, 2020												Nine Months Ended September 30, 2020
	Common Stock								Accumulated				Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total		Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’		Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands, except per share data)	Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity		Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity

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

Adjustment for adoption of ASU 2016-13	—	—		—		—		(4,291)		—		(4,291)	—	—		—		—		(4,291)		—		(4,291)
Net income	—	—		—		—		26,697		—		26,697	—	—		—		—		62,890		—		62,890
Net change in accumulated other comprehensive income	—	—		—		—		—		5,733		5,733	—	—		—		—		—		6,457		6,457
Dividends declared on Common Stock:
Class A Shares ($0.286 per share)	—	—		—		—		(5,358)		—		(5,358)
Class B Shares ($0.260 per share)	—	—		—		—		(572)		—		(572)
Class A Shares ($0.858 per share)													—	—		—		—		(16,080)		—		(16,080)
Class B Shares ($0.780 per share)													—	—		—		—		(1,716)		—		(1,716)
Stock options exercised, net of shares withheld	2	—		1		(43)		—		—		(42)	20	—		9		242		—		—		251
Repurchase of Class A Common Stock	6	(6)		—		—		—		—		—	6	(6)		—		—		—		—		—
Conversion of Class B to Class A Common Shares	(86)	—		(20)		(582)		(2,250)		—		(2,852)	(86)	—		(20)		(582)		(2,250)		—		(2,852)
Net change in notes receivable on Class A Common Stock	—	—		—		30		—		—		30	—	—		—		(87)		—		—		(87)
Deferred compensation - Class A Common Stock:
Directors	4	—		—		79		—		—		79	4	—		—		222		—		—		222
Designated key employees	—	—		—		143		—		—		143	—	—		—		418		—		—		418
Employee stock purchase plan - Class A Common Stock	5	—		1		154		—		—		155	15	—		3		458		—		—		461
Stock-based awards - Class A Common Stock:
Performance stock units	18	—		—		(200)		—		—		(200)	18	—		—		(200)		—		—		(200)
Restricted stock	1	—		1		187		—		—		188	1	—		1		316		—		—		317
Stock options	—	—		—		92		—		—		92	—	—		—		328		—		—		328

Balance, March 31, 2020	18,687	2,200	$	4,890	$	141,928	$	628,397	$	8,831	$	784,046
Balance, September 30, 2020													18,715	2,200	$	4,900	$	143,183	$	652,724	$	9,555	$	810,362

See accompanying footnotes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three Months Ended

March 31,

2021

2020

OPERATING ACTIVITIES:

Net income

$
26,053

$
26,697

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

Net (accretion) amortization on investment securities

321

330

Net accretion on loans and amortization of core deposit intangible and operating lease components

(6,846)

(799)

Unrealized losses on equity securities with readily determinable fair value

262

381

Depreciation of premises and equipment

2,247

2,549

Amortization of mortgage servicing rights

997

585

Impairment of mortgage servicing rights

(400)

100

Provision for on-balance sheet exposures

15,262

22,760

Provision for off-balance sheet exposures

26

102

Net gain on sale of mortgage loans held for sale

(6,997)

(4,805)

Origination of mortgage loans held for sale

(213,587)

(125,273)

Proceeds from sale of mortgage loans held for sale

203,815

109,918

Net gain on sale of consumer loans held for sale

(1,304)

(2,337)

Origination of consumer loans held for sale

(117,274)

(195,121)

Proceeds from sale of consumer loans held for sale

107,683

194,182

Net gain realized on sale of other real estate owned

(41)

(3)

Writedowns of other real estate owned

53

—

Deferred compensation expense - Class A Common Stock

250

222

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

288

280

Net gain on sale of bank premises and equipment

—

(353)

Increase in cash surrender value of bank owned life insurance

(390)

(389)

Net change in other assets and liabilities:

Accrued interest receivable

1,745

900

Accrued interest payable

(65)

635

Other assets

(4,786)

(7,381)

Other liabilities

7,949

4,998

Net cash provided by operating activities

15,261

28,178

INVESTING ACTIVITIES:

Purchases of available-for-sale debt securities

(35,020)

(138,894)

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

79,077

73,716

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

1,247

690

Net change in outstanding warehouse lines of credit

96,952

(132,996)

Net change in other loans

55,502

50,510

Proceeds from redemption of Federal Home Loan Bank stock

4,244

931

Purchase of Federal Home Loan Bank stock

—

(9,000)

Proceeds from sales of other real estate owned

536

31

Proceeds from sale of bank premises and equipment

—

894

Net purchases of premises and equipment

(1,059)

(1,109)

Net cash provided by (used in) investing activities

201,479

(155,227)

FINANCING ACTIVITIES:

Net change in deposits

538,311

285,449

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

(35,446)

(41,537)

Payments of Federal Home Loan Bank advances

(235,000)

(602,500)

Proceeds from Federal Home Loan Bank advances

25,000

425,000

Repurchase of Class A Common Stock

(4,468)

(2,852)

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

132

155

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

(93)

(242)

Cash dividends paid

(5,906)

(5,464)

Net cash provided by financing activities

282,530

58,009

NET CHANGE IN CASH AND CASH EQUIVALENTS

499,270

(69,040)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

485,587

385,303

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
984,857

$
316,263

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:

Cash paid during the period for:

Interest

$
1,842

$
7,786

Income taxes

441

465

SUPPLEMENTAL NONCASH DISCLOSURES:

Transfers from loans to real estate acquired in settlement of loans

$
64

$
—

Right-of-use assets recorded

—

626

Allowance for credit losses recorded upon adoption of ASC 326

—

7,241


	Nine Months Ended
	September 30,
	2021		2020
OPERATING ACTIVITIES:
Net income	$	69,984	$	62,890
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization on investment securities		805		1,154
Net accretion on loans and amortization of core deposit intangible and operating lease components		(12,650)		(3,261)
Unrealized losses on equity securities with readily determinable fair value		505		118
Depreciation of premises and equipment		6,747		7,420
Amortization of mortgage servicing rights		2,617		2,701
Impairment of mortgage servicing rights		(500)		500
Provision for on-balance sheet exposures for continuing operations		4,381		15,555
Provision for on-balance sheet exposures for discontinued operations		7,850		15,239
Provision for off-balance sheet exposures		(52)		467
Net gain on sale of mortgage loans held for sale		(16,339)		(25,030)
Origination of mortgage loans held for sale		(525,246)		(547,556)
Proceeds from sale of mortgage loans held for sale		562,661		546,950
Net gain on sale of consumer loans held for sale		(7,889)		(3,751)
Origination of consumer loans held for sale		(561,062)		(391,688)
Proceeds from sale of consumer loans held for sale		558,972		395,791
Net gain realized on sale of other real estate owned		(51)		(43)
Writedowns of other real estate owned		158		53
Deferred compensation expense - Class A Common Stock		808		640
Stock-based awards and ESPP expense - Class A Common Stock		1,178		445
Net gain on sale of bank premises and equipment		(399)		(353)
Increase in cash surrender value of bank owned life insurance		(1,616)		(1,184)
Net change in other assets and liabilities:
Accrued interest receivable		3,573		810
Accrued interest payable		(162)		(2,074)
Other assets		(4,743)		(13,126)
Other liabilities		(1,381)		(623)
Net cash provided by operating activities		88,149		62,044

INVESTING ACTIVITIES:
Purchases of available-for-sale debt securities		(141,571)		(278,878)
Proceeds from calls, maturities and paydowns of available-for-sale debt securities		164,280		207,397
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities		8,444		7,952
Net change in outstanding warehouse lines of credit		212,114		(311,217)
Net change in other loans from continuing operations		235,993		(282,185)
Net change in loans from discontinued operations		23,717		14,132
Proceeds from redemption of Federal Home Loan Bank stock		7,086		20,197
Purchase of Federal Home Loan Bank stock		—		(9,000)
Proceeds from sales of other real estate owned		611		156
Proceeds from sale of bank premises and equipment		637		894
Purchase of bank owned life insurance		(30,000)		—
Net purchases of premises and equipment		(4,972)		(2,711)
Net cash provided by (used in) investing activities		476,339		(633,263)

FINANCING ACTIVITIES:
Net change in deposits from continuing operations		200,580		1,153,770
Net change in deposits from discontinued operations		14,186		52,551
Net change in securities sold under agreements to repurchase and other short-term borrowings		49,557		(41,445)
Payments of Federal Home Loan Bank advances		(235,000)		(1,067,500)
Proceeds from Federal Home Loan Bank advances		25,000		450,000
Payoff of subordinated note, net of common security interest		(40,000)		—
Repurchase of Class A Common Stock		(34,907)		(2,852)
Net proceeds from Class A Common Stock purchased through employee stock purchase plan		435		461
Net proceeds from option exercises and equity awards vested - Class A Common Stock		(142)		251
Cash dividends paid		(18,537)		(17,292)
Net cash (used in) provided by financing activities		(38,828)		527,944

NET CHANGE IN CASH AND CASH EQUIVALENTS		525,660		(43,275)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		485,587		385,303
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,011,247	$	342,028

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	4,790	$	19,167
Income taxes		16,736		16,204

SUPPLEMENTAL NONCASH DISCLOSURES:
Mortgage servicing rights capitalized	$	3,889	$	3,987
Transfers from loans to real estate acquired in settlement of loans		64		2,109
Transfers from loans held for investment to held for sale		24		—
Unfunded commitments in low-income-housing investments		—		10,000
Right-of-use assets recorded		263		14,144
Allowance for credit losses recorded upon adoption of ASC 326		—		7,241

See accompanying footnotes to consolidated financial statements.

Table of Contents

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

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-member financial institution that provides both traditional and non-traditional banking products through 5 reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly-owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives for which insurance may not be available or economically feasible.

In 2005, Republic Bancorp Capital Trust, ~~is a Delaware statutory business~~an unconsolidated trust ~~that is a wholly-owned unconsolidated finance~~ subsidiary of Republic, ~~Bancorp, Inc.~~was formed and issued $40 million in TPS. On September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic redeemed these securities at the par amount of approximately $40 million, without penalty. Although the TPS were treated as part of Republic’s Tier I Capital while outstanding, Republic’s capital ratios remained well above “well capitalized” levels following this redemption.

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 ~~March 31,~~September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information, refer to the consolidated financial statements and footnotes thereto included in Republic’s Form 10-K for the year ended December 31, 2020.

As of ~~March 31,~~September 30, 2021, the Company was divided into 5 reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first 3 segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last 2 segments collectively constitute RPG operations.

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

The Company’s financial condition as of ~~March 31,~~September 30, 2021 and results of ~~operation~~operations for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 were impacted by the COVID-19 pandemic and the public’s response to it.

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

●

Footnote 4 “Loans and Allowance for Credit Losses”

●

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

910

Table of Contents

Core Bank

Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of ~~March 31,~~September 30, 2021, Republic had 42 full-service banking centers with locations as follows:

●

Kentucky — 28

●

Metropolitan Louisville — 18

●

Central Kentucky — 7

●

Georgetown — 1

●

Lexington — 5

●

Shelbyville — 1

●

Northern Kentucky — 3

●

Covington — 1

●

Crestview Hills — 1

●

Florence — 1

●

Southern Indiana — 3

●

Floyds Knobs — 1

●

Jeffersonville — 1

●

New Albany — 1

●

Metropolitan Tampa, Florida — 7

●

Metropolitan Cincinnati, Ohio — 2

●

Metropolitan Nashville, Tennessee — 2

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

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

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

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

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

1011

Table of Contents

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.~~market for loans generated in states within its footprint and generally sells servicing for loans generated in states outside of its footprint. Administration of loans with servicing retained by the Bank includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors. The Bank receives fees for performing these standard servicing functions.

Republic Processing Group

Tax Refund Solutions segment — ~~Through the TRS segment,~~On May 13, 2021, the Bank ~~is one~~entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Green Dot Corporation (“Green Dot”) providing for the purchase by Green Dot, upon the terms and subject to the conditions set forth therein, 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”). Substantiallysubstantially all of the ~~business generated by the TRS segment occurs in the first half~~assets and operations of the ~~year. The TRS segment traditionally operates at a loss during the second half of the year, during which time the segment incurs costs preparing for the next year’s tax season.~~Bank’s Tax Refund Solutions business (the “Sale Transaction”).

~~RTs are fee-based products whereby~~As a tax refund is issued to the taxpayer after the Bank has received the refund from the federal or state government. There is 0 credit risk or borrowing cost associated with these products because they are only delivered to the taxpayer upon receiptresult of the ~~tax refund directly from~~Purchase Agreement and the ~~governmental paying authority. Fees earned by~~proposed Sale Transaction, the results for the Company, RPG, and its TRS segment are presented within this filing to reflect continuing versus discontinued operations. RPG’s continuing operations include its RCS segment, its RPS division, and certain overhead costs previously allocated to TRS that will remain with RPG. Discontinued operations are those contracted to be sold. These discontinued operations have historically contained the majority of TRS’s revenue and expense. Interest income and expense for continuing and discontinued operations also include intercompany interest charged and earned based on ~~RTs, net of revenue share, are reported as noninterest income under~~ the ~~line item “Net refund~~Company’s funds transfer ~~fees.”~~pricing methodology.

~~The EA tax credit product is a loan~~On October 4, 2021, Green Dot announced that ~~allows a taxpayer~~it had been unable to ~~borrow funds as an advance~~obtain the Federal Reserve’s approval of ~~a portion of their tax refund. The EA product had the following features during 2021 and 2020:~~

●

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

●

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

●

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

●

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

●

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

●

~~If an insufficient refund to repay the EA occurs:~~

~~there is no recourse to the taxpayer,~~

~~no negative credit reporting on the taxpayer, and~~

~~no collection efforts against the taxpayer.~~

~~The Company reports fees paid for the EA product as interest income on loans. During 2020, EAs were generally repaid within 35 days after the taxpayer’s tax return was submitted~~or non-objection to the ~~applicable taxing authority. EAs do~~Sale Transaction and that, as a result, Green Dot would not ~~have~~consummate the Sale Transaction. On October 5, 2021, the Bank filed a ~~contractual due date but~~lawsuit against Green Dot in the Delaware Court of Chancery, C.A. No. 2021-0854-SG, alleging breach of contract. In so doing, the Bank seeks, among other relief, specific performance to require that Green Dot proceed with the Sale Transaction as the parties had agreed to in the Purchase Agreement. Due to the inherent uncertainties of legal proceedings, at this time, the Company ~~considered an EA delinquent if it remained unpaid 21 days~~ ~~in 2020 and~~ ~~35 days in 2021 after the taxpayer’s tax return was submitted to the applicable taxing authority.~~ ~~The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times.~~ ~~Provisions on EAs are estimated when advances are made. Unpaid EAs are charged-off by June 30~~^th ~~of each year, with EAs collected during the second half of each year recorded as recoveries of previously charged-off loans.~~

~~Related to the overall credit losses on EAs, the Bank’s ability to control losses is highly dependent upon its ability to~~cannot predict the taxpayer’s likelihood to receive the tax refund as claimed on the taxpayer’s tax return. Each year, the Bank’s EA approval model is based primarily on the prior-year’s tax refund payment patterns. Because the substantial majorityoutcome of ~~the EA volume occurs each year before that year’s tax refund payment patterns can be analyzed~~these proceedings and ~~subsequent underwriting changes made, credit losses during a current year could be higher than management’s predictions if tax refund payment patterns change materially between years.~~

In response to changes in the legal, regulatory, and competitive environment, management annually reviews and revises the EAs product parameters. Further changes in EA product parameters do not ensure positive results and could have an overall material negativetheir impact ~~on the performance of the EA product offering and therefore~~ on the Company’s financial condition and results of operations.

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

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Republic Payment Solutions division— RPS is currently managed and operated within the TRS ~~segment.~~segment’s continuing operations. The RPS division ~~is an issuing bank offering~~offers general-purpose reloadable prepaid cards as an issuing bank through third-party service providers. For the projected near-term, as the prepaid card program matures, the operating results of the RPS division are expected to be immaterial to the Company’s overall results of operations and will be reported as part of the TRS ~~segment.~~segment’s continuing operations. The RPS division will not be considered a separate reportable segment until such time, if any, that it meets quantitative reporting ~~thresholds.~~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 2 line-of-credit products to generally subprime borrowers in multiple states. The first of these 2 products (the “LOC I”) has been originated by the Bank since 2014. The second (the “LOC II”) was introduced in January 2021.

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

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

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

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

●

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

●

RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through 2 different third-party service providers. In one program, the Bank retains 100% of the receivables originated. In the other program, the Bank retains 100% of the receivables originated in some instances, and in other instances, sells 100% of the

~~Table of Contents~~

receivables within one month of origination. Loan balances held for sale through this program are carried at the lower of cost or fair value.

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

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Recently Adopted Accounting Standards

The following ASUs were adopted by the Company during the ~~three~~nine months ended ~~March 31,~~September 30, 2021:


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

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

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

2021-06	Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946)	This ASU amends the SEC sections of the Codification related to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.	August 9, 2021	Prospectively	Immaterial

Accounting Standards Update

There were no not-yet-effective ASUs ~~issued prior to March 31, 2021, which were not yet effective, considered~~ relevant to the Company’s financial ~~statements.~~statements issued since the Company’s last filing on Form 10-Q.

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2. INVESTMENT SECURITIES

Available-for-Sale Debt Securities

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


			Gross		Gross		Allowance						Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair		Amortized		Unrealized		Unrealized		for		Fair
March 31, 2021 (in thousands)	Cost		Gains		Losses		Credit Losses		Value
September 30, 2021 (in thousands)											Cost		Gains		Losses		Credit Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	204,995	$	1,200	$	(816)	$	—	$	205,379	$	234,980	$	747	$	(882)	$	0	$	234,845
Private label mortgage-backed security		1,598		1,265		—		—		2,863		1,468		1,312		—		0		2,780
Mortgage-backed securities - residential		203,623		6,725		(84)		—		210,264		204,869		5,059		(123)		0		209,805
Collateralized mortgage obligations		44,284		948		(21)		—		45,211		34,027		521		(29)		0		34,519
Corporate bonds		10,000		108		—		—		10,108		10,000		81		—		0		10,081
Trust preferred security		3,644		6		—		—		3,650		3,671		179		—		0		3,850
Total available-for-sale debt securities	$	468,144	$	10,252	$	(921)	$	—	$	477,475	$	489,015	$	7,899	$	(1,034)	$	0	$	495,880


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

U.S. Treasury securities and U.S. Government agencies	$	245,204	$	1,730	$	(25)	$	—	$	246,909	$	245,204	$	1,730	$	(25)	$	0	$	246,909
Private label mortgage-backed security		1,707		1,250		—		—		2,957		1,707		1,250		—		0		2,957
Mortgage-backed securities - residential		203,786		7,419		(3)		—		211,202		203,786		7,419		(3)		0		211,202
Collateralized mortgage obligations		48,190		772		(10)		—		48,952		48,190		772		(10)		0		48,952
Corporate bonds		10,000		43		—		—		10,043		10,000		43		—		0		10,043
Trust preferred security		3,631		169		—		—		3,800		3,631		169		—		0		3,800
Total available-for-sale debt securities	$	512,518	$	11,383	$	(38)	$	—	$	523,863	$	512,518	$	11,383	$	(38)	$	0	$	523,863

Held-to-Maturity Debt Securities

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


			Gross		Gross				Allowance				Gross		Gross				Allowance
	Carrying		Unrecognized		Unrecognized		Fair		for		Carrying		Unrecognized		Unrecognized		Fair		for
March 31, 2021 (in thousands)	Value		Gains		Losses		Value		Credit Losses
September 30, 2021 (in thousands)											Value		Gains		Losses		Value		Credit Losses

Mortgage-backed securities - residential	$	87	$	5	$	—	$	92	$	—	$	47	$	—	$	—	$	47	$	—
Collateralized mortgage obligations		11,823		210		—		12,033		—		9,777		150		—		9,927		—
Corporate bonds		39,984		440		(3)		40,421		(103)		34,976		390		—		35,366		(54)
Obligations of state and political subdivisions		356		7		—		363		—		245		5		—		250		—
Total held-to-maturity debt securities	$	52,250	$	662	$	(3)	$	52,909	$	(103)	$	45,045	$	545	$	—	$	45,590	$	(54)


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

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

Sales of Available-for-Sale Debt Securities

During the three and nine months ended ~~March 31,~~September 30, 2021 and 2020, there were no material gains or losses on sales or calls of AFS debt securities.

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Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity as of ~~March 31,~~September 30, 2021 follow. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.


	Available-for-Sale				Held-to-Maturity				Available-for-Sale				Held-to-Maturity
	Debt Securities				Debt Securities				Debt Securities				Debt Securities
	Amortized		Fair		Carrying		Fair		Amortized		Fair		Carrying		Fair
March 31, 2021 (in thousands)	Cost		Value		Value		Value
September 30, 2021 (in thousands)									Cost		Value		Value		Value

Due in one year or less	$	14,960	$	15,081	$	110	$	111	$	25,044	$	25,270	$	121	$	123
Due from one year to five years		200,035		200,406		40,230		40,673		179,937		179,803		35,100		35,493
Due from five years to ten years		—		—		—		—		40,000		39,853		—		—
Due beyond ten years		3,644		3,650		—		—		3,670		3,850		—		—
Private label mortgage-backed security		1,598		2,863		—		—		1,468		2,780		—		—
Mortgage-backed securities - residential		203,623		210,264		87		92		204,869		209,805		47		47
Collateralized mortgage obligations		44,284		45,211		11,823		12,033		34,027		34,519		9,777		9,927
Total debt securities	$	468,144	$	477,475	$	52,250	$	52,909	$	489,015	$	495,880	$	45,045	$	45,590

Unrealized-Loss Analysis on Debt Securities

The following tables summarize AFS debt securities in an unrealized loss position for which an ACLS had not been recorded as of ~~March 31,~~September 30, 2021 and December 31, 2020, aggregated by investment category and length of time in a continuous unrealized loss position:


	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized				Unrealized				Unrealized				Unrealized
March 31, 2021 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
September 30, 2021 (in thousands)													Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	118,988	$	(816)	$	—	$	—	$	118,988	$	(816)	$	158,944	$	(882)	$	—	$	—	$	158,944	$	(882)
Mortgage-backed securities - residential		26,044		(84)		—		—		26,044		(84)		34,432		(123)		—		—		34,432		(123)
Collateralized mortgage obligations		721		(21)		—		—		721		(21)		5,164		(29)		—		—		5,164		(29)
Total available-for-sale debt securities	$	145,753	$	(921)	$	—	$	—	$	145,753	$	(921)	$	198,540	$	(1,034)	$	—	$	—	$	198,540	$	(1,034)


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

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

As of ~~March 31,~~September 30, 2021, the Bank’s security portfolio consisted of ~~171~~170 securities, 2730 of which were in an unrealized loss position.

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

As of ~~March 31,~~September 30, 2021 and December 31, 2020, there were no holdings of debt securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Mortgage-Backed Securities and Collateralized Mortgage Obligations

As of ~~March 31,~~September 30, 2021, with the exception of the ~~$2.9~~$2.8 million private label mortgage-backed security, all other mortgage-backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FHLMC and FNMA. As of ~~March 31,~~September 30, 2021 and December 31, 2020, there were gross unrealized losses of ~~$105,000~~$152,000 and $13,000 related to AFS mortgage-backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to have OTTI.

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Trust Preferred Security

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

Private Label Mortgage-Backed Security

The Bank owns 1 private label mortgage-backed security with a total carrying value of ~~$2.9~~$2.8 million as of ~~March 31,~~September 30, 2021. This security is mostly backed by “Alternative A” ~~first lien~~first-lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach, in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

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

Rollforward of the Allowance for Credit Losses on Debt Securities

The ~~table~~tables below ~~presents~~present a rollforward for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 of the ACLS on AFS and HTM debt securities:


	ACLS Rollforward																						ACLS Rollforward
	Three Months Ended March 31,																						Three Months Ended September 30,
	2021										2020												2021										2020
	Beginning				Charge-				Ending		Beginning		ASC 326				Charge-				Ending		Beginning				Charge-				Ending			Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Adoption		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance			Balance		Provision		offs		Recoveries		Balance

Available-for-Sale Securities:
Corporate Bonds	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	126	$	—	$	—	$	126	$	—	$	—	$	—	$	—	$	—		$	126	$	(74)	$	—	$	—	$	52
Held-to-Maturity Securities:
Corporate Bonds		178		(75)		—		—		103		—		51		120		—		—		171		56		(2)		—		—		54			147		148		—		—		295

Total	$	178	$	(75)	$	—	$	—	$	103	$	—	$	51	$	246	$	—	$	—	$	297	$	56	$	(2)	$	—	$	—	$	54		$	273	$	74	$	—	$	—	$	347

The Company decreased the ACLS on its HTM corporate bonds during the three months ended ~~March 31,~~September 30, 2021 based on improved PD and LGD estimates on these bonds. PD and LGD estimates for these bonds were elevated during 2020 due to pandemic-driven economic concerns.


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

Available-for-Sale Securities:
Corporate Bonds	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	52	$	—	$	—	$	52
Held-to-Maturity Securities:
Corporate Bonds		178		(124)		—		—		54		—		51		244		—		—		295

Total	$	178	$	(124)	$	—	$	—	$	54	$	—	$	51	$	296	$	—	$	—	$	347

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

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There were 0 HTM debt securities on nonaccrual or past due over 89 days as of ~~March 31,~~September 30, 2021 and December 31, 2020. All of the Company’s HTM corporate bonds were rated investment grade as of ~~March 31,~~September 30, 2021 and December 31, 2020.

There were 0 HTM debt securities considered collateral dependent as of ~~March 31,~~September 30, 2021 and December 31, 2020.

Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet and is excluded from the ACLS. Accrued interest on AFS debt securities totaled $1 million and $1 million as of ~~March 31,~~September 30, 2021 and December 31, 2020. Accrued interest receivable on HTM debt securities totaled ~~$104,000~~$88,000 and $110,000 as of ~~March 31,~~September 30, 2021 and December 31, 2020.

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Pledged Debt Securities

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


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Carrying amount	$	272,430	$	303,535	$	354,275	$	303,535
Fair value		272,519		303,611		354,341		303,611

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Equity Securities

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


			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
March 31, 2021 (in thousands)	Cost		Gains		Losses		Value
September 30, 2021 (in thousands)									Cost		Gains		Losses		Value

Freddie Mac preferred stock	$	—	$	338	$	—	$	338	$	—	$	102	$	—	$	102
Community Reinvestment Act mutual fund		2,500		—		(17)		2,483		2,500		—		(24)		2,476
Total equity securities with readily determinable fair values	$	2,500	$	338	$	(17)	$	2,821	$	2,500	$	102	$	(24)	$	2,578


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

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

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


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

Freddie Mac preferred stock	$	—	$	(13)	$	(13)	$	—	$	50	$	50
Community Reinvestment Act mutual fund		—		(9)		(9)		—		4		4
Total equity securities with readily determinable fair value	$	—	$	(22)	$	(22)	$	—	$	54	$	54


	Gains (Losses) Recognized on Equity Securities												Gains (Losses) Recognized on Equity Securities
	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020						Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total		Realized		Unrealized		Total		Realized		Unrealized		Total

Freddie Mac preferred stock	$	—	$	(222)	$	(222)	$	—	$	(420)	$	(420)	$	—	$	(458)	$	(458)	$	—	$	(178)	$	(178)
Community Reinvestment Act mutual fund		—		(40)		(40)		—		39		39		—		(47)		(47)		—		60		60
Total equity securities with readily determinable fair value	$	—	$	(262)	$	(262)	$	—	$	(381)	$	(381)	$	—	$	(505)	$	(505)	$	—	$	(118)	$	(118)

1819

Table of Contents

3. LOANS HELD FOR SALE

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

Mortgage Loans Held for Sale, at Fair Value

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

Consumer Loans Held for Sale, at Fair Value

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

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Balance, beginning of period	$	3,298	$	598	$	13,020	$	164	$	3,298	$	598
Origination of consumer loans held for sale		19,090		47,186		67,526		1,559		136,222		49,300
Proceeds from the sale of consumer loans held for sale		(18,930)		(45,728)		(71,427)		(1,321)		(132,330)		(50,872)
Net gain on sale of consumer loans held for sale		512		1,375		1,660		47		3,589		1,423
Balance, end of period	$	3,970	$	3,431	$	10,779	$	449	$	10,779	$	449

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

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

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Balance, beginning of period	$	1,478	$	11,646	$	11,412	$	12,801	$	1,478	$	11,646
Origination of consumer loans held for sale		98,184		147,935		189,492		107,518		424,840		342,388
Proceeds from the sale of consumer loans held for sale		(88,753)		(148,454)		(199,036)		(109,669)		(426,642)		(344,919)
Net gain on sale of consumer loans held for sale		792		962		2,108		793		4,300		2,328
Balance, end of period	$	11,701	$	12,089	$	3,976	$	11,443	$	3,976	$	11,443

1920

Table of Contents

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio follows:


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Traditional Banking:
Residential real estate:
Owner occupied	$	851,869	$	879,800	$	827,898	$	879,800
Nonowner occupied		271,829		264,780		294,818		264,780
Commercial real estate		1,344,394		1,349,085		1,393,241		1,349,085
Construction & land development		102,113		98,674		105,968		98,674
Commercial & industrial		312,537		325,596		333,795		325,596
Paycheck Protection Program		383,311		392,319		126,271		392,319
Lease financing receivables		9,930		10,130		9,427		10,130
Aircraft		106,081		101,375		130,398		101,375
Home equity		226,280		240,640		215,282		240,640
Consumer:
Credit cards		14,200		14,196		14,781		14,196
Overdrafts		474		587		753		587
Automobile loans		25,624		30,300		17,533		30,300
Other consumer		7,325		8,167		6,223		8,167
Total Traditional Banking		3,655,967		3,715,649		3,476,388		3,715,649
Warehouse lines of credit*		865,844		962,796		750,682		962,796
Total Core Banking		4,521,811		4,678,445		4,227,070		4,678,445

*Republic Processing Group:**
Tax Refund Solutions:
Easy Advances		30,703		—		—		—
Other TRS loans		5,770		23,765		1		—
Republic Credit Solutions		108,309		110,893		116,711		110,893
Total Republic Processing Group		144,782		134,658		116,712		110,893

Total loans**		4,666,593		4,813,103		4,343,782		4,789,338
Allowance for credit losses		(75,336)		(61,067)		(63,024)		(61,067)

Total loans, net	$	4,591,257	$	4,752,036	$	4,280,758	$	4,728,271

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

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

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


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Contractually receivable	$	4,677,502	$	4,821,062	$	4,348,535	$	4,797,297
Unearned income		(684)		(708)		(598)		(708)
Unamortized premiums		169		216		121		216
Unaccreted discounts		(803)		(988)		(688)		(988)
PPP net unamortized deferred origination fees and costs		(11,059)		(8,564)		(3,986)		(8,564)
Other net unamortized deferred origination fees and costs		1,468		2,085		398		2,085
Carrying value of loans	$	4,666,593	$	4,813,103	$	4,343,782	$	4,789,338

2021

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Paycheck Protection Program

The CARES Act was enacted in March 2020 and provided for the SBA’s PPP, which allowed the Bank to lend to its qualifying small business clients to assist them in their efforts to meet their cash-flow needs during the COVID-19 pandemic. The Economic Aid Act was enacted in December 2020 and provided for a second round of PPP loans. PPP loans are fully backed by the SBA and may be entirely forgiven if the loan client uses loan funds for qualifying reasons. As of ~~March 31,~~September 30, 2021, net PPP loans of ~~$383~~$126 million remained on the ~~Core~~Traditional Bank’s balance sheet, including ~~$218~~$19 million in loan balances originated during 2020, ~~$176~~$111 million in loan balances originated during ~~the first quarter of~~ 2021, and ~~$11~~$4 million of unaccreted PPP ~~lender~~ fees reported as a credit offset to these originated balances. Unaccreted PPP ~~lender~~ fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated.

To provide liquidity to banks administering the SBA’s PPP, the FRB created the PPPLF, a lending facility secured by the PPP loans of the participating banks. As of ~~March 31,~~September 30, 2021, the Bank had 0 outstanding borrowings from the FRB under the PPPLF.

2122

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


											Revolving Loans		Revolving Loans														Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year										Amortized		Converted				Term Loans Amortized Cost Basis by Origination Year										Amortized		Converted
As of March 31, 2021	2021		2020		2019		2018		Prior		Cost Basis		to Term		Total
As of September 30, 2021																	2021		2020		2019		2018		Prior		Cost Basis		to Term		Total

Residential real estate owner occupied:
Risk Rating
Pass or not rated	$	108,534	$	260,948	$	120,205	$	74,681	$	261,537	$	—	$	—	$	825,905	$	170,594	$	229,444	$	96,923	$	56,318	$	251,929	$	—	$	—	$	805,208
Special Mention		—		—		360		40		9,813		—		—		10,213		304		—		—		36		8,509		—		—		8,849
Substandard		—		386		1,487		615		13,263		—		—		15,751		—		557		685		1,006		11,593		—		—		13,841
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	108,534	$	261,334	$	122,052	$	75,336	$	284,613	$	—	$	—	$	851,869	$	170,898	$	230,001	$	97,608	$	57,360	$	272,031	$	—	$	—	$	827,898

Residential real estate nonowner occupied:
Risk Rating
Pass or not rated	$	21,323	$	77,611	$	58,090	$	39,417	$	74,623	$	—	$	617	$	271,681	$	75,983	$	71,290	$	50,082	$	32,111	$	61,625	$	—	$	3,588	$	294,679
Special Mention		—		—		—		—		42		—		—		42		—		—		—		—		40		—		—		40
Substandard		—		—		—		—		106		—		—		106		—		—		—		—		99		—		—		99
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	21,323	$	77,611	$	58,090	$	39,417	$	74,771	$	—	$	617	$	271,829	$	75,983	$	71,290	$	50,082	$	32,111	$	61,764	$	—	$	3,588	$	294,818

Commercial real estate:
Risk Rating
Pass or not rated	$	106,492	$	293,953	$	219,168	$	141,907	$	433,866	$	—	$	63,586	$	1,258,972	$	362,616	$	271,691	$	179,046	$	104,300	$	311,904	$	—	$	79,005	$	1,308,562
Special Mention		11,370		3,385		30,304		9,153		21,651		—		—		75,863		12,103		2,411		29,879		11,535		19,767		—		—		75,695
Substandard		312		2,592		349		—		4,029		—		2,277		9,559		—		2,576		266		—		3,941		—		2,201		8,984
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	118,174	$	299,930	$	249,821	$	151,060	$	459,546	$	—	$	65,863	$	1,344,394	$	374,719	$	276,678	$	209,191	$	115,835	$	335,612	$	—	$	81,206	$	1,393,241

Construction and land development:
Risk Rating
Pass or not rated	$	15,421	$	48,914	$	25,299	$	7,735	$	2,111	$	—	$	—	$	99,480	$	59,659	$	37,136	$	4,384	$	1,527	$	593	$	—	$	—	$	103,299
Special Mention		—		208		2,384		—		—		—		—		2,592		—		310		2,359		—		—		—		—		2,669
Substandard		—		—		41		—		—		—		—		41		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	15,421	$	49,122	$	27,724	$	7,735	$	2,111	$	—	$	—	$	102,113	$	59,659	$	37,446	$	6,743	$	1,527	$	593	$	—	$	—	$	105,968

Commercial and industrial:
Risk Rating
Pass or not rated	$	27,257	$	83,148	$	78,484	$	30,028	$	67,856	$	—	$	1,006	$	287,779	$	117,127	$	55,354	$	66,818	$	21,262	$	48,361	$	—	$	4,112	$	313,034
Special Mention		16,368		5,184		800		61		2,305		—		—		24,718		15,398		2,344		800		43		2,095		—		—		20,680
Substandard		—		40		—		—		—		—		—		40		—		48		—		—		33		—		—		81
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	43,625	$	88,372	$	79,284	$	30,089	$	70,161	$	—	$	1,006	$	312,537	$	132,525	$	57,746	$	67,618	$	21,305	$	50,489	$	—	$	4,112	$	333,795

Paycheck Protection Program:
Risk Rating
Pass or not rated	$	167,552	$	215,759	$	—	$	—	$	—	$	—	$	—	$	383,311	$	107,498	$	18,773	$	—	$	—	$	—	$	—	$	—	$	126,271
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	167,552	$	215,759	$	—	$	—	$	—	$	—	$	—	$	383,311	$	107,498	$	18,773	$	—	$	—	$	—	$	—	$	—	$	126,271

Lease financing receivables:
Risk Rating
Pass or not rated	$	893	$	958	$	3,008	$	2,037	$	3,034	$	—	$	—	$	9,930	$	2,068	$	903	$	2,896	$	1,406	$	2,154	$	—	$	—	$	9,427
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	893	$	958	$	3,008	$	2,037	$	3,034	$	—	$	—	$	9,930	$	2,068	$	903	$	2,896	$	1,406	$	2,154	$	—	$	—	$	9,427

Aircraft:
Risk Rating
Pass or not rated	$	11,188	$	52,990	$	28,447	$	11,608	$	1,848	$	—	$	—	$	106,081	$	47,983	$	46,405	$	24,134	$	10,049	$	1,827	$	—	$	—	$	130,398
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	11,188	$	52,990	$	28,447	$	11,608	$	1,848	$	—	$	—	$	106,081	$	47,983	$	46,405	$	24,134	$	10,049	$	1,827	$	—	$	—	$	130,398

Home equity:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	223,561	$	—	$	223,561	$	—	$	—	$	—	$	—	$	—	$	213,297	$	—	$	213,297
Special Mention		—		—		—		—		—		126		—		126		—		—		—		—		—		125		—		125
Substandard		—		—		—		—		—		2,593		—		2,593		—		—		—		—		—		1,860		—		1,860
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	226,280	$	—	$	226,280	$	—	$	—	$	—	$	—	$	—	$	215,282	$	—	$	215,282

2223

Table of Contents


											Revolving Loans		Revolving Loans														Revolving Loans		Revolving Loans
(in thousands)	Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted				Term Loans Amortized Cost Basis by Origination Year (Continued)										Amortized		Converted
As of March 31, 2021	2021		2020		2019		2018		Prior		Cost Basis		to Term		Total
As of September 30, 2021																	2021		2020		2019		2018		Prior		Cost Basis		to Term		Total

Consumer:
Risk Rating
Pass or not rated	$	312	$	1,196	$	12,379	$	7,426	$	11,524	$	14,317	$	—	$	47,154	$	844	$	725	$	10,451	$	5,156	$	6,864	$	14,880	$	—	$	38,920
Special Mention		—		—		—		—		5		—		—		5		—		—		—		—		—		—		—		—
Substandard		—		—		30		45		389		—		—		464		—		—		25		47		298		—		—		370
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	312	$	1,196	$	12,409	$	7,471	$	11,918	$	14,317	$	—	$	47,623	$	844	$	725	$	10,476	$	5,203	$	7,162	$	14,880	$	—	$	39,290

Warehouse:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	865,844	$	—	$	865,844	$	—	$	—	$	—	$	—	$	—	$	750,682	$	—	$	750,682
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	865,844	$	—	$	865,844	$	—	$	—	$	—	$	—	$	—	$	750,682	$	—	$	750,682

TRS:
Risk Rating
Pass or not rated	$	30,703	$	—	$	—	$	—	$	—	$	5,770	$	—	$	36,473	$	—	$	—	$	—	$	—	$	—	$	1	$	—	$	1
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	30,703	$	—	$	—	$	—	$	—	$	5,770	$	—	$	36,473	$	—	$	—	$	—	$	—	$	—	$	1	$	—	$	1

RCS:
Risk Rating
Pass or not rated	$	7,880	$	22,063	$	4,484	$	2,060	$	17,851	$	53,150	$	—	$	107,488	$	23,112	$	9,275	$	2,387	$	985	$	3,943	$	76,004	$	—	$	115,706
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		821		—		821		—		—		—		—		—		1,005		—		1,005
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	7,880	$	22,063	$	4,484	$	2,060	$	17,851	$	53,971	$	—	$	108,309	$	23,112	$	9,275	$	2,387	$	985	$	3,943	$	77,009	$	—	$	116,711

Grand Total:
Risk Rating
Pass or not rated	$	497,555	$	1,057,540	$	549,564	$	316,899	$	874,250	$	1,162,642	$	65,209	$	4,523,659	$	967,484	$	740,996	$	437,121	$	233,114	$	689,200	$	1,054,864	$	86,705	$	4,209,484
Special Mention		27,738		8,777		33,848		9,254		33,816		126		—		113,559		27,805		5,065		33,038		11,614		30,411		125		—		108,058
Substandard		312		3,018		1,907		660		17,787		3,414		2,277		29,375		—		3,181		976		1,053		15,964		2,865		2,201		26,240
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Grand Total	$	525,605	$	1,069,335	$	585,319	$	326,813	$	925,853	$	1,166,182	$	67,486	$	4,666,593	$	995,289	$	749,242	$	471,135	$	245,781	$	735,575	$	1,057,854	$	88,906	$	4,343,782


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

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

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

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

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

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

2324

Table of Contents


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

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

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

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

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

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

TRS:
Risk Rating
Pass or not rated	$	—	$	—	$	—	$	—	$	—	$	23,765	$	—	$	23,765	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	23,765	$	—	$	23,765	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

RCS:
Risk Rating
Pass or not rated	$	27,683	$	5,704	$	2,485	$	1,232	$	19,095	$	54,348	$	—	$	110,547	$	27,683	$	5,704	$	2,485	$	1,232	$	19,095	$	54,348	$	—	$	110,547
Special Mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		346		—		346		—		—		—		—		—		346		—		346
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	27,683	$	5,704	$	2,485	$	1,232	$	19,095	$	54,694	$	—	$	110,893	$	27,683	$	5,704	$	2,485	$	1,232	$	19,095	$	54,694	$	—	$	110,893
																						��
Grand Total:
Risk Rating
Pass or not rated	$	1,294,478	$	623,234	$	360,803	$	329,823	$	732,111	$	1,292,863	$	57,610	$	4,690,922	$	1,294,478	$	623,234	$	360,803	$	329,823	$	732,111	$	1,269,098	$	57,610	$	4,667,157
Special Mention		21,592		34,530		278		12,965		20,609		127		—		90,101		21,592		34,530		278		12,965		20,609		127		—		90,101
Substandard		3,373		1,860		1,380		1,830		17,603		3,231		2,803		32,080		3,373		1,860		1,380		1,830		17,603		3,231		2,803		32,080
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Grand Total	$	1,319,443	$	659,624	$	362,461	$	344,618	$	770,323	$	1,296,221	$	60,413	$	4,813,103	$	1,319,443	$	659,624	$	362,461	$	344,618	$	770,323	$	1,272,456	$	60,413	$	4,789,338

2425

Table of Contents

Allowance for Credit Losses on Loans

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


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

Traditional Banking:
Residential real estate:
Owner occupied	$	8,977	$	(677)	$	—	$	329	$	8,629	$	9,303	$	330	$	(13)	$	21	$	9,641
Nonowner occupied		2,551		47		—		—		2,598		2,274		96		—		7		2,377
Commercial real estate		23,307		286		—		3		23,596		16,300		4,663		—		—		20,963
Construction & land development		3,299		376		—		—		3,675		4,940		(341)		—		—		4,599
Commercial & industrial		4,117		(139)		(35)		16		3,959		2,405		654		(255)		80		2,884
Paycheck Protection Program		—		—		—		—		—		—		—		—		—		—
Lease financing receivables		97		2		—		—		99		125		(8)		—		—		117
Aircraft		303		23		—		—		326		208		11		—		—		219
Home equity		4,305		(63)		—		5		4,247		5,124		(7)		(14)		21		5,124
Consumer:
Credit cards		949		22		(40)		20		951		928		36		(29)		7		942
Overdrafts		717		143		(195)		88		753		488		324		(157)		50		705
Automobile loans		273		(34)		(19)		6		226		473		(67)		—		—		406
Other consumer		467		(28)		(25)		14		428		609		92		(41)		20		680
Total Traditional Banking		49,362		(42)		(314)		481		49,487		43,177		5,783		(509)		206		48,657
Warehouse lines of credit		2,100		(223)		—		—		1,877		2,575		(3)		—		—		2,572
Total Core Banking		51,462		(265)		(314)		481		51,364		45,752		5,780		(509)		206		51,229

Republic Processing Group (includes discontinued operations):
Tax Refund Solutions:
Easy Advances (discontinued operations)		—		(2,242)		—		2,242		—		—		(4,294)		—		4,294		—
Other TRS loans (discontinued operations)		—		(19)		—		19		—		211		(48)		(22)		—		141
Republic Credit Solutions (continuing operations)		8,829		3,820		(1,064)		75		11,660		9,134		(12)		(684)		83		8,521
Total Republic Processing Group		8,829		1,559		(1,064)		2,336		11,660		9,345		(4,354)		(706)		4,377		8,662

Total	$	60,291	$	1,294	$	(1,378)	$	2,817	$	63,024	$	55,097	$	1,426	$	(1,215)	$	4,583	$	59,891

ACLL Rollforward

Three Months Ended March 31,

2021

2020

Beginning

Charge-

Ending

Beginning

ASC 326

Charge-

Ending
(in thousands)

Balance

Provision

offs

Recoveries

Balance

Balance

Adoption

Provision

offs

Recoveries

Balance

Traditional Banking:

Residential real estate:

Owner occupied

$
9,715

$
(253)

$
—

$
27

$
9,489

$
4,729

$
4,199

$
447

$
(27)

$
39

$
9,387
Nonowner occupied

2,466

66

—

—

2,532

1,737

148

278

—

2

2,165
Commercial real estate

23,606

555

(428)

68

23,801

10,486

273

2,151

—

471

13,381
Construction & land development

3,274

319

—

—

3,593

2,152

1,447

937

—

—

4,536
Commercial & industrial

2,797

(86)

—

7

2,718

2,882

(1,318)

974

—

3

2,541
Paycheck Protection Program

—

—

—

—

—

—

—

—

—

—

—
Lease financing receivables

106

(2)

—

—

104

147

—

(14)

—

—

133
Aircraft

253

12

—

—

265

176

—

24

—

—

200
Home equity

4,990

(382)

—

7

4,615

2,721

1,652

842

—

75

5,290
Consumer:

Credit cards

929

44

(57)

14

930

1,020

33

22

(106)

9

978
Overdrafts

587

(73)

(138)

97

473

1,169

—

(122)

(344)

55

758
Automobile loans

399

(78)

—

13

334

612

(7)

(79)

(8)

28

546
Other consumer

577

(52)

(14)

22

533

374

307

(117)

(37)

112

639
Total Traditional Banking

49,699

70

(637)

255

49,387

28,205

6,734

5,343

(522)

794

40,554
Warehouse lines of credit

2,407

(242)

—

—

2,165

1,794

—

332

—

—

2,126
Total Core Banking

52,106

(172)

(637)

255

51,552

29,999

6,734

5,675

(522)

794

42,680

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

16,019

—

—

16,019

—

—

15,228

—

42

15,270
Other TRS loans

158

(135)

(22)

9

10

234

—

(95)

(44)

—

95
Republic Credit Solutions

8,803

(375)

(766)

93

7,755

13,118

—

1,706

(2,709)

271

12,386
Total Republic Processing Group

8,961

15,509

(788)

102

23,784

13,352

—

16,839

(2,753)

313

27,751

Total

$
61,067

$
15,337

$
(1,425)

$
357

$
75,336

$
43,351

$
6,734

$
22,514

$
(3,275)

$
1,107

$
70,431

Table of Contents


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

Traditional Banking:
Residential real estate:
Owner occupied	$	9,715	$	(1,461)	$	—	$	375	$	8,629	$	4,729	$	4,199	$	648	$	(40)	$	105	$	9,641
Nonowner occupied		2,466		131		—		1		2,598		1,737		148		481		—		11		2,377
Commercial real estate		23,606		336		(428)		82		23,596		10,486		273		10,002		(270)		472		20,963
Construction & land development		3,274		401		—		—		3,675		2,152		1,447		1,000		—		—		4,599
Commercial & industrial		2,797		1,170		(35)		27		3,959		2,882		(1,318)		1,643		(447)		124		2,884
Paycheck Protection Program		—		—		—		—		—		—		—		—		—		—		—
Lease financing receivables		106		(7)		—		—		99		147		—		(30)		—		—		117
Aircraft		253		73		—		—		326		176		—		43		—		—		219
Home equity		4,990		(789)		—		46		4,247		2,721		1,652		657		(14)		108		5,124
Consumer:
Credit cards		929		108		(130)		44		951		1,020		33		74		(206)		21		942
Overdrafts		587		351		(444)		259		753		1,169		—		13		(660)		183		705
Automobile loans		399		(178)		(19)		24		226		612		(7)		(220)		(8)		29		406
Other consumer		577		(137)		(56)		44		428		374		307		(81)		(86)		166		680
Total Traditional Banking		49,699		(2)		(1,112)		902		49,487		28,205		6,734		14,230		(1,731)		1,219		48,657
Warehouse lines of credit		2,407		(530)		—		—		1,877		1,794		—		778		—		—		2,572
Total Core Banking		52,106		(532)		(1,112)		902		51,364		29,999		6,734		15,008		(1,731)		1,219		51,229

Republic Processing Group (includes discontinued operations):
Tax Refund Solutions:
Easy Advances (discontinued operations)		—		7,984		(10,256)		2,272		—		—		—		15,239		(19,575)		4,336		—
Other TRS loans (discontinued operations)		158		(134)		(51)		27		—		234		—		—		(94)		1		141
Republic Credit Solutions (continuing operations)		8,803		5,037		(2,427)		247		11,660		13,118		—		251		(5,401)		553		8,521
Total Republic Processing Group		8,961		12,887		(12,734)		2,546		11,660		13,352		—		15,490		(25,070)		4,890		8,662

Total	$	61,067	$	12,355	$	(13,846)	$	3,448	$	63,024	$	43,351	$	6,734	$	30,498	$	(26,801)	$	6,109	$	59,891

The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of ~~March 31,~~September 30, 2021 was primarily based on a static pool analysis of each of the Company’s loan pools using the Company’s loss experience from 2013 through 2020, supplemented by qualitative factor adjustments for current and forecasted conditions. The Company employs one-year forecasts of unemployment and CRE ~~vacancy~~values within its ACLL model, with reversion to long-term averages following the forecasted period. The cumulative loss rate within the Company’s ACLL also includes estimated losses based on an individual evaluation of loans which are either collateral dependent or which do not share risk characteristics with pooled loans, e.g., TDRs.

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

2527

Table of Contents

Nonperforming Loans and Nonperforming Assets

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


(dollars in thousands)	March 31, 2021			December 31, 2020			September 30, 2021			December 31, 2020

Loans on nonaccrual status*	$	22,004		$	23,548		$	20,252		$	23,548
Loans past due 90-days-or-more and still on accrual**		517			47			691			47
Total nonperforming loans		22,521			23,595			20,943			23,595
Other real estate owned		2,015			2,499			1,845			2,499
Total nonperforming assets	$	24,536		$	26,094		$	22,788		$	26,094

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans		0.48	%		0.49	%		0.48	%		0.49	%
Nonperforming assets to total loans (including OREO)		0.53			0.54			0.52			0.54
Nonperforming assets to total assets		0.38			0.42			0.37			0.42

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans		0.49	%		0.50	%		0.48	%		0.50	%
Nonperforming assets to total loans (including OREO)		0.53			0.56			0.52			0.56
Nonperforming assets to total assets		0.42			0.45			0.39			0.45

*	Loans on nonaccrual status include collateral-dependent loans.

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

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

Traditional Banking:
Residential real estate:
Owner occupied	$	13,194	$	14,328	$	—	$	—	$	11,708	$	14,328	$	—	$	—
Nonowner occupied		106		81		—		—		99		81		—		—
Commercial real estate		6,669		6,762		—		—		6,607		6,762		—		—
Construction & land development		—		—		—		—		—		—		—		—
Commercial & industrial		40		55		—		—		93		55		—		—
Paycheck Protection Program		—				—		—		—				—		—
Lease financing receivables		—		—		—		—		—		—		—		—
Aircraft		—				—		—		—				—		—
Home equity		1,855		2,141		—		—		1,657		2,141		—		—
Consumer:
Credit cards		—		—		—		5		—		—		—		5
Overdrafts		—		—		—		—		—		—		—		—
Automobile loans		132		170		—		—		84		170		—		—
Other consumer		8		11		—		—		4		11		—		—
Total Traditional Banking		22,004		23,548		—		5		20,252		23,548		—		5
Warehouse lines of credit		—		—		—		—		—		—		—		—
Total Core Banking		22,004		23,548		—		5		20,252		23,548		—		5

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—		—		—		—		—
Other TRS loans		—		—		—		—		—		—		—		—
Republic Credit Solutions		—		—		517		42		—		—		691		42
Total Republic Processing Group		—		—		517		42		—		—		691		42

Total	$	22,004	$	23,548	$	517	$	47	$	20,252	$	23,548	$	691	$	47

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


							Three Months Ended								Three Months Ended		Nine Months Ended
	As of March 31, 2021						March 31, 2021		As of September 30, 2021						September 30, 2021		September 30, 2021

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

Residential real estate:
Owner occupied	$	1,940	$	11,254	$	13,194	$	191	$	2,041	$	9,667	$	11,708	$	225	$	672
Nonowner occupied		36		70		106		2		33		66		99		2		5
Commercial real estate		555		6,114		6,669		29		4,153		2,454		6,607		16		125
Construction & land development		—		—		—		—		—		—		—		—		—
Commercial & industrial		—		40		40		—		45		48		93		—		2
Paycheck Protection Program		—		—		—		—		—		—		—		—		—
Lease financing receivables		—		—		—		—		—		—		—		—		—
Aircraft		—		—		—		—		—		—		—		—		—
Home equity		—		1,855		1,855		17		63		1,594		1,657		19		121
Consumer		68		72		140		2		14		74		88		4		8
Total	$	2,599	$	19,405	$	22,004	$	241	$	6,349	$	13,903	$	20,252	$	266	$	933

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

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Table of Contents

Three Months Ended

As of December 31, 2020

March 31, 2020


Nonaccrual

Nonaccrual

Total

Interest Income

Loans with

Loans without

Nonaccrual

Recognized
(in thousands)

ACLL

ACLL

Loans

on Nonaccrual Loans*

Residential real estate:

Owner occupied

$
1,995

$
12,333

$
14,328

$
191
Nonowner occupied

8

73

81

2
Commercial real estate

576

6,186

6,762

727
Construction & land development

—

—

—

—
Commercial & industrial

—

55

55

11
Paycheck Protection Program

—

—

—

—
Lease financing receivables

—

—

—

—
Aircraft

—

—

—

—
Home equity

91

2,050

2,141

28
Consumer

69

112

181

3

$
2,739

$
20,809

$
23,548

$
962


							Three Months Ended		Nine Months Ended
	As of December 31, 2020						September 30, 2020		September 30, 2020

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

Residential real estate:
Owner occupied	$	1,995	$	12,333	$	14,328	$	252	$	649
Nonowner occupied		8		73		81		2		6
Commercial real estate		576		6,186		6,762		17		854
Construction & land development		—		—		—		7		7
Commercial & industrial		—		55		55		7		16
Paycheck Protection Program		—		—		—		—		—
Lease financing receivables		—		—		—		—		—
Aircraft		—		—		—		—		—
Home equity		91		2,050		2,141		29		81
Consumer		69		112		181		3		9
	$	2,739	$	20,809	$	23,548	$	317	$	1,622

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

Nonaccrual loans and loans past due 90-days-or-more and still on accrual include both smaller balance, primarily retail, homogeneous loans. Nonaccrual loans are typically returned to accrual status when all the principal and interest amounts contractually due are brought current and held current for 6 consecutive months and future contractual payments are reasonably assured. TDRs on nonaccrual status are reviewed for return to accrual status on an individual basis, with additional consideration given to performance under the modified terms.

Delinquent Loans

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


	30 - 59			60 - 89			90 or More											30 - 59			60 - 89			90 or More
March 31, 2021	Days			Days			Days			Total			Total
September 30, 2021																	September 30, 2021	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total			Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner occupied	$	1,054		$	234		$	1,238		$	2,526		$	849,343	$	851,869		$	896		$	315		$	917		$	2,128		$	825,770	$	827,898
Nonowner occupied		—			—			—			—			271,829		271,829			—			—			—			—			294,818		294,818
Commercial real estate		—			—			5,402			5,402			1,338,992		1,344,394			—			—			5,037			5,037			1,388,204		1,393,241
Construction & land development		—			—			—			—			102,113		102,113			—			—			—			—			105,968		105,968
Commercial & industrial		—			—			—			—			312,537		312,537			8			—			58			66			333,729		333,795
Paycheck Protection Program		—			—			—			—			383,311		383,311			—			—			—			—			126,271		126,271
Lease financing receivables		—			—			—			—			9,930		9,930			—			—			—			—			9,427		9,427
Aircraft		—			—			—			—			106,081		106,081			—			—			—			—			130,398		130,398
Home equity		—			39			445			484			225,796		226,280			50			—			209			259			215,023		215,282
Consumer:
Credit cards		14			13			—			27			14,173		14,200			36			9			—			45			14,736		14,781
Overdrafts		86			7			1			94			380		474			137			6			2			145			608		753
Automobile loans		—			—			25			25			25,599		25,624			—			—			11			11			17,522		17,533
Other consumer		—			2			—			2			7,323		7,325			1			—			—			1			6,222		6,223
Total Traditional Banking		1,154			295			7,111			8,560			3,647,407		3,655,967			1,128			330			6,234			7,692			3,468,696		3,476,388
Warehouse lines of credit		—			—			—			—			865,844		865,844			—			—			—			—			750,682		750,682
Total Core Banking		1,154			295			7,111			8,560			4,513,251		4,521,811			1,128			330			6,234			7,692			4,219,378		4,227,070

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—			—			—			30,703		30,703			—			—			—			—			—		—
Other TRS loans		104			—			—			104			5,666		5,770			—			—			—			—			1		1
Republic Credit Solutions		4,211			1,594			517			6,322			101,987		108,309			6,828			2,182			691			9,701			107,010		116,711
Total Republic Processing Group		4,315			1,594			517			6,426			138,356		144,782			6,828			2,182			691			9,701			107,011		116,712

Total	$	5,469		$	1,889		$	7,628		$	14,986		$	4,651,607	$	4,666,593		$	7,956		$	2,512		$	6,925		$	17,393		$	4,326,389	$	4,343,782
Delinquency ratio***		0.12	%		0.04	%		0.16	%		0.32	%							0.18	%		0.06	%		0.16	%		0.40	%

* 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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Table of Contents

30 - 59

60 - 89

90 or More









December 31, 2020
Days

Days

Days

Total

Total

(dollars in thousands)

Delinquent

Delinquent

Delinquent*

Delinquent**

Current

Total

Traditional Banking:

Residential real estate:

Owner occupied

$
1,038

$
668

$
1,554

$
3,260

$
876,540

$
879,800

Nonowner occupied

—

—

—

—

264,780

264,780

Commercial real estate

—

348

5,109

5,457

1,343,628

1,349,085

Construction & land development

—

—

—

—

98,674

98,674

Commercial & industrial

—

—

12

12

325,584

325,596

Paycheck Protection Program

—

—

—

392,319

392,319

Lease financing receivables

—

—

—

—

10,130

10,130

Aircraft

—

—

—

—

101,375

101,375

Home equity

93

14

595

702

239,938

240,640

Consumer:

Credit cards

33

35

5

73

14,123

14,196

Overdrafts

140

5

2

147

440

587

Automobile loans

42

—

14

56

30,244

30,300

Other consumer

6

—

—

6

8,161

8,167

Total Traditional Banking

1,352

1,070

7,291

9,713

3,705,936

3,715,649

Warehouse lines of credit

—

—

—

—

962,796

962,796

Total Core Banking

1,352

1,070

7,291

9,713

4,668,732

4,678,445

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

Other TRS loans

—

—

—

—

23,765

23,765

Republic Credit Solutions

6,572

3,620

42

10,234

100,659

110,893

Total Republic Processing Group

6,572

3,620

42

10,234

124,424

134,658

Total

$
7,924

$
4,690

$
7,333

$
19,947

$
4,793,156

$
4,813,103

Delinquency ratio***

0.16
%

0.10
%

0.15
%

0.41
%


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

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

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

Total	$	7,924		$	4,690		$	7,333		$	19,947		$	4,769,391	$	4,789,338
Delinquency ratio***		0.17	%		0.10	%		0.15	%		0.42	%

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

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

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

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Table of Contents

Collateral-Dependent Loans

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


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

Traditional Banking:
Residential real estate:
Owner occupied	$	17,338	$	—	$	17,212	$	—	$	13,645	$	—	$	17,212	$	—
Nonowner occupied		106		—		81		—		99		—		81		—
Commercial real estate		9,866		—		10,205		—		8,985		—		10,205		—
Construction & land development		—		—		—		—		—		—		—		—
Commercial & industrial		—		—		—		12		—		47		—		12
Paycheck Protection Program		—		—		—		—		—		—		—		—
Lease financing receivables		—		—		—		—		—		—		—		—
Aircraft		—		—		—		—		—		—		—		—
Home equity		2,719		—		2,899		—		1,860		—		2,899		—
Consumer		—		193		—		237		—		369		—		237
Total Traditional Banking	$	30,029	$	193	$	30,397	$	249	$	24,589	$	416	$	30,397	$	249

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

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Table of Contents

Troubled Debt Restructurings

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

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

Nonaccrual loans modified as TDRs typically remain on nonaccrual status and continue to be reported as nonperforming loans for a minimum of six consecutive months. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. As of ~~March 31,~~September 30, 2021 and December 31, 2020, $7$6 million and $7 million of TDRs were on nonaccrual status.

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


	Troubled Debt			Troubled Debt			Total			Troubled Debt			Troubled Debt			Total
	Restructurings on			Restructurings on			Troubled Debt			Restructurings on			Restructurings on			Troubled Debt
	Nonaccrual Status			Accrual Status			Restructurings			Nonaccrual Status			Accrual Status			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded
March 31, 2021 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
September 30, 2021 (dollars in thousands)										Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate	65	$	4,755	117	$	10,499	182	$	15,254	64	$	3,736	94	$	8,293	158	$	12,029
Commercial real estate	1		2,464	4		1,914	5		4,378	2		2,580	2		1,262	4		3,842
Construction & land development	—		—	1		41	1		41
Commercial & industrial	—		—	1		1	1		1	—		—	1		1	1		1
Consumer	2		26	2,347		575	2,349		601	1		12	2,306		567	2,307		579
Total troubled debt restructurings	68	$	7,245	2,470	$	13,030	2,538	$	20,275	67	$	6,328	2,403	$	10,123	2,470	$	16,451


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

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


	Troubled Debt			Troubled Debt						Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total			Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt			Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings			Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded
March 31, 2021 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
September 30, 2021 (dollars in thousands)										Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Interest only payments	1	$	796	—	$	—	1	$	796
Rate reduction	97		8,957	4		310	101		9,267	88	$	7,964	2	$	123	90	$	8,087
Principal deferral	9		993	2		165	11		1,158	7		605	1		160	8		765
Legal modification	59		3,400	10		633	69		4,033	51		2,758	9		419	60		3,177
Total residential TDRs	166		14,146	16		1,108	182		15,254	146		11,327	12		702	158		12,029

Commercial related and construction/land development loans:
Interest only payments	1		475	—		—	1		475
Rate reduction	2		1,014	—		—	2		1,014	1		936	—		—	1		936
Principal deferral	3		467	1		2,464	4		2,931	3		444	1		2,463	4		2,907
Total commercial TDRs	6		1,956	1		2,464	7		4,420	4		1,380	1		2,463	5		3,843

Consumer loans:
Principal deferral	2,345		566	—		—	2,345		566	2,304		560	—		—	2,304		560
Legal modification	3		23	1		12	4		35	3		19	—		—	3		19
Total consumer TDRs	2,348		589	1		12	2,349		601	2,307		579	—		—	2,307		579

Total troubled debt restructurings	2,520	$	16,691	18	$	3,584	2,538	$	20,275	2,457	$	13,286	13	$	3,165	2,470	$	16,451


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

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

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

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

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

As of ~~March 31,~~September 30, 2021 and December 31, 2020, ~~82%~~81% and 83% of the Bank’s TDR balances were performing according to their modified terms. The Bank had provided $1$2 million and $1 million of specific ACLL allocations to clients whose loan terms have been modified in TDRs as of ~~March 31,~~September 30, 2021 and December 31, 2020. The Bank had 0 commitments to lend any additional material amounts to its existing TDR relationships as of ~~March 31,~~September 30, 2021 or December 31, 2020.

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


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

Residential real estate loans (including home equity loans):
Legal modification	3	$	142	1	$	14	4	$	156
Total residential TDRs	3		142	1		14	4		156

Consumer loans:
Principal deferral	124		13	—		—	124		13
Total consumer TDRs	124		13	—		—	124		13

Total troubled debt restructurings	127	$	155	1	$	14	128	$	169


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

Residential real estate loans (including home equity loans):
Principal deferral	2	$	54	1	$	4	3	$	58
Legal modification	4		152	1		20	5		172
Total residential TDRs	6		206	2		24	8		230

Consumer loans:
Principal deferral	221		29	—		—	221		29
Legal modification	1		15	—		—	1		15
Total consumer TDRs	222		44	—		—	222		44

Total troubled debt restructurings	228	$	250	2	$	24	230	$	274

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

As of September 30, 2021 and 2020, 92% and 91% of the Bank’s TDR balances that occurred during the third quarters of 2021 and 2020 were performing according to their modified terms. The Bank provided approximately $6,000 and $29,000 in specific ACLL allocations to clients whose loan terms were modified in TDRs during the third quarters of 2021 and 2020.

There was 0 significant change between the pre and post modification loan balances for the three months ending September 30, 2021 and 2020.

Table of Contents

A summary of the categories of TDR loan modifications by respective performance as of ~~March 31,~~September 30, 2021 and 2020 that were modified during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020 follows:


	Troubled Debt			Troubled Debt						Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total			Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt			Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings			Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded
March 31, 2021 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
September 30, 2021 (dollars in thousands)										Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Principal deferral	1	$	163	—	$	—	1	$	163	—	$	—	1	$	160	1	$	160
Legal modification	4		98	2		174	6		272	6		378	5		288	11		666
Total residential TDRs	5		261	2		174	7		435	6		378	6		448	12		826

Consumer loans:
Principal deferral	385		42	—		—	385		42	556		72	—		—	556		72
Legal modification	1		3	1		12	2		15	1		3	—		—	1		3
Total consumer TDRs	386		45	1		12	387		57	557		75	—		—	557		75

Total troubled debt restructurings	391	$	306	3	$	186	394	$	492	563	$	453	6	$	448	569	$	901


	Troubled Debt			Troubled Debt						Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total			Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt			Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings			Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded
March 31, 2020 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
September 30, 2020 (dollars in thousands)										Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate loans (including home equity loans):
Rate reduction										2	$	54	1	$	4	3	$	58
Legal modification	4	$	128	—	$	—	4	$	128	11		429	2		128	13		557
Total residential TDRs	4		128	—		—	4		128	13		483	3		132	16		615

Commercial related and construction/land development loans:
Principal deferral	1		24	—		—	1		24	1		21	—		—	1		21
Total commercial TDRs	1		24	—		—	1		24	1		21	—		—	1		21

Consumer loans:
Principal deferral										1,492		183	—		—	1,492		183
Legal modification	2,111		310	—		—	2,111		310	1		15	—		—	1		15
Total consumer TDRs	2,111		310	—		—	2,111		310	1,493		198	—		—	1,493		198

Total troubled debt restructurings	2,116	$	462	—	$	—	2,116	$	462	1,507	$	702	3	$	132	1,510	$	834

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

As of ~~March 31,~~September 30, 2021 and 2020, ~~62%~~50% and ~~100%~~84% of the Bank’s TDR balances that occurred during the first ~~quarter~~nine months of 2021 and 2020 were performing according to their modified terms. The Bank provided approximately ~~$29,000~~$38,000 and ~~$93,000~~$121,000 in specific ACLL allocations to clients whose loan terms were modified in TDRs during the first ~~quarter~~nine months of 2021 and 2020.

There was 0 significant change between the pre and post modification loan balances for the ~~three~~nine months ending ~~March 31,~~September 30, 2021 and 2020.

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The following table presents loans by class modified as troubled debt restructurings within the previous 12 months of ~~March 31,~~September 30, 2021 and 2020 and for which there was a payment default during the three and/or nine months ended ~~March 31,~~September 30, 2021 and 2020.


	Three Months Ended						Three Months Ended						Nine Months Ended
	March 31,						September 30,						September 30,
	2021			2020			2021			2020			2021			2020
	Number of	Recorded		Number of	Recorded			Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded
(dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment		Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate:
Owner occupied	3	$	285	2	$	111	2	$	179	3	$	163	6	$	468	5	$	269
Commercial real estate							—		—	2		2,964	1		116	2		2,964
Home equity	1		20	1		13	1		14	1		20	1		14	2		33
Consumer	1		12	1		10

Total	5	$	317	4	$	134	3	$	193	6	$	3,147	8	$	598	9	$	3,266

COVID-19 Loan Accommodations

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

As of ~~March 31,~~September 30, 2021, ~~$33~~$3 million, or less than 1% of the Company’s Traditional Bank portfolio remained under a COVID-19 hardship ~~accommodations.~~accommodation.

Foreclosures

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


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Residential real estate	$	64	$	496	$	—	$	496
Commercial real estate		1,951		2,003		1,845		2,003

Total other real estate owned	$	2,015	$	2,499	$	1,845	$	2,499

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


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure	$	726	$	981	$	475	$	981

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Easy Advances

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

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

Information regarding EAs follows:


	Three Months Ended						Three Months Ended				Nine Months Ended
	March 31,						September 30,				September 30,
(dollars in thousands)	2021			2020			2021		2020		2021			2020

Easy Advances originated	$	250,045		$	387,762		$	—	$	—	$	250,045		$	387,762
Net charge to the Provision for Easy Advances		16,019			15,228
Net (credit) charge to the Provision for Easy Advances								(2,242)		(4,294)		7,984			15,239
Provision to total Easy Advances originated		6.41	%		3.93	%		NA		NA		3.19	%		3.93	%
Easy Advances net (recoveries) charge-offs	$	—		$	(42)
Easy Advances net charge-offs (recoveries)							$	(2,242)	$	(4,294)	$	7,984		$	15,239
Easy Advances net charge-offs to total Easy Advances originated		—	%		(0.01)	%		NA		NA		3.19	%		3.93	%

5. DEPOSITS

The composition of the deposit portfolio follows:


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Core Bank:
Demand	$	1,312,103	$	1,217,263	$	1,342,395	$	1,217,263
Money market accounts		742,823		712,824		793,236		712,824
Savings		273,117		236,335		295,663		236,335
Individual retirement accounts (1)		47,113		47,889		46,196		47,889
Time deposits, $250 and over (1)		77,014		83,448		84,340		83,448
Other certificates of deposit (1)		182,333		199,214		163,345		199,214
Reciprocal money market and time deposits (1)		317,173		314,109		101,109		314,109
Brokered deposits (1)		40,504		25,010		30,001		25,010
Total Core Bank interest-bearing deposits		2,992,180		2,836,092		2,856,285		2,836,092
Total Core Bank noninterest-bearing deposits		1,588,647		1,503,662		1,691,413		1,503,662
Total Core Bank deposits		4,580,827		4,339,754		4,547,698		4,339,754

Republic Processing Group:
Money market accounts		2,964		6,673		5,114		6,673
Total RPG interest-bearing deposits		2,964		6,673		5,114		6,673

Brokered prepaid card deposits		504,224		257,856		323,250		257,856
Other noninterest-bearing deposits		183,477		128,898		38,822		110,021
Total RPG noninterest-bearing deposits		687,701		386,754		362,072		367,877
Total RPG deposits		690,665		393,427		367,186		374,550

Deposits of discontinued operations (2)						33,063		18,877

Total deposits	$	5,271,492	$	4,733,181	$	4,947,947	$	4,733,181

(1)	Includes time ~~deposits.~~deposit

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

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

Securities sold under agreements to repurchase consist of short-term excess funds from correspondent banks, repurchase agreements and overnight liabilities to deposit clients arising from the Bank’s treasury management program. While comparable to deposits in their transactional nature, these overnight liabilities to clients are in the form of repurchase agreements. Repurchase agreements collateralized by securities are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. Should the fair value of currently pledged securities fall below the associated repurchase agreements, the Bank would be required to pledge additional securities. To mitigate the risk of under collateralization, the Bank typically pledges at least 2 percent more in securities than the associated repurchase agreements. All such securities are under the Bank’s control.

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


(dollars in thousands)	March 31, 2021			December 31, 2020			September 30, 2021			December 31, 2020

Outstanding balance at end of period	$	175,580		$	211,026		$	260,583		$	211,026
Weighted average interest rate at end of period		0.02	%		0.04	%		0.04	%		0.04	%

Fair value of securities pledged:
U.S. Treasury securities and U.S. Government agencies	$	44,744		$	60,059		$	114,308		$	60,059
Mortgage-backed securities - residential		131,835			140,554
Mortgage backed securities - residential								156,237			140,554
Collateralized mortgage obligations		27,210			29,656			23,457			29,656
Total securities pledged	$	203,789		$	230,269		$	294,002		$	230,269


	Three Months Ended						Three Months Ended						Nine Months Ended
	March 31,						September 30,						September 30,
(dollars in thousands)	2021			2020			2021			2020			2021			2020

Average outstanding balance during the period	$	192,669		$	208,969		$	242,867		$	213,010		$	201,992		$	199,556
Average interest rate during the period		0.02	%		0.23	%		0.03	%		0.04	%		0.02	%		0.11	%
Maximum outstanding at any month end during the period	$	200,704		$	143,801		$	307,358		$	195,229		$	307,358		$	195,229

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

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

As of ~~March 31,~~September 30, 2021, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 36 of its offices, with 14 such operating leases contracted with a related party of the Company. As of ~~March 31,~~September 30, 2021, payments on 24 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.

The Company executed 0 new operating leases during 2021. The Company renewed a related-party lease on one of its Louisville, Kentucky banking centers during the fourth quarter of 2020 that commenced in January 2021 with a right-of-use asset value of $392,000. During the second quarter of 2021, the Company extended one third-party lease for an additional five years, with the extended term beginning during the third quarter of 2021 and valued at approximately $263,000. During the fourth quarter of 2021, the Company recorded an amendment to one related-party lease to add leased space, with this amendment valued at approximately $819,000.

The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020:


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Operating lease expense:
Related Party:
Variable lease expense	$	1,220	$	1,182	$	1,224	$	1,235	$	3,662	$	3,706
Fixed lease expense		34		10		34		23		102		69
Third Party:
Variable lease expense		197		180		197		180		590		541
Fixed lease expense		341		368		337		371		1,021		1,109
Short-term lease expense		—		13		—		3		—		7
Total operating lease expense	$	1,792	$	1,753	$	1,792	$	1,812	$	5,375	$	5,432

Other information concerning operating leases:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,798	$	1,838	$	1,793	$	1,817	$	5,390	$	5,448
Short-term lease payments not included in the measurement of lease liabilities		—		13		—		3		—		7

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


(dollars in thousands)	March 31, 2021			December 31, 2020			September 30, 2021			December 31, 2020

Weighted average remaining term in years		8.18			8.37			7.76			8.37
Weighted average discount rate		3.10	%		3.10	%		3.08	%		3.10	%

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The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of ~~March 31,~~September 30, 2021:


Year (in thousands)	Related Party		Third Party		Total		Related Party		Third Party		Total

2021	$	3,479	$	1,867	$	5,346	$	1,160	$	636	$	1,796
2022		4,639		2,418		7,057		4,639		2,492		7,131
2023		4,639		1,995		6,634		4,639		2,049		6,688
2024		4,512		1,463		5,975		4,512		1,517		6,029
2025		4,344		925		5,269		4,344		979		5,323
Thereafter		15,800		2,707		18,507		15,800		2,729		18,529
Total undiscounted cash flows	$	37,413	$	11,375	$	48,788	$	35,094	$	10,402	$	45,496
Discount applied to cash flows		(4,536)		(1,398)		(5,934)		(4,065)		(1,280)		(5,345)
Total discounted cash flows reported as operating lease liabilities	$	32,877	$	9,977	$	42,854	$	31,029	$	9,122	$	40,151

8. FEDERAL HOME LOAN BANK ADVANCES

FHLB advances were as follows:


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

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

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. FHLB advances are collateralized by a blanket pledge of eligible real estate loans. As of ~~March 31,~~September 30, 2021 and December 31, 2020, Republic had available borrowing capacity of ~~$871~~$898 million and $683 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million ~~and $125 million~~ available through various other financial institutions as of ~~March 31,~~September 30, 2021 and December 31, 2020.

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


			Weighted
			Average
Year (dollars in thousands)	Principal		Rate

2021 (Overnight)	$	25,000	0.14	%
2021 (Term)		—	—
2022		—	—
2023		—	—
2024		—	—
2025		—	—
Thereafter		—	—
Total	$	25,000	0.14	%

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


	Three Months Ended						Three Months Ended						Nine Months Ended
	March 31,						September 30,						September 30,
(dollars in thousands)	2021			2020			2021			2020			2021			2020

Average outstanding balance during the period	$	40,278		$	45,165		$	25,000		$	272		$	30,037		$	29,106
Average interest rate during the period		0.17	%		1.56	%		0.10	%		0.17	%		0.15	%		0.92	%
Maximum outstanding at any month end during the period	$	25,000		$	250,000		$	25,000		$	25,000		$	25,000		$	250,000

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


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

First lien, single family residential real estate	$	1,026,521	$	1,048,236	$	1,034,959	$	1,048,236
Home equity lines of credit		198,613		208,944		191,443		208,944

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9. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

COVID-19 Pandemic

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

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

Commitments to Extend Credit

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

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

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

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


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Unused warehouse lines of credit	$	562,956	$	456,004	$	658,318	$	456,004
Unused home equity lines of credit		355,477		353,322		350,198		353,322
Unused loan commitments - other		780,048		775,128		787,660		775,128
Standby letters of credit		12,805		10,949		14,130		10,949
FHLB letter of credit		643		643		643		643
Total commitments	$	1,711,929	$	1,596,046	$	1,810,949	$	1,596,046

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

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The following ~~table presents~~tables present a rollforward of the ACLC for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020:


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

Loan Commitments
Unused warehouse lines of credit	$	79	$	37	$	—	$	—	$	116	$	—	$	55	$	—	$	—	$	—	$	55	$	140	$	—	$	—	$	—	$	140	$	58	$	(6)	$	—	$	—	$	52
Unused home equity lines of credit		173		21		—		—		194		—		89		23		—		—		112		213		29		—		—		242		124		22		—		—		146
Unused loan commitments - other		737		(32)		—		—		705		—		312		79		—		—		391		581		(26)		—		—		555		454		271		—		—		725

Total	$	989	$	26	$	—	$	—	$	1,015	$	—	$	456	$	102	$	—	$	—	$	558	$	934	$	3	$	—	$	—	$	937	$	636	$	287	$	—	$	—	$	923

The Company increased its ACLC during the three months ended ~~March 31,~~September 30, 2021 based on an increase in the expected usage for its ~~overall~~home equity lines of credit.


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

Loan Commitments
Unused warehouse lines of credit	$	79	$	61	$	—	$	—	$	140	$	—	$	55	$	(3)	$	—	$	—	$	52
Unused home equity lines of credit		173		69		—		—		242		—		89		57		—		—		146
Unused loan commitments - other		737		(182)		—		—		555		—		312		413		—		—		725

Total	$	989	$	(52)	$	—	$	—	$	937	$	—	$	456	$	467	$	—	$	—	$	923

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

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10. FAIR VALUE

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

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

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

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

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

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

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

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

For its TRUP investment, the Company considered the most recent bid price for the same instrument to approximate market value as of ~~March 31,~~September 30, 2021. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

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

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

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

Consumer loans held for sale, at fair value: In December 2019, the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell 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.

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

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Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below. Information as of ~~March 31,~~September 30, 2021 is presented net of any applicable ACL.


	Fair Value Measurements at								Fair Value Measurements at
	March 31, 2021 Using:								September 30, 2021 Using:
	Quoted Prices in		Significant						Quoted Prices in		Significant
	Active Markets		Other		Significant				Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total		for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair		Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	—	$	205,379	$	—	$	205,379	$	—	$	234,845	$	—	$	234,845
Private label mortgage-backed security		—		—		2,863		2,863		—		—		2,780		2,780
Mortgage-backed securities - residential		—		210,264		—		210,264		—		209,805		—		209,805
Collateralized mortgage obligations		—		45,211		—		45,211		—		34,519		—		34,519
Corporate bonds		—		10,108		—		10,108		—		10,081		—		10,081
Trust preferred security		—		—		3,650		3,650		—		—		3,850		3,850
Total available-for-sale debt securities	$	—	$	470,962	$	6,513	$	477,475	$	—	$	489,250	$	6,630	$	495,880

Equity securities with readily determinable fair value:
Freddie Mac preferred stock	$	—	$	338	$	—	$	338	$	—	$	102	$	—	$	102
Community Reinvestment Act mutual fund		2,483		—		—		2,483		2,476		—		—		2,476
Total equity securities with readily determinable fair value	$	2,483	$	338	$	—	$	2,821	$	2,476	$	102	$	—	$	2,578

Mortgage loans held for sale	$	—	$	63,636	$	—	$	63,636	$	—	$	25,791	$	—	$	25,791
Consumer loans held for sale		—		—		3,970		3,970		—		—		10,779		10,779
Consumer loans held for investment		—		—		417		417		—		—		254		254
Rate lock loan commitments		—		1,903		—		1,903		—		1,943		—		1,943
Mandatory forward contracts		—		1,624		—		1,624		—		722		—		722
Interest rate swap agreements		—		6,713		—		6,713		—		6,707		—		6,707

Financial liabilities:
Interest rate swap agreements	$	—	$	6,713	$	—	$	6,713	$	—	$	6,707	$	—	$	6,707

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

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

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

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

All transfers between levels are generally recognized at the end of each quarter. There were 0 transfers into or out of Level 1, 2, or 3 assets during the three and nine months ended ~~March 31,~~September 30, 2021 and 2020.

Private Label Mortgage-Backed Security

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Balance, beginning of period	$	2,957	$	3,495	$	2,824	$	3,023	$	2,957	$	3,495
Total gains or losses included in earnings:
Net change in unrealized gain		15		1		13		60		62		(46)
Principal paydowns		(109)		(247)		(57)		(79)		(239)		(445)
Balance, end of period	$	2,863	$	3,249	$	2,780	$	3,004	$	2,780	$	3,004

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

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

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

Fair

Valuation

Fair

Valuation

March 31, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

September 30, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Range

Private label mortgage-backed security

2,863

Discounted cash flow

(1) Constant prepayment rate

4.5% - 15.0%

2,780

Discounted cash flow

(1) Constant prepayment rate

4.5% - 18.0%

(2) Probability of default

1.8% - 9.0%

(2) Probability of default

1.8% - 9.3%

(3) Loss severity

50% - 75%

(3) Loss severity

50% - 75%


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

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

				(2) Probability of default	1.8% - 9.0%

				(3) Loss severity	50% - 75%

Trust Preferred Security

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Balance, beginning of period	$	3,800	$	4,000	$	3,700	$	3,500	$	3,800	$	4,000
Total gains or losses included in earnings:
Discount accretion		13		11		14		21		40		43
Net change in unrealized gain		(163)		89		136		279		10		(243)
Balance, end of period	$	3,650	$	4,100	$	3,850	$	3,800	$	3,850	$	3,800

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

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Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with Bank policy for such instruments. NaN of these loans were past due 90-days-or-more or on nonaccrual as of ~~March 31,~~September 30, 2021 and December 31, 2020.

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


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Aggregate fair value	$	63,636	$	46,867	$	25,791	$	46,867
Contractual balance		62,561		44,781		25,232		44,781
Unrealized gain		1,075		2,086		559		2,086

The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 for mortgage loans held for sale are presented in the following table:


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Interest income	$	409	$	214	$	253	$	300	$	802	$	932
Change in fair value		(1,011)		642		(373)		126		(1,527)		1,382
Total included in earnings	$	(602)	$	856	$	(120)	$	426	$	(725)	$	2,314

Consumer Loans Held for Sale

RCS carries loans originated through its installment loan program at fair value. Interest income is recorded based on the contractual terms of the loan and in accordance with Bank policy for such instruments. NaN of these loans were past due 90-days-or-more or on nonaccrual as of ~~March 31,~~September 30, 2021 and December 31, 2020.

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

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

Fair

Valuation

Fair

Valuation

March 31, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

September 30, 2021 (dollars in thousands)

Value

Technique

Unobservable Inputs

Rate

Consumer loans held for sale

3,970

Contract Terms

(1) Net Premium

1.4%

10,779

Contract Terms

(1) Net Premium

1.4%

(2) Discounted Sales

5.00%

(2) Discounted Sales

5.00%


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

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

				(2) Discounted Sales	5.00%

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


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Aggregate fair value	$	3,970	$	3,298	$	10,779	$	3,298
Contractual balance		3,940		3,284		10,703		3,284
Unrealized gain		30		14		76		14

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Interest income	$	571	$	1,476	$	2,102	$	42	$	4,070	$	1,563
Change in fair value		16		18		(16)		2		62		(2)
Total included in earnings	$	587	$	1,494	$	2,086	$	44	$	4,132	$	1,561

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


	Fair Value Measurements at								Fair Value Measurements at
	March 31, 2021 Using:								September 30, 2021 Using:
	Quoted Prices in		Significant						Quoted Prices in		Significant
	Active Markets		Other		Significant				Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total		for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair		Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)		Value

Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	3,054	$	3,054	$	—	$	—	$	1,733	$	1,733
Commercial real estate		—		—		3,999		3,999		—		—		3,568		3,568
Commercial & industrial										—		—		60		60
Home equity		—		—		388		388		—		—		314		314
Total collateral-dependent loans*	$	—	$	—	$	7,441	$	7,441	$	—	$	—	$	5,675	$	5,675

Other real estate owned:
Commercial real estate	$	—	$	—	$	1,951	$	1,951	$	—	$	—	$	1,845	$	1,845
Total other real estate owned	$	—	$	—	$	1,951	$	1,951	$	—	$	—	$	1,845	$	1,845


	Fair Value Measurements at								Fair Value Measurements at
	December 31, 2020 Using:								December 31, 2020 Using:
	Quoted Prices in		Significant						Quoted Prices in		Significant
	Active Markets		Other		Significant				Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total		for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair		Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)		Value
															��
Collateral-dependent loans:
Residential real estate:
Owner occupied	$	—	$	—	$	3,860	$	3,860	$	—	$	—	$	3,860	$	3,860
Commercial real estate		—		—		4,107		4,107		—		—		4,107		4,107
Home equity		—		—		395		395		—		—		395		395
Total collateral-dependent loans*	$	—	$	—	$	8,362	$	8,362	$	—	$	—	$	8,362	$	8,362

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

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

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

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

Range

Fair

Valuation

Unobservable

(Weighted

Fair

Valuation

Unobservable

(Weighted

March 31, 2021 (dollars in thousands)

Value

Technique

Inputs

Average)

September 30, 2021 (dollars in thousands)

Value

Technique

Inputs

Average)

Collateral-dependent loans - residential real estate owner occupied

3,054

Sales comparison approach

Adjustments determined for differences between comparable sales

0% - 51% (8%)

1,733

Sales comparison approach

Adjustments determined for differences between comparable sales

0% - 51% (10%)

Collateral-dependent loans - commercial real estate

3,999

Sales comparison approach

Adjustments determined for differences between comparable sales

15% - 31% (27%)

3,568

Sales comparison approach

Adjustments determined for differences between comparable sales

15% - 31% (26%)

Collateral-dependent loans - commercial & industrial

Sales comparison approach

Adjustments determined for differences between comparable sales

1% (1%)

Collateral-dependent loans - home equity

388

Sales comparison approach

Adjustments determined for differences between comparable sales

2%-6% (5%)

314

Sales comparison approach

Adjustments determined for differences between comparable sales

6%-10% (6%)

Other real estate owned - commercial real estate

1,951

Sales comparison approach

Adjustments determined for differences between comparable sales

28% (28%)

1,845

Sales comparison approach

Adjustments determined for differences between comparable sales

32% (32%)


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

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

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

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

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

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~~Collateral Dependent~~Collateral-Dependent Loans

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

Collateral-dependent loans are as follows:


(in thousands)	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Carrying amount of loans measured at fair value	$	6,315	$	7,110	$	5,122	$	7,110
Estimated selling costs considered in carrying amount		1,126		1,252		911		1,252
Valuation allowance		—		—		(358)		—
Total fair value	$	7,441	$	8,362	$	5,675	$	8,362


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Provision on collateral-dependent	$	—	$	16	$	345	$	430	$	393	$	(71)

Other Real Estate Owned

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



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

Other real estate owned carried at fair value	$	1,845	$	2,003
Other real estate owned carried at cost		—		496
Total carrying value of other real estate owned	$	1,845	$	2,499


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020

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

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


			Fair Value Measurements at										Fair Value Measurements at
			March 31, 2021:										September 30, 2021:
									Total										Total
	Carrying								Fair		Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value		Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	984,857	$	984,857	$	—	$	—	$	984,857	$	1,011,247	$	1,011,247	$	—	$	—	$	1,011,247
Available-for-sale debt securities		477,475		—		470,962		6,513		477,475		495,880		—		489,250		6,630		495,880
Held-to-maturity debt securities		52,147		—		52,909		—		52,909		44,991		—		45,590		—		45,590
Equity securities with readily determinable fair values		2,821		2,483		338		—		2,821		2,578		2,476		102		—		2,578
Mortgage loans held for sale, at fair value		63,636		—		63,636		—		63,636		25,791		—		25,791		—		25,791
Consumer loans held for sale, at fair value		3,970		—		—		3,970		3,970		10,779		—		—		10,779		10,779
Consumer loans held for sale, at the lower of cost or fair value		11,701		—		—		11,701		11,701		3,976		—		—		3,976		3,976
Loans for discontinued operations, at the lower of cost or fair value												24		—		—		24		24
Loans, net		4,591,257		—		—		4,578,953		4,578,953		4,280,758		—		—		4,276,437		4,276,437
Federal Home Loan Bank stock		13,153		—		—		—		NA		10,311		—		—		—		NA
Accrued interest receivable		11,180		—		11,180		—		11,180		9,352		—		9,352		—		9,352
Mortgage servicing rights		7,711		—		10,379		—		10,379		8,867		—		10,906		—		10,906
Rate lock loan commitments		1,903		—		1,903		—		1,903		1,943		—		1,943		—		1,943
Mandatory forward contracts		1,624		—		1,624		—		1,624		722		—		722		—		722
Interest rate swap agreements		6,713		—		6,713		—		6,713		6,707		—		6,707		—		6,707

Liabilities:
Noninterest-bearing deposits	$	2,276,348		—	$	2,276,348		—	$	2,276,348	$	2,053,485		—	$	2,053,485		—	$	2,053,485
Transaction deposits		2,638,910		—		2,638,910		—		2,638,910		2,536,782		—		2,536,782		—		2,536,782
Time deposits		356,234		—		361,577		—		361,577		324,617		—		328,162		—		328,162
Deposits of discontinued operations												33,063		—		33,063		—		33,063
Securities sold under agreements to repurchase and other short-term borrowings		175,580		—		175,580		—		175,580		260,583		—		260,583		—		260,583
Federal Home Loan Bank advances		25,000		—		25,000		—		25,000		25,000		—		25,000		—		25,000
Subordinated note		41,240		—		30,464		—		30,464
Accrued interest payable		277		—		277		—		277		180		—		180		—		180
Interest rate swap agreements		6,713		—		6,713		—		6,713		6,707		—		6,707		—		6,707

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

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

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

Table of Contents

Fair Value Measurements at

December 31, 2020:














Total

Carrying

Fair

(in thousands)

Value

Level 1

Level 2

Level 3

Value

Assets:

Cash and cash equivalents

$
485,587

$
485,587

$
—

$
—

$
485,587

Available-for-sale debt securities

523,863

—

517,106

6,757

523,863

Held-to-maturity debt securities

53,324

—

54,190

—

54,190

Equity securities with readily determinable fair values

3,083

2,523

560

—

3,083

Mortgage loans held for sale, at fair value

46,867

—

46,867

—

46,867

Consumer loans held for sale, at fair value

3,298

—

—

3,298

3,298

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

1,478

—

—

1,478

1,478

Loans, net

4,752,036

—

—

4,749,831

4,749,831

Federal Home Loan Bank stock

17,397

—

—

—

NA

Accrued interest receivable

12,925

—

12,925

—

12,925

Mortgage servicing rights

7,095

—

8,318

—

8,318

Rate lock loan commitments

4,540

—

4,540

—

4,540

Interest rate swap agreements

12,545

—

12,545

—

12,545

Liabilities:

Noninterest-bearing deposits

$
1,890,416

—

$
1,890,416

—

$
1,890,416

Transaction deposits

2,444,361

—

2,444,361

—

2,444,361

Time deposits

398,404

—

404,773

—

404,773

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

211,026

—

211,026

—

211,026

Federal Home Loan Bank advances

235,000

—

235,009

—

235,009

Subordinated note

41,240

—

31,071

—

31,071

Accrued interest payable

342

—

342

—

342

Mandatory forward contracts

976

—

976

—

976

Interest rate swap agreements

12,545

—

12,545

—

12,545

~~Table of Contents~~

11. MORTGAGE BANKING ACTIVITIES

Mortgage Banking activities primarily include residential mortgage originations and servicing.

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Balance, beginning of period	$	46,867	$	19,224	$	32,401	$	40,028	$	46,867	$	19,224
Origination of mortgage loans held for sale		213,587		125,273		170,482		203,615		525,246		547,556
Proceeds from the sale of mortgage loans held for sale		(203,815)		(109,918)		(182,422)		(210,309)		(562,661)		(546,950)
Net gain on sale of mortgage loans held for sale		6,997		4,805		5,330		11,526		16,339		25,030
Balance, end of period	$	63,636	$	39,384	$	25,791	$	44,860	$	25,791	$	44,860

The following table presents the components of Mortgage Banking income:


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Net gain realized on sale of mortgage loans held for sale	$	8,045	$	3,078	$	5,008	$	9,151	$	18,764	$	18,279
Net change in fair value recognized on loans held for sale		(1,011)		642		(373)		126		(1,527)		1,382
Net change in fair value recognized on rate lock loan commitments		(2,637)		3,779		(258)		2,194		(2,596)		5,841
Net change in fair value recognized on forward contracts		2,600		(2,694)		953		55		1,698		(472)
Net gain recognized		6,997		4,805		5,330		11,526		16,339		25,030

Loan servicing income		793		675		832		757		2,433		2,139
Amortization of mortgage servicing rights		(997)		(585)		(882)		(1,108)		(2,617)		(2,701)
Change in mortgage servicing rights valuation allowance		400		(100)		—		(400)		500		(500)
Net servicing income recognized		196		(10)		(50)		(751)		316		(1,062)
Total Mortgage Banking income	$	7,193	$	4,795	$	5,280	$	10,775	$	16,655	$	23,968

Activity for capitalized mortgage servicing rights was as follows:


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Balance, beginning of period	$	7,095	$	5,888	$	8,335	$	6,711	$	7,095	$	5,888
Additions		1,213		791		1,414		1,471		3,889		3,987
Amortized to expense		(997)		(585)		(882)		(1,108)		(2,617)		(2,701)
Change in valuation allowance		400		(100)		—		(400)		500		(500)
Balance, end of period	$	7,711	$	5,994	$	8,867	$	6,674	$	8,867	$	6,674

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Beginning valuation allowance	$	500	$	—	$	0	$	100	$	500	$	0
Charge during the period		(400)		100		0		400		(500)		500
Ending valuation allowance	$	100	$	100	$	0	$	500	$	0	$	500

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Other information relating to mortgage servicing rights follows:


(in thousands)	March 31, 2021			December 31, 2020			September 30, 2021			December 31, 2020

Fair value of mortgage servicing rights portfolio	$	10,379		$	8,318		$	10,906		$	8,318
Monthly weighted average prepayment rate of unpaid principal balance*		207	%		308	%		205	%		308	%
Discount rate		10.00	%		10.00	%		10	%		10	%
Weighted average foreclosure rate		0.39	%		0.44	%		0.24	%		0.44	%
Weighted average life in years		6.02			4.85			5.88			4.85

*	Rates are applied to individual tranches with similar characteristics.

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

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

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

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


	March 31, 2021				December 31, 2020				September 30, 2021				December 31, 2020
	Notional				Notional				Notional				Notional
(in thousands)	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value		Amount		Fair Value

Included in Mortgage loans held for sale:
Mortgage loans held for sale, at fair value	$	62,561	$	63,636	$	44,781	$	46,867	$	25,232	$	25,791	$	44,781	$	46,867

Included in other assets:
Rate lock loan commitments	$	74,187	$	1,903	$	105,395	$	4,540	$	94,210	$	1,943	$	105,395	$	4,540
Mandatory forward contracts		134,953		1,624		—		—		105,659		722		—		—

Included in other liabilities:
Mandatory forward contracts	$	—	$	—	$	136,236	$	976	$	—	$	—	$	136,236	$	976

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12. INTEREST RATE SWAPS

Interest Rate Swaps Used as Cash Flow Hedges

The Bank entered into 2 interest rate swap agreements (“swaps”) during 2013 as part of its interest rate risk management strategy. The Bank designated these swaps as cash flow hedges intended to reduce the variability in cash flows attributable to either FHLB advances tied to the 3-month LIBOR or the overall changes in cash flows on certain money market deposit accounts tied to the 1-month LIBOR. Both swaps matured in December 2020.

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Interest rate swap on money market deposits	$	—	$	12	$	—	$	52	$	—	$	107
Interest rate swap on FHLB advance		—		17		—		51		—		104
Total interest (benefit) expense on swap transactions	$	—	$	29	$	—	$	103	$	—	$	211

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Gains (losses) recognized in OCI on derivative (effective portion)	$	—	$	(161)	$	—	$	(1)	$	—	$	(173)

Gains (losses) reclassified from OCI on derivative (effective portion)		—		(29)		—		(103)		—		(211)

Gains (losses) recognized in income on derivative (ineffective portion)		0		0		0		0		0		0

Non-hedge Interest Rate Swaps

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

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

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


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

Interest rate swaps with Bank clients - Assets	Pay variable/receive fixed	$	108,250	$	6,713	$	138,277	$	12,545	Pay variable/receive fixed	$	109,456	$	6,707	$	138,277	$	12,545
Interest rate swaps with Bank clients - Liabilities	Pay variable/receive fixed		25,657		(277)		—		—	Pay variable/receive fixed		15,953		(103)		—		—
Interest rate swaps with Bank clients - Total	Pay variable/receive fixed	$	133,907	$	6,436	$	138,277	$	12,545	Pay variable/receive fixed	$	125,409	$	6,604	$	138,277	$	12,545

Offsetting interest rate swaps with institutional swap dealer	Pay fixed/receive variable		133,907		(6,436)		138,277		(12,545)	Pay fixed/receive variable		125,409		(6,604)		138,277		(12,545)
Total		$	267,814	$	—	$	276,554	$	—		$	250,818	$	—	$	276,554	$	—

Table of Contents

The Bank is required to pledge securities as collateral when the Bank is in a net loss position for all swaps with dealer counterparties when such net loss positions exceed $250,000. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled ~~$7.6~~$7.8 million and $13.3 million as of ~~March 31,~~September 30, 2021 and December 31, 2020.

~~Table of Contents~~

13. EARNINGS PER SHARE

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

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands, except per share data)	2021		2020		2021		2020		2021		2020

Net income	$	26,053	$	26,697
Income from continuing operations					$	18,412	$	17,275	$	55,240	$	49,344
Income (loss) from discontinued operations						1,597		3,114		14,744		13,546
Net income available to common shareholders						20,009		20,389		69,984		62,890
Dividends declared on Common Stock:
Class A Shares		(5,743)		(5,358)		(5,557)		(5,375)		(16,980)		(16,080)
Class B Shares		(616)		(572)		(606)		(572)		(1,830)		(1,716)
Undistributed net income for basic earnings per share		19,694		20,767		13,846		14,442		51,174		45,094
Weighted average potential dividends on Class A shares upon exercise of dilutive options		(20)		(17)		(17)		(7)		(40)		(24)
Undistributed net income for diluted earnings per share	$	19,674	$	20,750	$	13,829	$	14,435	$	51,134	$	45,070

Weighted average shares outstanding:
Class A Shares		18,798		18,831		18,342		18,826		18,625		18,830
Class B Shares		2,199		2,204		2,166		2,200		2,182		2,201
Effect of dilutive securities on Class A Shares outstanding		65		59		83		20		72		37
Weighted average shares outstanding including dilutive securities		21,062		21,094		20,591		21,046		20,879		21,068

Basic earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.31	$	0.29	$	0.31	$	0.29	$	0.92	$	0.86
Undistributed earnings per share*		0.95		1.00
Undistributed earnings per share* from continuing operations						0.60		0.54		1.77		1.51
Total basic earnings per share from continuing operations						0.91		0.83		2.69		2.37
Total basic earnings per share from discontinued operations						0.08		0.15		0.71		0.65
Total basic earnings per share - Class A Common Stock	$	1.26	$	1.29	$	0.99	$	0.98	$	3.40	$	3.02

Class B Common Stock:
Per share dividends distributed	$	0.28	$	0.26	$	0.28	$	0.26	$	0.84	$	0.78
Undistributed earnings per share*		0.86		0.91		0.55		0.49		1.61		1.38
Total basic earnings per share from continuing operations						0.83		0.75		2.45		2.16
Total basic earnings per share from discontinued operations						0.07		0.14		0.65		0.59
Total basic earnings per share - Class B Common Stock	$	1.14	$	1.17	$	0.90	$	0.89	$	3.10	$	2.75

Diluted earnings per share:
Class A Common Stock:
Per share dividends distributed	$	0.31	$	0.29	$	0.31	$	0.29	$	0.92	$	0.86
Undistributed earnings per share*		0.94		0.99		0.60		0.54		1.76		1.51
Total diluted earnings per share from continuing operations						0.91		0.83		2.68		2.37
Total diluted earnings per share from discontinued operations						0.08		0.15		0.71		0.65
Total diluted earnings per share - Class A Common Stock	$	1.25	$	1.28	$	0.99	$	0.98	$	3.39	$	3.02

Class B Common Stock:
Per share dividends distributed	$	0.28	$	0.26	$	0.28	$	0.26	$	0.84	$	0.78
Undistributed earnings per share*		0.86		0.90		0.55		0.49		1.60		1.37
Total diluted earnings per share from continuing operations						0.83		0.75		2.44		2.15
Total diluted earnings per share from discontinued operations						0.07		0.14		0.65		0.59
Total diluted earnings per share - Class B Common Stock	$	1.14	$	1.16	$	0.90	$	0.89	$	3.09	$	2.74

*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.

Table of Contents

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


	Three Months Ended		Three Months Ended		Nine Months Ended
	March 31,		September 30,		September 30,
	2021	2020	2021	2020	2021	2020

Antidilutive stock options	154,000	175,000	141,000	431,000	144,000	244,000
Average antidilutive stock options	154,000	159,000	141,000	367,000	144,000	193,000

~~Table of Contents~~

14. OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Available-for-Sale Debt Securities:
Change in unrealized gains and losses on AFS debt securities	$	(2,029)	$	7,777
Change in unrealized gain of AFS debt security for which a portion of OTTI has been recognized in earnings		15		1
Unrealized gains and (losses) on AFS debt securities					$	(1,899)	$	(258)	$	(4,542)	$	8,618
Unrealized gain (loss) of AFS debt security for which a portion of OTTI has been recognized in earnings						13		61		62		(46)
Net unrealized (losses) gains		(2,014)		7,778		(1,886)		(197)		(4,480)		8,572
Tax effect		503		(1,945)		471		49		1,119		(2,144)
Net of tax		(1,511)		5,833		(1,415)		(148)		(3,361)		6,428

Cash Flow Hedges:
Change in fair value of derivatives used for cash flow hedges		—		(161)		—		(1)		—		(173)
Reclassification amount for net derivative losses realized in income		—		29		—		103		—		211
Net losses		—		(132)
Net gains (losses)						—		102		—		38
Tax effect		—		32		—		(25)		—		(9)
Net of tax		—		(100)		—		77		—		29

Total other comprehensive (loss) income components, net of tax	$	(1,511)	$	5,733	$	(1,415)	$	(71)	$	(3,361)	$	6,457

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


		Amounts Reclassified from AOCI					Amounts Reclassified from AOCI
	Affected Line Items	Three Months Ended				Affected Line Items	Three Months Ended				Nine Months Ended
	in the Consolidated	March 31,				in the Consolidated	September 30,				September 30,
(in thousands)	Statements of Income	2021		2020		Statements of Income	2021		2020		2021		2020

Cash Flow Hedges:
Interest rate swap on money market deposits	Interest expense on deposits	$	—	$	(12)	Interest expense on deposits	$	—	$	(52)	$	—	$	(107)
Interest rate swap on FHLB advance	Interest expense on FHLB advances		—		(17)	Interest expense on FHLB advances		—		(51)		—		(104)
Total derivative losses on cash flow hedges	Total interest expense		—		(29)	Total interest expense		—		(103)		—		(211)
Tax effect	Income tax expense		—		7	Income tax expense		—		26		—		53
Net of tax	Net income	$	—	$	(22)	Net income	$	—	$	(77)	$	—	$	(158)

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


			2021						2021
(in thousands)	December 31, 2020		Change		March 31, 2021		December 31, 2020		Change		September 30, 2021

Unrealized gain (loss) on AFS debt securities	$	7,571	$	(1,522)	$	6,049	$	7,571	$	(3,407)	$	4,164
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		938		11		949		938		46		984
Total unrealized gain (loss)	$	8,509	$	(1,511)	$	6,998	$	8,509	$	(3,361)	$	5,148


				2020						2020
(in thousands)	December 31, 2019			Change		March 31, 2020		December 31, 2019		Change		September 30, 2020
			��
Unrealized gain on AFS debt securities	$	2,211		$	5,832	$	8,043	$	2,211	$	6,464	$	8,675
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings		964			1		965
Unrealized loss on cash flow hedges		(77)			(100)		(177)
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings									964		(35)		929
Unrealized (loss) gain on cash flow hedges									(77)		28		(49)
Total unrealized gain	$	3,098		$	5,733	$	8,831	$	3,098	$	6,457	$	9,555

5861

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15. REVENUE FROM CONTRACTS WITH CUSTOMERS

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


	Three Months Ended March 31, 2021																								Three Months Ended September 30, 2021
	Core Banking												Republic Processing Group												Core Banking												Republic Processing Group
										Total			Tax			Republic																		Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total			Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company			Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income(1)	$	41,102		$	6,772		$	409		$	48,283		$	14,676		$	4,821		$	19,497		$	67,780
Net interest income (1)																									$	40,297		$	6,291		$	253		$	46,841		$	171		$	5,297		$	5,468		$	52,309

Noninterest income:
Service charges on deposit accounts		2,865			14			—			2,879			(6)			—			(6)			2,873			3,262			15			—			3,277			—			—			—			3,277
Net refund transfer fees		—			—			—			—			12,721			—			12,721			12,721
Mortgage banking income(1)		—			—			7,193			7,193			—			—			—			7,193
Mortgage banking income (1)																										—			—			5,280			5,280			—			—			—			5,280
Interchange fee income		2,969			—			—			2,969			58			—			58			3,027			3,199			—			—			3,199			1			—			1			3,200
Program fees(1)		—			—			—			—			896			1,329			2,225			2,225
Increase in cash surrender value of BOLI(1)		390			—			—			390			—			—			—			390
Program fees (1)																										—			—			—			—			763			3,767			4,530			4,530
Increase in cash surrender value of BOLI (1)																										626			—			—			626			—			—			—			626
Net gains (losses) on OREO		(11)			—			—			(11)			—			—			—			(11)			(52)			—			—			(52)			—			—			—			(52)
Other		571			—			28			599			20			—			20			619			1,073			—			62			1,135			(1)			—			(1)			1,134
Total noninterest income		6,784			14			7,221			14,019			13,689			1,329			15,018			29,037			8,108			15			5,342			13,465			763			3,767			4,530			17,995

Total net revenue	$	47,886		$	6,786		$	7,630		$	62,302		$	28,365		$	6,150		$	34,515		$	96,817		$	48,405		$	6,306		$	5,595		$	60,306		$	934		$	9,064		$	9,998		$	70,304

Net-revenue concentration(2)		50	%		7	%		8	%		65	%		29	%		6	%		35	%		100	%
Net-revenue concentration from continuing operations (2)																										69	%		9	%		8	%		86	%		1	%		13	%		14	%		100	%


	Three Months Ended March 31, 2020																								Three Months Ended September 30, 2020
	Core Banking												Republic Processing Group												Core Banking												Republic Processing Group
										Total			Tax			Republic																		Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total			Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company			Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income(1)	$	40,620		$	4,307		$	214		$	45,141		$	20,525		$	7,072		$	27,597		$	72,738
Net interest income (1)																									$	38,753		$	7,345		$	300		$	46,398		$	675		$	4,976		$	5,651		$	52,049

Noninterest income:
Service charges on deposit accounts		3,138			11			—			3,149			(13)			—			(13)			3,136			3,000			18			—			3,018			(1)			—			(1)			3,017
Net refund transfer fees		—			—			—			—			15,823			—			15,823			15,823
Mortgage banking income(1)		—			—			4,795			4,795			—			—			—			4,795
Mortgage banking income (1)																										—			—			10,775			10,775			—			—			—			10,775
Interchange fee income		2,493			—			—			2,493			59			—			59			2,552			2,873			—			—			2,873			1			—			1			2,874
Program fees(1)		—			—			—			—			312			2,312			2,624			2,624
Increase in cash surrender value of BOLI(1)		389			—			—			389			—			—			—			389
Program fees (1)																										—			—			—			—			643			844			1,487			1,487
Increase in cash surrender value of BOLI (1)																										400			—			—			400			—			—			—			400
Net gains (losses) on OREO		3			—			—			3			—			—			—			3			(14)			—			—			(14)			—			—			—			(14)
Net gain on branch divestiture(1)		—			—			—			—			—			—			—			—
Other		1,212			—			24			1,236			11			—			11			1,247			879			(39)			21			861			—			—			—			861
Total noninterest income		7,235			11			4,819			12,065			16,192			2,312			18,504			30,569			7,138			(21)			10,796			17,913			643			844			1,487			19,400

Total net revenue	$	47,855		$	4,318		$	5,033		$	57,206		$	36,717		$	9,384		$	46,101		$	103,307		$	45,891		$	7,324		$	11,096		$	64,311		$	1,318		$	5,820		$	7,138		$	71,449

Net-revenue concentration(2)		46	%		4	%		5	%		55	%		36	%		9	%		45	%		100	%
Net-revenue concentration from continuing operations (2)																										64	%		10	%		16	%		90	%		2	%		8	%		10	%		100	%

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

(2)

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

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

Net interest income (1)	$	119,677		$	19,387		$	802		$	139,866		$	665		$	14,794		$	15,459		$	155,325

Noninterest income:
Service charges on deposit accounts		9,188			43			—			9,231			(10)			—			(10)			9,221
Mortgage banking income (1)		—			—			16,655			16,655			—			—			—			16,655
Interchange fee income		9,535			—			—			9,535			4			—			4			9,539
Program fees (1)		—			—			—			—			2,374			7,930			10,304			10,304
Increase in cash surrender value of BOLI (1)		1,616			—			—			1,616			—			—			—			1,616
Net gains (losses) on OREO		(107)			—			—			(107)			—			—			—			(107)
Other		2,630			—			140			2,770			(1)			—			(1)			2,769
Total noninterest income		22,862			43			16,795			39,700			2,367			7,930			10,297			49,997

Total net revenue	$	142,539		$	19,430		$	17,597		$	179,566		$	3,032		$	22,724		$	25,756		$	205,322

Net-revenue concentration from continuing operations (2)		70	%		9	%		9	%		88	%		1	%		11	%		12	%		100	%


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

Net interest income (1)	$	118,409		$	17,715		$	932		$	137,056		$	1,622		$	17,655		$	19,277		$	156,333

Noninterest income:
Service charges on deposit accounts		8,576			46			—			8,622			(18)			—			(18)			8,604
Mortgage banking income (1)		—			—			23,968			23,968			—			—			—			23,968
Interchange fee income		8,090			—			—			8,090			3			—			3			8,093
Program fees (1)		—			—			—			—			1,573			3,676			5,249			5,249
Increase in cash surrender value of BOLI (1)		1,184			—			—			1,184			—			—			—			1,184
Net gains (losses) on OREO		(10)			—			—			(10)			—			—			—			(10)
Other		2,659			(39)			53			2,673			—			—			—			2,673
Total noninterest income		20,499			7			24,021			44,527			1,558			3,676			5,234			49,761

Total net revenue	$	138,908		$	17,722		$	24,953		$	181,583		$	3,180		$	21,331		$	24,511		$	206,094

Net-revenue concentration from continuing operations (2)		67	%		9	%		12	%		88	%		2	%		10	%		12	%		100	%

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

(2)

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

Table of Contents

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

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

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

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

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

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

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

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

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

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

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16. SEGMENT INFORMATION

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

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

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


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

Core Banking:

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

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

Republic Processing Group:

Tax Refund ~~Solutions~~Solutions:

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

Discontinued Operations	The Bank agreed to sell its TRS business to Green Dot in May 2021. The TRS business has traditionally contained the significant majority of revenue and expense generated at the TRS segment. The TRS business contracted to be sold 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 and 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.~~loans

The accounting policies used for Republic’s reportable segments are generally the same as those described in the summary of significant accounting policies in the Company’s 2020 Annual Report on Form 10-K. Republic evaluates segment performance using operating income. The Company allocates goodwill to the Traditional Banking segment. Republic generally allocates income taxes based on income before income tax expense unless reasonable and specific segment allocations can be made. The Company makes transactions among reportable segments at carrying value.

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Segment information follows:


	Three Months Ended March 31, 2021																								Three Months Ended September 30, 2021
	Core Banking												Republic Processing Group												Core Banking												Republic Processing Group
										Total			Tax			Republic																		Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total			Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company			Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	41,102		$	6,772		$	409		$	48,283		$	14,676		$	4,821		$	19,497		$	67,780		$	40,297		$	6,291		$	253		$	46,841		$	171		$	5,297		$	5,468		$	52,309
								��
Provision for expected credit loss expense		(5)			(242)			—			(247)			15,884			(375)			15,509			15,262			(44)			(223)			—			(267)			—			3,820			3,820			3,553

Net refund transfer fees		—			—			—			—			12,721			—			12,721			12,721
Mortgage banking income		—			—			7,193			7,193			—			—			—			7,193			—			—			5,280			5,280			—			—			—			5,280
Program fees		—			—			—			—			896			1,329			2,225			2,225			—			—			—			—			763			3,767			4,530			4,530
Other noninterest income		6,784			14			28			6,826			72			—			72			6,898			8,108			15			62			8,185			—			—			—			8,185
Total noninterest income		6,784			14			7,221			14,019			13,689			1,329			15,018			29,037			8,108			15			5,342			13,465			763			3,767			4,530			17,995

Total noninterest expense		37,328			1,028			3,121			41,477			5,302			1,032			6,334			47,811			35,927			1,056			3,257			40,240			1,308			1,046			2,354			42,594

Income before income tax expense		10,563			6,000			4,509			21,072			7,179			5,493			12,672			33,744
Income (loss) from continuing operations before income tax expense																										12,522			5,473			2,338			20,333			(374)			4,198			3,824			24,157
Income tax expense (benefit)																										3,038			1,258			514			4,810			(102)			1,037			935			5,745
Income (loss) from continuing operations																										9,484			4,215			1,824			15,523			(272)			3,161			2,889			18,412

Discontinued operations:
Income from discontinued operations before income taxes																										—			—			—			—			2,070			—			2,070			2,070
Income tax expense		2,125			1,434			992			4,551			1,770			1,370			3,140			7,691			—			—			—			—			473			—			473			473
Income from discontinued operations, net of tax																										—			—			—			—			1,597			—			1,597			1,597

Net income	$	8,438		$	4,566		$	3,517		$	16,521		$	5,409		$	4,123		$	9,532		$	26,053		$	9,484		$	4,215		$	1,824		$	15,523		$	1,325		$	3,161		$	4,486		$	20,009

Period-end assets	$	4,789,840		$	865,655		$	78,760		$	5,734,255		$	625,690		$	116,595		$	742,285		$	6,476,540		$	4,907,503		$	750,266		$	41,196		$	5,698,965		$	365,552		$	123,117		$	488,669		$	6,187,634

Net interest margin		3.47	%		3.43	%		NM			3.46	%		NM			NM			NM			4.66	%
Net interest margin from continuing operations																										3.22	%		3.51	%		NM			3.25	%		NM			NM			NM			3.55	%

Net-revenue concentration*		50	%		7	%		8	%		65	%		29	%		6	%		35	%		100	%
Net-revenue concentration from continuing operations*																										69	%		9	%		8	%		86	%		1	%		13	%		14	%		100	%


	Three Months Ended March 31, 2020																								Three Months Ended September 30, 2020
	Core Banking												Republic Processing Group												Core Banking												Republic Processing Group
										Total			Tax			Republic																		Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total			Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company			Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income	$	40,620		$	4,307		$	214		$	45,141		$	20,525		$	7,072		$	27,597		$	72,738		$	38,753		$	7,345		$	300		$	46,398		$	675		$	4,976		$	5,651		$	52,049

Provision for expected credit loss expense		5,589			332			—			5,921			15,133			1,706			16,839			22,760			5,857			(3)			—			5,854			—			(12)			(12)			5,842

Net refund transfer fees		—			—			—			—			15,823			—			15,823			15,823
Mortgage banking income		—			—			4,795			4,795			—			—			—			4,795			—			—			10,775			10,775			—			—			—			10,775
Program fees		—			—			—			—			312			2,312			2,624			2,624			—			—			—			—			643			844			1,487			1,487
Other noninterest income		7,235			11			24			7,270			57			—			57			7,327			7,138			(21)			21			7,138			—			—			—			7,138
Total noninterest income		7,235			11			4,819			12,065			16,192			2,312			18,504			30,569			7,138			(21)			10,796			17,913			643			844			1,487			19,400

Total noninterest expense		36,647			803			1,996			39,446			6,629			894			7,523			46,969			36,415			1,875			2,832			41,122			1,481			1,175			2,656			43,778

Income before income tax expense		5,619			3,183			3,037			11,839			14,955			6,784			21,739			33,578
Income (loss) from continuing operations before income tax expense																										3,619			5,452			8,264			17,335			(163)			4,657			4,494			21,829
Income tax expense (benefit)																										558			1,226			1,736			3,520			(40)			1,074			1,034			4,554
Income (loss) from continuing operations																										3,061			4,226			6,528			13,815			(123)			3,583			3,460			17,275

Discontinued operations:
Income from discontinued operations before income taxes																										—			—			—			—			3,997			—			3,997			3,997
Income tax expense		460			716			638			1,814			3,497			1,570			5,067			6,881			—			—			—			—			883			—			883			883
Income from discontinued operations, net of tax																										—			—			—			—			3,114			—			3,114			3,114

Net income	$	5,159		$	2,467		$	2,399		$	10,025		$	11,458		$	5,214		$	16,672		$	26,697		$	3,061		$	4,226		$	6,528		$	13,815		$	2,991		$	3,583		$	6,574		$	20,389

Period-end assets	$	4,471,235		$	851,405		$	53,298		$	5,375,938		$	240,898		$	105,197		$	346,095		$	5,722,033		$	4,769,848		$	1,026,790		$	61,809		$	5,858,447		$	269,337		$	112,662		$	381,999		$	6,240,446

Net interest margin		3.80	%		2.68	%		NM			3.65	%		NM			NM			NM			5.57	%
Net interest margin from continuing operations																										3.22	%		3.41	%		NM			3.25	%		NM			NM			NM			3.57	%

Net-revenue concentration*		46	%		4	%		5	%		55	%		36	%		9	%		45	%		100	%
Net-revenue concentration from continuing operations*																										64	%		10	%		16	%		90	%		2	%		8	%		10	%		100	%

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

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

Net interest income	$	119,677		$	19,387		$	802		$	139,866		$	665		$	14,794		$	15,459		$	155,325

Provision for expected credit loss expense		(126)			(530)			—			(656)			—			5,037			5,037			4,381

Mortgage banking income		—			—			16,655			16,655			—			—			—			16,655
Program fees		—			—			—			—			2,374			7,930			10,304			10,304
Other noninterest income		22,862			43			140			23,045			(7)			—			(7)			23,038
Total noninterest income		22,862			43			16,795			39,700			2,367			7,930			10,297			49,997

Total noninterest expense		110,192			3,150			9,384			122,726			4,239			3,028			7,267			129,993

Income (loss) from continuing operations before income tax expense		32,473			16,810			8,213			57,496			(1,207)			14,659			13,452			70,948
Income tax expense (benefit)		6,718			3,919			1,807			12,444			(373)			3,637			3,264			15,708
Income (loss) from continuing operations		25,755			12,891			6,406			45,052			(834)			11,022			10,188			55,240

Discontinued operations:
Income from discontinued operations before income taxes		—			—			—			—			19,584			—			19,584			19,584
Income tax expense		—			—			—			—			4,840			—			4,840			4,840
Income from discontinued operations, net of tax		—			—			—			—			14,744			—			14,744			14,744

Net income	$	25,755		$	12,891		$	6,406		$	45,052		$	13,910		$	11,022		$	24,932		$	69,984

Period-end assets	$	4,907,503		$	750,266		$	41,196		$	5,698,965		$	365,552		$	123,117		$	488,669		$	6,187,634

Net interest margin from continuing operations		3.21	%		3.47	%		NM			3.24	%		NM			NM			NM			3.46	%

Net-revenue concentration from continuing operations*		70	%		9	%		9	%		88	%		1	%		11	%		12	%		100	%


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

Net interest income	$	118,409		$	17,715		$	932		$	137,056		$	1,622		$	17,655		$	19,277		$	156,333

Provision for expected credit loss expense		14,526			778			—			15,304			—			251			251			15,555

Mortgage banking income		—			—			23,968			23,968			—			—			—			23,968
Program fees		—			—			—			—			1,573			3,676			5,249			5,249
Other noninterest income		20,499			7			53			20,559			(15)			—			(15)			20,544
Total noninterest income		20,499			7			24,021			44,527			1,558			3,676			5,234			49,761

Total noninterest expense		109,750			3,489			7,517			120,756			5,360			2,972			8,332			129,088

Income (loss) from continuing operations before income tax expense		14,632			13,455			17,436			45,523			(2,180)			18,108			15,928			61,451
Income tax expense (benefit)		1,747			3,027			3,662			8,436			(517)			4,188			3,671			12,107
Income (loss) from continuing operations		12,885			10,428			13,774			37,087			(1,663)			13,920			12,257			49,344

Discontinued operations:
Income from discontinued operations before income taxes		—			—			—			—			17,550			—			17,550			17,550
Income tax expense		—			—			—			—			4,004			—			4,004			4,004
Income from discontinued operations, net of tax		—			—			—			—			13,546			—			13,546			13,546

Net income	$	12,885		$	10,428		$	13,774		$	37,087		$	11,883		$	13,920		$	25,803		$	62,890

Period-end assets	$	4,769,848		$	1,026,790		$	61,809		$	5,858,447		$	269,337		$	112,662		$	381,999		$	6,240,446

Net interest margin from continuing operations		3.41	%		3.07	%		NM			3.37	%		NM			NM			NM			3.69	%

Net-revenue concentration from continuing operations*		67	%		9	%		12	%		88	%		2	%		10	%		12	%		100	%

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

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17. DISCONTINUED OPERATIONS

On May 13, 2021, the Bank entered into the Purchase Agreement with Green Dot providing for the Sale Transaction. As a result of the Purchase Agreement and the proposed Sale Transaction, the results for the Company, RPG, and its TRS segment are presented within this filing to reflect continuing versus discontinued operations. RPG’s continuing operations include its RCS segment, its RPS division, and certain overhead costs previously allocated to TRS that will remain with RPG. Discontinued operations are those contracted to be sold. These discontinued operations have historically contained the majority of TRS’s revenue and expense. Interest income and expense for continuing and discontinued operations also include intercompany interest charged and earned based on the Company’s funds transfer pricing methodology.

On October 4, 2021, Green Dot announced that it had been unable to obtain the Federal Reserve’s approval of or non-objection to the Sale Transaction and that, as a result, Green Dot would not consummate the Sale Transaction. On October 5, 2021, the Bank filed a lawsuit against Green Dot in the Delaware Court of Chancery alleging breach of contract. In so doing, the Bank seeks, among other relief, specific performance to require that Green Dot proceed with the Sale Transaction as the parties had agreed to in the Purchase Agreement. Due to the inherent uncertainties of legal proceedings, at this time, the Company cannot predict the outcome of these proceedings and their impact on the Company’s financial condition and results of operations.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020

INTEREST INCOME:

Loans, including fees	$	76	$	135	$	14,815	$	20,978
Funds transfer credit		51		70		313		1,543
Total interest income		127		205		15,128		22,521

INTEREST EXPENSE:

Deposits		—		—		—		527
Funds transfer cost		4		2		200		1,132
Total interest expense		4		2		200		1,659

NET INTEREST INCOME		123		203		14,928		20,862

Provision for expected credit loss expense		(2,261)		(4,342)		7,850		15,239

NET INTEREST INCOME AFTER PROVISION		2,384		4,545		7,078		5,623

NONINTEREST INCOME:

Net refund transfer fees		1,280		1,152		19,922		19,888
Interchange fee income		63		37		232		178
Other		1		8		78		90
Total noninterest income		1,344		1,197		20,232		20,156

NONINTEREST EXPENSE:

Salaries and employee benefits		1,043		1,460		4,268		4,208
Technology, equipment, and communication		86		131		260		461
Occupancy		—		—		1		7
Marketing and development		45		55		160		196
FDIC insurance expense		—		—		150		—
Bank franchise tax expense		9		2		14		1,729
Legal and professional fees		303		8		1,382		173
Other		172		89		1,491		1,455
Total noninterest expense		1,658		1,745		7,726		8,229

INCOME FROM DISCONTINUED OPERATIONS BEFORE INCOME TAX EXPENSE		2,070		3,997		19,584		17,550
INCOME TAX EXPENSE		473		883		4,840		4,004
INCOME FROM DISCONTINUED OPERATIONS	$	1,597	$	3,114	$	14,744	$	13,546

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

RTs are fee-based products whereby a tax refund is issued to the taxpayer after the Bank has received the refund from the federal or state government. There is 0 credit risk or borrowing cost associated with these products because they are only delivered to the

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taxpayer upon receipt of the tax refund directly from the governmental paying authority. Fees earned by the Company on RTs, net of revenue share, are reported as noninterest income under the line item “Net refund transfer fees.”

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

●

Offered only during the first two months of each year;

●

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

●

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

●

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

●

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

●

If an insufficient refund to repay the EA occurs:

there is no recourse to the taxpayer,

no negative credit reporting on the taxpayer, and

no collection efforts against the taxpayer.

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

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

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

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

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

In 2005, Republic Bancorp Capital Trust, ~~is a Delaware statutory business~~an unconsolidated trust ~~that is a wholly-owned unconsolidated finance~~ subsidiary of Republic, ~~Bancorp, Inc.~~was formed and issued $40 million in TPS. On September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic redeemed these securities at the par amount of approximately $40 million, without penalty. Republic’s capital ratios remained well above “well capitalized” levels following the redemption of the TPS, which were treated as part of Republic’s Tier I Capital while outstanding.

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

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

Broadly speaking, forward-looking statements include:

●

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

●

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

●

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

●

forecasts of future economic performance;

●

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

●

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

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

●

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

●

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

●

natural disasters impacting the Company’s operations;

●

changes in political and economic conditions;

●

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

●

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

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

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equity and fixed income market fluctuations;

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client bankruptcies and loan defaults;

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inflation;

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recession;

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future acquisitions;

●

integrations of acquired businesses;

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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;

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success in gaining regulatory approvals when required;

●

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

●

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

●

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

●

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

●

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

●

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

Accounting Standards Update

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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

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

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ACLL and Provision — ~~At March 31,~~As of September 30, 2021, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the ACLL monthly and presents and discusses the ACLL with the Audit Committee and the Board of Directors quarterly.

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

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

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

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

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

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

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BUSINESS SEGMENT COMPOSITION

As of ~~March 31,~~September 30, 2021, the Company was divided into five reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute RPG operations.

(I) Traditional Banking segment

The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of ~~March 31,~~September 30, 2021, Republic had 42 full-service banking centers with locations as follows:

●

Kentucky — 28

●

Metropolitan Louisville — 18

●

Central Kentucky — 7

●

Georgetown — 1

●

Lexington — 5

●

Shelbyville — 1

●

Northern Kentucky — 3

●

Covington — 1

●

Crestview Hills — 1

●

Florence — 1

●

Southern Indiana — 3

●

Floyds Knobs — 1

●

Jeffersonville — 1

●

New Albany — 1

●

Metropolitan Tampa, Florida — 7

●

Metropolitan Cincinnati, Ohio — 2

●

Metropolitan Nashville, Tennessee — 2

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(II) Warehouse Lending segment

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

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

(III) Mortgage Banking segment

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

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

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(IV) Tax Refund Solutions segment

~~Through~~Tax Refund Solutions segment — On May 13, 2021, the Bank entered into the Purchase Agreement with Green Dot providing for the Sale Transaction. As a result of the Purchase Agreement and the proposed Sale Transaction, the results for the Company, RPG, and its TRS segment are presented within this filing to reflect continuing versus discontinued operations. RPG’s continuing operations include its RCS segment, its RPS division, and certain overhead costs previously allocated to TRS that will remain with RPG. Discontinued operations are those contracted to be sold. These discontinued operations have historically contained the ~~Bank is one~~majority of ~~a limited number of financial institutions that facilitates~~TRS’s revenue and expense. Interest income and expense for continuing and discontinued operations also include intercompany interest charged and earned based on the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). Substantially all of the business generated by the TRS segment occurs in the first half of the year. The TRS segment traditionally operates at a loss during the second half of the year, during which time the segment incurs costs preparing for the next year’s tax season.Company’s funds transfer pricing methodology.

~~RTs are fee-based products whereby a tax refund is issued~~On October 4, 2021, Green Dot announced that it had been unable to obtain the Federal Reserve’s approval of or non-objection to the ~~taxpayer after~~Sale Transaction and that, as a result, Green Dot would not consummate the Sale Transaction. On October 5, 2021, the Bank ~~has received~~filed a lawsuit against Green Dot in the ~~refund from~~Delaware Court of Chancery alleging breach of contract. In so doing, the ~~federal or state government. There is no credit risk or borrowing cost associated~~Bank seeks, among other relief, specific performance to require that Green Dot proceed with ~~these products because they are only delivered~~the Sale Transaction as the parties had agreed to in the Purchase Agreement. Due to the ~~taxpayer upon receipt~~inherent uncertainties of ~~the tax refund directly from the governmental paying authority. Fees earned by~~legal proceedings, at this time, the Company ~~on RTs, net of revenue share, are reported as noninterest income under the line item “Net refund transfer fees.”~~

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

●

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

●

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

●

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

●

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

●

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

●

~~If an insufficient refund to repay the EA occurs:~~

~~there is no recourse to the taxpayer,~~

~~no negative credit reporting on the taxpayer, and~~

~~no collection efforts against the taxpayer.~~

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

See additional detail regarding the ~~EA product~~Bank’s agreement to sell TRS under Footnote ~~4 “Loans and Allowance for Credit Losses”~~17 “Discontinued Operations” of Part I Item 1 “Financial Statements.”

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

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(V) Republic Credit Solutions segment

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

●

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

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

In January 2021, RCS began originating balances through its LOC II. AOne of RCS’s existing third-party service ~~provider~~providers, subject to the Bank’s oversight and supervision, provides the Bank with marketing services and loan

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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.

●

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

●

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

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OVERVIEW (Three Months Ended ~~March 31,~~September 30, 2021 Compared to Three Months Ended ~~March 31,~~September 30, 2020)

Total Company net income for the ~~first~~third quarter of 2021 was ~~$26.1~~$20.0 million, a ~~$644,000,~~$380,000, or 2%, decrease from the same period in 2020. Diluted EPS ~~decreased to $1.25~~was $0.99 for the three months ended ~~March 31,~~September 30, 2021, an increase of approximately 1% compared to ~~$1.28~~$0.98 for the same period in 2020. The ~~Company’s TRS segment, which traditionally provides a first quarter lift to~~3% difference between the 2% decrease in net income ~~with its seasonal tax business, drove~~and the ~~year-over-year decline, contributing~~1% increase in Diluted EPS of the Company represents the benefit of the Company’s on-going stock buyback program. As of September 30, 2021, the stock buyback program has reduced the number of shares outstanding by approximately 748,000 shares since the buyback was implemented in early 2021. The decrease in net income reflected a ~~$6.0~~$1.5 million decrease in net income from discontinued operations, driven by a change in the timing of Easy Advance recoveries, as the Company received a ~~result~~higher rate and a higher volume of ~~an unusual and delayed tax season.~~EA recoveries during the third quarter of 2020 compared to the third quarter of 2021.

Net income from ~~Core Banking~~continuing operations was ~~$16.5~~$18.4 million for the ~~first~~third quarter of 2021, a $1.1 million, or 7%, increase from the same period in 2020. Diluted EPS from continuing operations was $0.91 for the three months ended September 30, 2021, an increase of ~~$6.5 million, or 65%,~~approximately 10% over the ~~first quarter of~~$0.83 for the same period in 2020. ~~Primarily driving the rise~~The overall increase in net income ~~within Core Banking was a solid~~from continuing operations generally reflected an increase in ~~net interest income, strong growth~~RPG program fees, a positive reduction in Provision, offset by a reduction in Mortgage Banking ~~income, and a meaningful, positive reduction in the Provision, as the Core Bank made a substantial Provision during the first quarter of 2020 after the onset of the COVID-19 pandemic.~~income.

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

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

Traditional Banking segment

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Net income increased ~~$3.3~~$6.4 million ~~or 64%,~~ for the ~~first~~third quarter of 2021 compared to the same period in 2020.

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Net interest income increased ~~$482,000,~~$1.5 million, or 1%4%, for the ~~first~~third quarter of 2021 compared to the same period in 2020. The ~~increase was driven primarily by $5.6 million in PPP lender fees recognized during~~Traditional Bank’s net interest margin remained at 3.22% for the ~~first~~third quarter of 2021.

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Provision decreased ~~$5.6~~$5.9 million to a net credit of ~~$5,000~~$44,000 for the ~~first~~third quarter of 2021 compared to a net charge of ~~$5.6~~$5.9 million for the same period in 2020.

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Noninterest income ~~decreased $451,000,~~increased $970,000, or 6%14%, for the ~~first~~third quarter of 2021 compared to the same period in 2020.

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Total noninterest expense ~~increased $681,000,~~decreased $488,000, or 2%1%, for the ~~first~~third quarter of 2021 compared to same period in 2020.

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~~Total Traditional Bank loans decreased $60 million, or 2%, during the first quarter of 2021, driven by generally soft non-PPP loan demand.~~

Warehouse Lending segment

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~~Total nonperforming loans to total loans~~Net income remained at $4.2 million for the ~~Traditional Banking segment was 0.60% as of March 31, 2021 compared to 0.63% as of December 31, 2020.~~

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~~Delinquent loans to total loans for the Traditional Banking segment was 0.23% as of March 31, 2021 compared to 0.26% as of December 31, 2020.~~

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~~As of March 31, 2021, $33 million, or 1%, of Traditional Banking loans remained under a COVID-19 hardship accommodation.~~

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~~Total Traditional Bank deposits increased $233 million, or 5%, during the first quarter of 2021.~~

~~Warehouse Lending segment~~

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~~Net income increased $2.1 million, or 85%, for the first~~third quarter of 2021 compared to the same period in 2020.

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Net interest income ~~increased $2.5~~decreased $1.1 million, or ~~57%~~14%, for the ~~first~~third quarter of 2021 compared to the same period in 2020.

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The Warehouse Provision was a net credit of ~~$242,000~~$223,000 for the ~~first~~third quarter of 2021 compared to a net ~~charge~~credit of ~~$332,000~~$3,000 for the same period in 2020.

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Average committed Warehouse lines increased to ~~$1.5~~$1.4 billion during the ~~first~~third quarter of 2021 from ~~$1.1~~$1.3 billion during the same period in 2020.

●

Average line usage was ~~54%~~51% during the ~~first~~third quarter of 2021 compared to ~~56%~~68% during the same period in 2020.

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Mortgage Banking segment

●

Within the Mortgage Banking segment, mortgage banking income ~~increased $2.4~~decreased $5.5 million, or ~~50%~~51%, during the ~~first~~third quarter of 2021 compared to the same period in 2020.

●

Overall, Republic’s originations of secondary market loans totaled ~~$214~~$170 million during the ~~first~~third quarter of 2021 compared to ~~$125~~$204 million during the same period in 2020, with the Company’s cash gain-as-a-percent-of-loans-sold ~~increasing~~decreasing from ~~2.80%~~4.49% to ~~3.95%~~2.94% from period to period.

Tax Refund Solutions segment

Continuing Operations

●

Net loss from continuing operations was $272,000 for the third quarter of 2021 compared to a net loss of $123,000 for the same period in 2020.

Discontinued Operations

●

Net income from discontinued operations decreased ~~$6.0 million~~ ~~for the first quarter of 2021 compared to the same period in 2020.~~

●

~~Net interest income decreased $5.8~~$1.5 million for the ~~first~~third quarter of 2021 compared to the same period in 2020.

●

~~Total EA originations were $250 million during the first quarter of 2021 compared to $388 million for the first quarter of 2020.~~

●

Overall, TRS recorded a net ~~charge~~credit to the Provision from discontinued operations of ~~$15.9~~$2.3 million during the ~~first~~third quarter of 2021 compared to a net ~~charge~~credit to the Provision of ~~$15.1~~$4.3 million for the same period in 2020.

●

Noninterest income ~~decreased $2.5 million,~~from discontinued operations increased $147,000, or ~~15%~~12%, for the ~~first~~third quarter of 2021 compared to the same period in 2020.

●

Net RT revenue from discontinued operations increased to $1.3 million for the third quarter of 2021 compared to $1.2 million for the same period in 2020.

●

Noninterest expense from discontinued operations was $1.7 million for the third quarter of 2021, equal to $1.7 million for the same period in 2020.

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Republic Credit Solutions segment

●

Net income decreased ~~$3.1 million,~~$422,000, or ~~20%~~12%, for the ~~first~~third quarter of 2021 compared to the same period in 2020.

●

~~Noninterest expense was $5.3 million for the first quarter of 2021 compared to $6.6 million for the same period in 2020.~~

~~Republic Credit Solutions segment~~

●

Net interest income ~~decreased $1.1 million~~,increased $321,000, or ~~21%~~6%, for the ~~first~~third quarter of 2021 compared to the same period in 2020.

●

~~Net interest income decreased $2.3 million, or 32%, for the first quarter of 2021 compared to the same period in 2020.~~

●

Overall, RCS recorded a net ~~credit~~charge to the Provision of ~~$375,000~~$3.8 million during the ~~first~~third quarter of 2021 compared to a net ~~charge~~credit of ~~$1.7 million for the same period in 2020.~~

●

~~Noninterest income decreased $983,000, or 43%, from the first quarter of 2020 to the first quarter of 2021.~~

●

~~Noninterest expense was $1.0 million for the first quarter of 2021 compared to $894,000~~$12,000 for the same period in 2020.

●

~~Total nonperforming loans~~Noninterest income increased $2.9 million from the third quarter of 2020 to ~~total loans for~~ the ~~RCS segment was 0.48% as~~third quarter of ~~March 31, 2021 compared to 0.04% as of December 31, 2020.~~2021.

●

~~Delinquent loans to total loans~~Noninterest expense was $1.0 million for the ~~RCS segment was 5.84% as~~third quarter of ~~March 31,~~ 2021 compared to ~~9.23% as of December 31,~~$1.2 million for the same period in 2020.

RESULTS OF OPERATIONS (Three Months Ended ~~March 31,~~September 30, 2021 Compared to Three Months Ended ~~March 31,~~September 30, 2020)

Net Interest Income

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

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

A large amount of the Company’s financial instruments track closely with, or are primarily indexed to, either the FFTR, Prime, or LIBOR. These market rates trended lower since the first quarter of 2020 and the onset of COVID-19 pandemic, as the FOMC reduced the FFTR to approximately 25 basis points during 2020. The FOMC has provided on-going guidance that it is ~~more likely than not that~~unlikely the FFTR will ~~not~~ be increased in the near term.

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

Total Company net interest income ~~decreased 7%~~from continuing operations increased $260,000 during the ~~first~~third quarter of 2021 compared to the same period in 2020. Total Company net interest margin from continuing operations decreased to ~~4.66%~~3.55% during the ~~first~~third quarter of 2021 compared to ~~5.57%~~3.57% for the same period in 2020. Net interest income from discontinued operations was $123,000 during the third quarter of 2021 compared to $203,000 during the third quarter of 2020.

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

Traditional Banking segment

The Traditional Banking’s net interest income increased ~~$482,000,~~$1.5 million, or 1%4%, for the ~~first~~third quarter of 2021 compared to the same period in 2020. Traditional Banking’s net interest margin ~~was 3.47%~~remained at 3.22% for the ~~first~~third quarter of 2021 ~~a decrease of 33 basis points from~~compared to the same period in 2020.

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

The Company earns fees and a coupon interest of 1.0% on its PPP portfolio. Due to the short-term nature of the PPP, management believes Traditional Bank net interest income excluding PPP fees and interest is a more appropriate measure to analyze the challenges within the Traditional Bank’s net interest income and net interest margin. The following table reconciles Traditional Bank net interest income and net interest margin to Traditional Bank net interest income and net interest margin excluding PPP fees and interest, a non-GAAP measure. Net interest margin excluding PPP fees and interest presented below also excludes average PPP loans of $186 million and $513 million for the quarters ended September 30, 2021 and 2020.



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

Traditional Banking - GAAP	$	40,297	$	38,753	$	1,544	4	%	3.22	%	3.22	%	—	%
Less: PPP fees and interest		5,668		3,497		2,171	62		0.35		(0.06)		0.41
Traditional Banking ex PPP fees and interest - non-GAAP	$	34,629	$	35,256	$	(627)	(2)	%	2.87		3.28		(0.41)

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

●

~~During~~The Traditional Bank recognized $5.7 million of fees and interest on its PPP portfolio during the ~~first~~third quarter of 2021 ~~the Traditional Bank recognized $5.6~~compared to $3.5 million of ~~fee income on its~~similar fees and interest during the same period in 2020. The $2.2 million increase in PPP ~~portfolio,~~fees and interest was driven significantly by the forgiveness, payoff, and ~~payoff~~paydown of ~~$182~~$130 million of PPP loans during the ~~period.~~third quarter of 2021. As of ~~March 31,~~September 30, 2021, net PPP loans of ~~$383~~$126 million remained on the Traditional Bank’s balance sheet, including ~~$218~~$19 million in loan balances originated during 2020, ~~$176~~$111 million in loan balances originated during ~~the first quarter of~~ 2021, and ~~$11~~$4 million of unaccreted PPP ~~lender~~ fees reported as a credit offset to these originated balances. Unaccreted PPP ~~lender~~ fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated.

●

~~Offsetting the above,~~Traditional Bank net interest income, ~~from Traditional Banking,~~ excluding ~~accreted~~ PPP ~~lender~~ fees and interest, decreased ~~$5.1 million,~~$627,000, or ~~12%~~2%, from the ~~first~~third quarter 2020, as the Traditional Bank’s net interest margin, excluding PPP loans and related fees and interest, declined from ~~3.80%~~3.28% for the ~~first~~third quarter of 2020 to ~~3.47%~~2.87% for the ~~first~~third quarter of 2021. The decline in the net interest margin was substantially driven by a ~~71-basis~~66-basis point decline in the Traditional Bank’s yield on its average non-PPP interest-earning assets from the third quarter of 2020 to the third quarter of 2021, as the majority of the Traditional Bank’s growth in non-PPP interest-earning assets during the previous 12 months was in lower-yielding cash instead of loans.

Warehouse Lending segment

Net interest income from the Warehouse segment decreased $1.1 million, or 14%, from the third quarter of 2020 to the third quarter of 2021 driven primarily by a decrease in average outstanding balances, while the net interest margin for the Warehouse segment increased from 3.41% to 3.51% during the same time periods.

Overall average outstanding Warehouse balances declined from $860 million during the third quarter of 2020 to $717 million for the third quarter of 2021, as home-mortgage refinancing dipped from record highs during 2020. Committed Warehouse lines-of-credit grew to $1.4 billion as of September 30, 2021 from $1.3 billion as of September 30, 2020, while average usage rates for Warehouse lines were 51% and 68%, respectively, during the third quarters of 2021 and 2020.

The net interest margin for the Warehouse segment improved from quarter to quarter due to a decline in the segment’s assigned cost of funds while many of the segment’s lines-of-credit reached contractual floors for their interest rates, allowing the yield for the Warehouse portfolio to remain higher than it otherwise would have been by contractual formula. Due to increasing competitive pressures, however, the Company began lowering the contractual interest-rate floors on its Warehouse lines during the third quarter of 2021. Management expects these lower floors to have a negative impact on the Warehouse net interest margin going forward.

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Republic Credit Solutions segment

RCS’s net interest income increased $321,000, or 6%, from the third quarter of 2020 to the third quarter of 2021. The increase was driven primarily by an increase in fee income from RCS’s LOC I product. Loan fees on this product, recorded as interest income on loans, increased to $4.2 million during the third quarter of 2021 compared to $4.0 million during the same period in 2020 and accounted for 77% and 76% of all RCS interest income on loans during the periods. The increase in loan fees was the direct result of a change in marketing strategy for the product from period to period.

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

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



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

ASSETS (1)

Interest-earning assets:
Federal funds sold and other interest-earning deposits	$	924,859	$	359	0.16	%	$	313,281	$	94	0.12	%
Investment securities, including FHLB stock (2)		555,934		1,928	1.39			600,943		2,363	1.57
Intercompany funds loaned to discontinued operations		5,964		4	0.27			2,316		1	0.17
RCS LOC I product (3) (7)		19,231		4,166	86.65			17,369		3,996	92.03
Other RPG loans (7)		109,317		1,212	4.43			97,379		1,137	4.67
Outstanding Warehouse lines of credit (4) (7)		717,036		6,698	3.74			860,420		7,966	3.70
Paycheck Protection Program loans (5) (7)		185,931		5,668	12.19			513,201		3,497	2.73
All other Core Bank loans (6) (7)		3,373,085		33,665	3.99			3,419,261		36,851	4.31

Total interest-earning assets		5,891,357		53,700	3.65			5,824,170		55,905	3.84

Allowance for credit losses		(61,562)						(55,213)

Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		133,743						92,731
Premises and equipment, net		38,242						42,167
Bank owned life insurance		99,386						67,447
Other assets (2)		186,848						180,236
Total assets	$	6,288,014					$	6,151,538

LIABILITIES AND STOCKHOLDERS’ EQUITY (1)

Interest-bearing liabilities:
Transaction accounts	$	1,569,407	$	91	0.02	%	$	1,366,830	$	178	0.05	%
Money market accounts		822,190		96	0.05			734,203		235	0.13
Time deposits		298,179		835	1.12			409,088		2,025	1.98
Reciprocal money market and time deposits		188,357		124	0.26			292,948		378	0.52
Brokered deposits		30,001		2	0.03			135,994		60	0.18

Total interest-bearing deposits		2,908,134		1,148	0.16			2,939,063		2,876	0.39

SSUARs		242,867		21	0.03			213,010		22	0.04
Intercompany funds borrowed from discontinued operations		43,259		50	0.46			28,732		70	0.97
Federal Reserve PPP Liquidity Facility		—		—	—			53,338		48	0.36
Federal Home Loan Bank advances		25,000		6	0.10			126,250		658	2.08
Subordinated note		40,792		166	1.63			41,240		182	1.77

Total interest-bearing liabilities		3,260,052		1,391	0.17			3,401,633		3,856	0.45

Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		2,074,941						1,817,820
Other liabilities		104,086						120,734
Stockholders’ equity		848,935						811,351
Total liabilities and stockholders’ equity	$	6,288,014					$	6,151,538

Net interest income			$	52,309					$	52,049

Net interest spread					3.48	%					3.39	%

Net interest margin					3.55	%					3.57	%

(1)

The table above excludes average assets, average liabilities, interest income, and interest expense for discontinued operations; however, loans to and borrowings from discontinued operations are included above based on the Company’s funds transfer pricing methodology. Net interest income would be $52.4 million and $52.3 million and net interest margin would be 3.56% and 3.59% for the quarters ended September 30, 2021 and 2020 if continuing and discontinued operations were consolidated above.

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

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

(4)	Interest income includes loan fees of $779,000 and $942,000 for the quarters ended September 30, 2021 and 2020.

(5)	Interest income includes loan fees of $5.2 million and $2.1 million for the quarters ended September 30, 2021 and 2020.

(6)	Interest income includes loan fees of $1.2 million and $680,000 for the quarters ended September 30, 2021 and 2020.

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

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

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


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

Interest income:

Federal funds sold and other interest-earning deposits	$	265	$	230	$	35
Investment securities, including FHLB stock		(435)		(169)		(266)
Intercompany funds loaned to discontinued operations		3		2		1
RCS LOC I product		170		412		(242)
Other RPG loans		75		135		(60)
Outstanding Warehouse lines of credit		(1,268)		(1,339)		71
Paycheck Protection Program loans		2,171		(3,432)		5,603
All other Core Bank loans		(3,186)		(492)		(2,694)
Net change in interest income		(2,205)		(4,653)		2,448

Interest expense:

Transaction accounts		(87)		24		(111)
Money market accounts		(139)		26		(165)
Time deposits		(1,190)		(457)		(733)
Reciprocal money market and time deposits		(254)		(107)		(147)
Brokered deposits		(58)		(28)		(30)
SSUARs		(1)		3		(4)
Intercompany funds borrowed from discontinued operations		(20)		27		(47)
Federal Reserve PPP Liquidity Facility		(48)		(48)		—
Federal Home Loan Bank advances		(652)		(298)		(354)
Subordinated note		(16)		(5)		(11)
Net change in interest expense		(2,465)		(863)		(1,602)

Net change in net interest income	$	260	$	(3,790)	$	4,050

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

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Provision

Total Company Provision from continuing operations was a net charge of $3.6 million for the third quarter of 2021 compared to a net charge of $5.8 million for the same period in 2020. Provision from discontinued operations was a net credit of $2.3 million for the third quarter of 2021 compared to a net credit of $4.3 million for the same period in 2020.

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

Traditional Banking segment

The Traditional Banking Provision during the third quarter of 2021 was a net credit of $44,000 compared to a net charge of $5.9 million for the third quarter of 2020. An analysis of the Provision for the third quarter of 2021 compared to the same period in 2020 follows:

●

For the third quarter of 2021, the Traditional Bank’s net credit to the Provision was primarily driven by net loan loss recoveries of $167,000 for the quarter. Loan loss recoveries were positively impacted by a $286,000 recovery from one borrower.

●

During the third quarter of 2020, the Traditional Bank recorded $5.6 million of additional Provision due to the expected economic impact of the COVID-19 pandemic. Offsetting the increase in Provision due to the impact of the COVID-19 pandemic during the third quarter of 2020 was a reduction in Provision of $1.2 million consistent with an $83 million decrease in Traditional Bank non-PPP loan spot balances during the same quarter.

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.42% as of September 30, 2021 compared to 1.34% as of December 31, 2020 and 1.26% as of September 30, 2020. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of September 30, 2021.

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

Warehouse Lending segment

Warehouse recorded a net credit to the Provision of $223,000 for the third quarter of 2021 compared to a net credit of $3,000 for the same period in 2020. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $89 million during the third quarter of 2021 compared to a decrease of $1 million during the third quarter of 2020.

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

Tax Refund Solutions segment

Discontinued Operations

TRS recorded a net credit to the Provision from discontinued operations of $2.3 million during the third quarter of 2021 compared to a net credit of $4.3 million for the same period in 2020. These credits to the Provision primarily reflected recoveries on EA loans charged off during the first six months of the year. While TRS experienced a higher rate of EAs charged-off during the first six months of 2020 than the comparable six months in 2021, it also experienced a higher rate of EA recoveries during the third quarter of 2020 than the comparable quarter of 2021. Management believes the higher rate of EAs charged-off through the first six months of 2020 and recovered during the third quarter of 2020 was directly related to the impact of the COVID-19 pandemic and the resulting delay in tax return processing by the IRS for certain types of tax returns that require further taxpayer communication and verification.

With the third quarter EA paydowns, the percent of unpaid EAs to total EAs originated was 3.19% as of September 30, 2021. This compares to 3.93% as of September 30, 2020, a positive difference of 74 basis points. With all unpaid EAs having been charged off as of June 30, 2021, any EA payments received during the fourth quarter of 2021 will continue to represent recovery credits directly to income from discontinued operations.

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

Republic Credit Solutions segment

As illustrated in Table 4 below, RCS recorded a net charge to the Provision of $3.8 million during the third quarter of 2021 compared to a net credit to the Provision of $12,000 for the same period in 2020. The negative swing in the Provision was driven by a $6.0 million increase in outstanding balances for RCS’s lines of credit during the third quarter of 2021 compared to a $1.3 million decrease in similar balances during the third quarter of 2020. The Company reduced marketing for its LOC I product during the second and third quarters of 2020, then began incrementally increasing such marketing during the fourth quarter of 2020. The Company began offering its LOC II product during the first quarter of 2021.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 9.99% as of September 30, 2021, 7.94% as of December 31, 2020, and 7.82% as of September 30, 2020. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of September 30, 2021.

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

Table 4 — RCS Provision by Product


	Three Months Ended Sep. 30,
(in thousands)	2021		2020		$ Change		% Change
Product:
Lines of credit	$	3,830	$	(40)	$	3,870	NM	%
Hospital receivables		(10)		28		(38)	(136)
Total	$	3,820	$	(12)	$	3,832	NM	%

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Table 5 — Summary of Loan and Lease Loss Experience


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

ACLL at beginning of period	$	60,291		$	55,097

Charge-offs:

Traditional Banking:
Residential real estate		—			(13)
Commercial & industrial		(35)			(255)
Home equity		—			(14)
Consumer		(279)			(227)
Total Traditional Banking		(314)			(509)
Warehouse lines of credit		—			—
Total Core Banking		(314)			(509)

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—
Other TRS loans		—			(22)
Republic Credit Solutions		(1,064)			(684)
Total Republic Processing Group		(1,064)			(706)
Total charge-offs		(1,378)			(1,215)

Recoveries:

Traditional Banking:
Residential real estate		329			28
Commercial real estate		3			—
Commercial & industrial		16			80
Home equity		5			21
Consumer		128			77
Total Traditional Banking		481			206
Warehouse lines of credit		—			—
Total Core Banking		481			206

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		2,242			4,294
Other TRS loans		19			—
Republic Credit Solutions		75			83
Total Republic Processing Group		2,336			4,377

Total recoveries		2,817			4,583

Net loan recoveries (charge-offs)		1,439			3,368

Provision from continuing operations- Core Banking		(265)			5,780
Provision from continuing operations - RPG		3,820			(12)
Provision from discontinued operations - RPG		(2,261)			(4,342)
Total Provision		1,294			1,426
ACLL at end of period	$	63,024		$	59,891

Credit Quality Ratios - Total Company:

ACLL to total loans		1.45	%		1.20	%
ACLL to nonperforming loans		301			284
Net loan charge-offs (recoveries) to average loans		(0.13)			(0.27)
Net loan charge-offs from continuing operations to average loans		0.07			0.07

Credit Quality Ratios - Core Banking:

ACLL to total loans		1.22	%		1.05	%
ACLL to nonperforming loans		254			245
Net loan charge-offs (recoveries) to average loans		(0.02)			0.03

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Noninterest Income

Total Company noninterest income from continuing operations decreased $1.4 million during the third quarter of 2021 compared to the same period in 2020. Noninterest income from discontinued operations increased $147,000, or 12% comparing the same periods.

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

Traditional Banking segment

Traditional Banking’s noninterest income increased $970,000, or 14%, for the third quarter of 2021 compared to the same period in 2020. Interchange Fee Income increased $326,000 from the third quarter of 2020 to the same period in 2021, while Service Charges on Deposit Accounts increased $262,000 comparing the same periods. Service Charges on Deposit Accounts were below normal levels during the third quarter of 2020, as a pandemic-driven rise in the consumer savings rates drove a reduction in the Bank’s overdraft-related fees. Both Interchange Fee Income and Service Charges on Deposits began to trend upward toward more normal levels during the first quarter of 2021 following the removal of many pandemic-related restrictions.

The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in Service Charges on Deposits Accounts for the three months ended September 30, 2021 and 2020 were $1.6 million and $1.3 million. The total daily overdraft charges, net of refunds, included in interest income for the three months ended September 30, 2021 and 2020 were $304,000 and $99,000. The Bank suspended its daily overdraft charges during 2020 to soften the economic hardship of the COVID-19 pandemic on its clients. The Bank reinstituted the charging of its daily overdraft fee on September 1, 2020.

Mortgage Banking segment

Mortgage Banking income decreased from $10.8 million for the third quarter of 2020 to $5.3 million for the third quarter of 2021. For the third quarter of 2021, the Core Bank originated $170 million in secondary market loans and achieved an average cash gain-as-a-percent-of-loans-sold during the quarter of 2.94%, with both figures solid by normal historical comparisons. During the third quarter of 2020, however, secondary market originations were $204 million with comparable gains-as-a-percent-of-loans-sold of 4.49%. Favorable market conditions during the third quarter of 2020 brought on by the COVID pandemic drove gains-as-a-percent-of-loans-sold to all-time record highs for the Core Bank and, in general, the entire mortgage industry.

Republic Credit Solutions segment

RCS’s noninterest income increased $2.9 million during the third quarter of 2021 compared to the same period in 2020, with program fees representing the entirety of RCS’s noninterest income. Pandemic-driven restrictions negatively impacted RCS program fees during the third quarter of 2020, with those program fees beginning to normalize during 2021 following the removal of restrictions.

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The following table presents RCS program fees by product:

Table 6 — RCS Program Fees by Product


	Three Months Ended Sep. 30,
(in thousands)	2021		2020		$ Change		% Change
Product:
Lines of credit	$	2,046	$	752	$	1,294	172	%
Hospital receivables		62		45		17	38
Installment loans*		1,659		47		1,612	NM
Total	$	3,767	$	844	$	2,923	346	%

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

Noninterest Expense

Total Company noninterest expense from continuing operations decreased $1.2 million during the third quarter of 2021 compared to the same period in 2020. Noninterest expense from discontinued operations decreased $87,000 comparing the same periods.

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

Traditional Banking segment

Traditional Banking noninterest expense decreased $488,000, or 1%, for the third quarter of 2021 compared to the same period in 2020. The following primarily drove the change in noninterest expense:

●

Bank Franchise Tax expense decreased $661,000. As previously reported, Kentucky enacted HB354 in March 2019 and as a result, the Bank transitioned from a capital-based bank franchise tax to corporate income tax on January 1, 2021 for Kentucky state taxes.

●

Other expenses decreased $717,000. Within this decrease, Provision for credit losses on off-balance sheet credit exposures decreased $283,000, driven by lower expected usage rates on the Bank’s committed credit lines coupled with a generally improving economic outlook. Additionally, within the other expenses line item, the following expenses experienced decreases: fraud-related expenses, supplies, freight, core deposit amortization, and ATM promotions, with most of these decreases generally driven by the impact of the ongoing pandemic.

●

Salaries and Benefits increased from $21.1 million during the third quarter of 2020 to $21.7 million for the third quarter of 2021, driven primarily by annual merit increases, which averaged approximately 3%, along with higher equity-based compensation expenses. These increases to compensation expense were partially offset by lower salaries resulting from a reduction in full-time equivalent employees, which decreased from 976 FTEs as of December 31, 2020 to 949 FTEs as of September 30, 2021.

Warehouse Lending segment

Noninterest expense at the Warehouse segment decreased $819,000 during the third quarter of 2021 compared to the same period in 2020, primarily due to higher incentive compensation expense recorded during 2020, generally due to higher Warehouse client loan volumes during 2020.

Mortgage Banking segment

Noninterest expense at the Mortgage Banking segment increased $425,000, or 15%, during the third quarter of 2021 compared to the same period in 2020, primarily due to higher mortgage commissions recorded during 2021, as the Company broadened the base of associates eligible to receive commissions during 2021.

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OVERVIEW (Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020)

Total Company net income for the first nine months of 2021 was $70.0 million, a $7.1 million, or 11%, increase from the same period in 2020. Diluted EPS increased to $3.39 for the nine months of September 30, 2021 compared to $3.02 for the same period in 2020.

Net income from continuing operations was $55.2 million for the first nine months of 2021, a $5.9 million increase from the same period in 2020. Diluted EPS from continuing operations increased to $2.68 for the nine months ended September 30, 2021 compared to $2.37 for the same period in 2020. The increase in net income and net income from continuing operations primarily reflected a positive reduction in Provision partially offset by a decrease in Mortgage Banking income and net interest income.

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

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

Traditional Banking segment

●

Net income increased $12.9 million, or 100%, for the first nine months of 2021 compared to the same period in 2020.

●

Net interest income increased $1.3 million, or 1%, for the first nine months of 2021 compared to the same period in 2020.

●

Provision had a $14.7 million positive swing to a net credit of $126,000 for the first nine months of 2021 compared to a net charge of $14.5 million for the same period in 2020.

●

Noninterest income increased $2.4 million, or 12%, for the first nine months of 2021 compared to the same period in 2020.

●

Total noninterest expense increased $442,000 for the first nine months of 2021 compared to same period in 2020.

●

Total Traditional Bank loans decreased $239 million, or 6%, during the first nine months of 2021, driven primarily by a $266 million decrease in PPP loans.

●

Total nonperforming loans to total loans for the Traditional Banking segment was 0.58% as of September 30, 2021 compared to 0.63% as of December 31, 2020.

●

Delinquent loans to total loans for the Traditional Banking segment was 0.22% as of September 30, 2021 compared to 0.26% as of December 31, 2020.

●

Total Traditional Bank deposits increased $188 million, or 4%, during the first nine months of 2021.

Warehouse Lending segment

●

Net income increased $2.5 million, or 24%, for the first nine months of 2021 compared to the same period in 2020.

●

Net interest income increased $1.7 million, or 9%, for the first nine months of 2021 compared to the same period in 2020.

●

The Warehouse Provision was a net credit of $530,000 for the first nine months of 2021 compared to a net charge of $778,000 for the same period in 2020.

●

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

●

Average line usage was 52% during the first nine months of 2021 compared to 65% during the same period in 2020.

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Mortgage Banking segment

●

Within the Mortgage Banking segment, mortgage banking income decreased $7.3 million, or 31%, during the first nine months of 2021 compared to the same period in 2020.

●

Overall, Republic’s originations of secondary market loans totaled $525 million during the first nine months of 2021 compared to $548 million during the same period in 2020, with the Company’s gain-as-a-percent-of-loans-sold decreasing from 4.57% to 3.11% from period to period.

Tax Refund Solutions segment

Continuing Operations

●

Net loss from continuing operations was $834,000 for the first nine months of 2021 compared to a net loss of $1.7 million for the same period in 2020. The higher loss during the first nine months of 2020 primarily reflected general operating losses related to TRS’s prepaid card division, with such losses substantially occurring prior to May 1, 2020. On May 1, 2020, the RPS division added a large depository relationship that significantly improved profitability on a subsequent basis.

Discontinued Operations

●

Net income from discontinued operations increased $1.2 million, or 9%, for the first nine months of 2021 compared to the same period in 2020.

●

Net interest income from discontinued operations decreased $5.9 million, or 28%, for the first nine months of 2021 compared to the same period in 2020.

●

Total EA originations were $250 million during the first nine months of 2021 compared to $388 million for the first nine months of 2020.

●

Overall, TRS recorded a net charge to the Provision from discontinued operations of $7.9 million during the first nine months of 2021 compared to a net charge to the Provision of $15.2 million for the same period in 2020.

●

Noninterest income from discontinued operations increased $76,000 for the first nine months of 2021 compared to the same period in 2020.

●

Net RT revenue increased $54,000 for the first nine months of 2021 compared to the same period in 2020.

●

Noninterest expense from discontinued operations was $7.7 million for the first nine months of 2021 compared to $8.2 million for the same period in 2020.

Republic Credit Solutions segment

●

Net income decreased $2.9 million, or 21%, for the first nine months of 2021 compared to the same period in 2020.

●

Net interest income decreased $2.9 million, or 16%, for the first nine months of 2021 compared to the same period in 2020.

●

Overall, RCS recorded a net charge to the Provision of $5.0 million during the first nine months of 2021 compared to a net charge of $251,000 for the same period in 2020.

●

Noninterest income increased $4.3 million, or 116%, from the first nine months of 2020 to the first nine months of 2021.

●

Noninterest expense was $3.0 million for the first nine months of 2021 and $3.0 million for the same period in 2020.

●

Total nonperforming loans to total loans for the RCS segment was 0.59% as of September 30, 2021 compared to 0.04% as of December 31, 2020.

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●

Delinquent loans to total loans for the RCS segment was 8.31% as of September 30, 2021 compared to 9.23% as of December 31, 2020.

RESULTS OF OPERATIONS (Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020)

Net Interest Income

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

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

Total Company net interest income from continuing operations decreased $1.0 million, or 1%, during the first nine months of 2021 compared to the same period in 2020. Total Company net interest margin from continuing operations decreased to 3.46% during the first nine months of 2021 compared to 3.69% for the same period in 2020. Net interest income from discontinued operations was $14.9 million during the first nine months of 2021 compared to $20.9 million during the same period in 2020.

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

Traditional Banking segment

The Traditional Banking’s net interest income increased $1.3 million for the first nine months of 2021 compared to the same period in 2020. Traditional Banking’s net interest margin was 3.21% for the first nine months of 2021, a decrease of 20 basis points from the same period in 2020.

Table 7 — Traditional Bank Net Interest Income and Net Interest Margin Excluding PPP (Non-GAAP)

The Company earns fees and a coupon interest rate of 1.0% on its PPP portfolio. Due to the short-term nature of the PPP, management believes Traditional Bank net interest income excluding PPP fees and coupon interest is a more appropriate measure to analyze the challenges within the Traditional Bank’s net interest income and net interest margin. The following table reconciles Traditional Bank net interest income and net interest margin to Traditional Bank net interest income and net interest margin excluding PPP fees and interest, a non-GAAP measure. Net interest margin excluding PPP fees and interest presented below also excludes average PPP loans of $299 million and $301 million for the nine months ended September 30, 2021 and 2020.

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

Traditional Banking - GAAP	$	119,677	$	118,409	$	1,268	1	%	3.21	%	3.41	%	(0.20)	%
Less: PPP fees and interest		16,949		6,149		10,800	176		0.28		(0.05)		0.33
Traditional Banking ex PPP fees and interest - non-GAAP	$	102,728	$	112,260	$	(9,532)	(8)	%	2.93		3.46		(0.53)

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

●

Traditional Bank net interest income, excluding PPP fees and interest, decreased $9.5 million, or 8%, from the first nine months of 2020, as the Traditional Bank’s net interest margin, excluding PPP loans and related fees and interest, declined from 3.46% for the first nine months of 2020 to 2.93% for the first nine months of 2021. The decline in the net interest margin was substantially driven by an 83-basis point decline in the Traditional Bank’s yield on its average non-PPP interest-earning assets from the first ~~quarter~~nine months of 2020 to the first ~~quarter~~nine months of 2021, as the majority of the Traditional Bank’s growth in interest-earning assets during the previous 12 months was in lower-yielding cash ~~and investment securities~~or cash equivalents instead of loans.

●

Partially offsetting the Traditional Bank’s margin compression, the Traditional Bank recognized $16.9 million of fees and interest on its PPP portfolio during the first nine months of 2021 compared to $6.1 million of similar income during the same period in 2020. The $10.8 million increase in PPP fees and interest was driven significantly by the forgiveness, payoff, and paydown of $480 million of PPP loans during the first nine months of 2021. As of September 30, 2021, net PPP loans of $126 million remained on the Traditional Bank’s balance sheet, including $19 million in loan balances originated during 2020, $111 million in loan balances originated during 2021, and $4 million of unaccreted PPP fees reported as a credit offset to these originated balances. Unaccreted PPP fees will generally be recognized into income over the estimated remaining life of the PPP portfolio, with fee recognition accelerated if loans are forgiven or repaid earlier than estimated.

Warehouse Lending segment

Net interest income increased $2.5 million, or ~~57%~~24%, for the first ~~quarter~~nine months of 2021 compared to the same period in 2020.

Average committed Warehouse lines increased to ~~$1.5~~$1.4 billion during the first ~~quarter~~nine months of 2021 from ~~$1.1~~$1.2 billion during the same period in 2020, while overall usage rates on Warehouse lines of credit were ~~54%~~52% and ~~56%~~65%, respectively for the same periods. In addition, the Warehouse net interest margin increased to ~~3.43%~~3.47% for the first ~~quarter~~nine months of 2021 compared to ~~2.68%~~3.07% for the first ~~quarter~~nine months of 2020, as many of the Bank’s Warehouse ~~client~~clients reached contractual interest rate floors on their lines-of-credit during the ~~second quarter~~first nine months of 2020 preventing further declines in the segment’s loan yields, while the segment’s cost of funds continued to decline. Due to increasing competitive pressures, the Company began lowering the contractual interest-rate floors on its Warehouse lines during 2021. Management expects these lower floors to have a negative impact on the Warehouse net interest margin going forward.

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Tax Refund Solutions segment

Discontinued Operations

TRS’s net interest income from discontinued operations decreased ~~$5.8~~$5.9 million for the first ~~quarter~~nine months of 2021 compared to the same period in 2020. TRS’s EA product earned ~~$12.8~~$13.2 million in interest income during the first ~~quarter~~nine months of 2021, a ~~$6.5~~$6.4 million decrease from the first nine months of 2020 resulting primarily from a $138 million decrease in EA originations from period to period. Management believes that economic impact (stimulus) payments, pandemic health risks, and a two-week delay in the start to the 2021 tax season, all, in varying degrees, negatively impacted demand for its EA product during the first ~~quarter~~nine months of 2021.

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

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Republic Credit Solutions segment

RCS’s net interest income decreased ~~$2.3~~$2.9 million, or ~~32%~~16%, from the first ~~quarter~~nine months of 2020 to the first ~~quarter~~nine months of 2021. The decrease was driven primarily by a decline in fee income from RCS’s LOC I product. Loan fees on this product, recorded as interest income on loans, decreased to ~~$3.8~~$11.5 million during the first ~~quarter~~nine months of 2021 compared to ~~$6.0~~$14.7 million during the same period in 2020 and accounted for 76% and ~~80%~~78% of all RCS interest income on loans during the periods. The decrease in loan fees was the direct result of a decline in ~~outstanding line-of-credit~~ balances for RCS’s LOC I product following a reduction of marketing for this product during the ~~first quarter~~second and third quarters of 2020. ~~In addition, while~~While the marketing for ~~the~~this product was reinstated during the ~~third~~fourth quarter of 2020, management believes ~~that economic~~the ongoing impact ~~(stimulus)~~of government stimulus payments continued to reduce demand for this product during the first ~~quarter~~six months of ~~2021 further reduced demand for its line-of-credit products during the current period.~~2021.

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

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Table 18 — Total Company Average Balance Sheets and Interest Rates from Continuing Operations


	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020						Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
	Average				Average		Average				Average		Average				Average		Average				Average
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate

ASSETS(1)

Interest-earning assets:
Federal funds sold and other interest-earning deposits	$	510,433	$	154	0.12	%	$	207,335	$	637	1.23	%	$	792,858	$	774	0.13	%	$	273,604	$	818	0.40	%
Investment securities, including FHLB stock ~~(1)~~(2)		563,985		2,017	1.43			519,726		3,009	2.32			560,780		5,860	1.39			575,575		8,191	1.90
TRS Easy Advance loans (2)		89,732		12,789	57.01			135,307		19,261	56.94
RCS LOC I product (2)		16,284		3,770	92.61			26,603		6,050	90.97
Other RPG loans (3) (7)		139,729		2,789	7.98			119,190		2,713	9.10
Outstanding Warehouse lines of credit(4) (7)		790,244		7,370	3.73			643,182		7,045	4.38
Intercompany funds loaned to discontinued operations														108,228		199	0.25			103,442		1,131	1.46
RCS LOC I product (3) (7)														16,885		11,505	90.85			21,300		14,692	91.97
Other RPG loans (7)														105,292		3,539	4.48			92,803		3,519	5.06
Outstanding Warehouse lines of credit (4) (7)														744,522		20,892	3.74			770,454		22,305	3.86
Paycheck Protection Program loans (5) (7)		288,115		6,698	9.30			—		—	—			299,458		16,949	7.55			300,733		6,149	2.73
All other Core Bank loans (6) (7)		3,421,552		33,970	3.97			3,568,855		42,444	4.76			3,349,804		100,548	4.00			3,508,851		117,637	4.47

Total interest-earning assets		5,820,074		69,557	4.78			5,220,198		81,159	6.22			5,977,827		160,266	3.57			5,646,762		174,442	4.12

Allowance for credit loss		(66,561)						(53,818)						(60,682)						(52,652)

Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		249,842						199,511						117,763						94,679
Premises and equipment, net		39,185						45,628						38,845						43,836
Bank owned life insurance		68,257						66,654						88,414						67,061
Other assets ~~(1)~~(2)		191,497						148,773						173,927						148,773
Total assets	$	6,302,294					$	5,626,946					$	6,336,094					$	5,948,459

LIABILITIES AND STOCKHOLDERS’ EQUITY(1)

Interest-bearing liabilities:
Transaction accounts	$	1,485,015	$	82	0.02	%	$	1,128,781	$	682	0.24	%	$	1,551,690	$	266	0.02	%	$	1,253,811	$	1,019	0.11	%
Money market accounts		732,328		103	0.06			761,975		1,242	0.65			776,448		292	0.05			741,205		1,725	0.31
Time deposits		314,904		1,105	1.40			418,323		2,156	2.06			305,456		2,871	1.25			417,171		6,370	2.04
Reciprocal money market and time deposits		313,445		255	0.33			207,970		618	1.19			273,312		585	0.29			263,681		1,432	0.72
Brokered deposits		63,325		20	0.13			338,283		1,604	1.90			38,864		23	0.08			176,127		1,752	1.33

Total interest-bearing deposits		2,909,017		1,565	0.22			2,855,332		6,302	0.88			2,945,770		4,037	0.18			2,851,995		12,298	0.57

Securities sold under agreements to repurchase and other short-term borrowings		192,669		9	0.02			208,969		119	0.23			201,992		37	0.02			199,556		158	0.11
Intercompany funds borrowed from discontinued operations														102,190		313	0.41			132,497		1,543	1.55
Federal Reserve PPP Liquidity Facility														—		—	—			58,683		153	0.35
Federal Home Loan Bank advances		43,167		31	0.29			371,319		1,648	1.78			30,989		47	0.20			253,157		3,128	1.65
Subordinated note		41,240		172	1.67			41,240		352	3.41			41,089		507	1.65			41,240		829	2.68

Total interest-bearing liabilities		3,186,093		1,777	0.22			3,476,860		8,421	0.97			3,322,030		4,941	0.20			3,537,128		18,109	0.68

Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		2,146,036						1,249,025						2,061,144						1,506,109
Other liabilities		133,953						122,161						108,035						109,339
Stockholders’ equity		836,212						778,900						844,885						795,883
Total liabilities and stock-holders’ equity	$	6,302,294					$	5,626,946					$	6,336,094					$	5,948,459

Net interest income			$	67,780					$	72,738					$	155,325					$	156,333

Net interest spread					4.56	%					5.25	%					3.37	%					3.44	%

Net interest margin					4.66	%					5.57	%					3.46	%					3.69	%

(1)

The table above excludes average assets, average liabilities, interest income, and interest expense for discontinued operations; however, loans to and borrowings from discontinued operations are included above based on the Company’s funds transfer pricing methodology. Net interest income would be $170.3 million and $177.2 million and net interest margin would be 3.84% and 4.21% for the nine months ended September 30, 2021 and 2020 if continuing and discontinued operations were consolidated above.

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

~~(2)~~(3)

Interest income is composed entirely of loan fees.

~~(3)~~

~~Interest income includes loan fees of $1.7 million and $1.4 million for the quarters ended March 31, 2021 and 2020.~~

(4)	Interest income includes loan fees of ~~$871,000~~$2.4 million and ~~$630,000~~$2.4 million for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2021 and 2020.

(5)	Interest income includes loan fees of ~~$5.6~~$14.6 million and $3.7 million for the ~~quarter~~nine months ended ~~March 31, 2021.~~September 30, 2021 and 2020.

(6)	Interest income includes loan fees of ~~$1.1~~$3.0 million and ~~$1.2~~$2.4 million for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2021 and 2020.

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

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Table 29 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 29 — Total Company Volume/Rate Variance Analysis from Continuing Operations


		Three Months Ended March 31, 2021						Nine Months Ended September 30, 2021
		Compared to						Compared to
		Three Months Ended March 31, 2020						Nine Months Ended September 30, 2020
	Total Net		Increase / (Decrease) Due to				Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate		Change		Volume		Rate

Interest income:

Federal funds sold and other interest-earning deposits	$	(483)	$	412	$	(895)	$	(44)	$	781	$	(825)
Investment securities, including FHLB stock		(992)		239		(1,231)		(2,331)		(205)		(2,126)
TRS Easy Advance loans*		(6,472)		(8,923)		2,451
Intercompany funds loaned to discontinued operations								(932)		50		(982)
RCS LOC I product		(2,280)		(2,388)		108		(3,187)		(7,321)		4,134
Other RPG loans		76		434		(358)		20		444		(424)
Outstanding Warehouse lines of credit		325		1,466		(1,141)		(1,413)		(739)		(674)
Paycheck Protection Program loans		6,698		6,698		—		10,800		(26)		10,826
All other Core Bank loans		(8,474)		(1,694)		(6,780)		(17,089)		(5,164)		(11,925)
Net change in interest income		(11,602)		(3,756)		(7,846)		(14,176)		(12,180)		(1,996)

Interest expense:

Transaction accounts		(600)		165		(765)		(753)		198		(951)
Money market accounts		(1,139)		(46)		(1,093)		(1,433)		78		(1,511)
Time deposits		(1,051)		(459)		(592)		(3,499)		(1,436)		(2,063)
Reciprocal money market and time deposits		(363)		220		(583)		(847)		51		(898)
Brokered deposits		(1,584)		(737)		(847)		(1,729)		(784)		(945)
Securities sold under agreements to repurchase and other short-term borrowings		(110)		(8)		(102)		(121)		2		(123)
Intercompany funds borrowed from discontinued operations								(1,230)		(292)		(938)
Federal Reserve PPP Liquidity Facility								(153)		(153)		—
Federal Home Loan Bank advances		(1,617)		(830)		(787)		(3,081)		(1,540)		(1,541)
Subordinated note		(180)		—		(180)		(322)		(3)		(319)
Net change in interest expense		(6,644)		(1,695)		(4,949)		(13,168)		(3,879)		(9,289)

Net change in net interest income	$	(4,958)	$	(2,061)	$	(2,897)	$	(1,008)	$	(8,301)	$	7,293

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

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

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Provision

Total Company Provision from continuing operations was ~~$15.3~~a net charge of $4.4 million for the first ~~quarter~~nine months of 2021 compared to ~~$22.8~~a net charge of $15.6 million for the same period in 2020. Total Company Provision from discontinued operations was a net charge of $7.9 million for the first nine months of 2021 compared to a net charge of $15.2 million for the same period in 2020.

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

Traditional Banking segment

The Traditional Banking Provision during the first ~~quarter~~nine months of 2021 was a net credit of ~~$5,000,~~$126,000 compared to a net charge of ~~$5.6~~$14.5 million for the first ~~quarter~~nine months of 2020. An analysis of the Provision for the first ~~quarter~~nine months of 2021 compared to the same period in 2020 follows:

●

For the first ~~quarter~~nine months of 2021, there was a minimal net credit to the Traditional Bank Provision, ~~during the quarter as~~generally based on an improving economic outlook in conjunction with limited net charge-offs incurred by the Traditional Bank ~~non-PPP loan balances declined~~since making significant life-of-loan reserves during 2020 following the onset of the pandemic. The net credit recorded during the first nine months of 2021 primarily included nominal ACLL releases for the residential real estate, CRE, and HELOC portfolios offset by ~~approximately $51 million from December 31, 2020 to March 31,~~additional reserves for certain Special Mention loans with continued signs of pandemic-related hardship through September 30, 2021.

●

During the first ~~quarter~~nine months of 2020, the Traditional Bank recorded ~~$6.3~~$17.7 million of additional Provision due to the expected economic impact of the COVID-19 pandemic. Offsetting the increase in Provision due to the impact of the COVID-19 pandemic during the first ~~quarter~~nine months of 2020 was a reduction in Provision of ~~$533,000~~$3.2 million consistent with a ~~$59~~$254 million decrease in Traditional Bank loan spot balances from December 31, 2019 to ~~March 31, 2020.~~

●

Related to loans rated Substandard, Special Mention, or PCD, the Bank recorded a net credit of $450,000 for the first quarter of 2020. The net credit during the first quarter of 2020 was driven by a $470,000 recovery recorded upon the payoff of a large CRE relationship that had been partially charged-off in a prior period.

●

Related to the Bank’s corporate bonds held within its investment securities portfolio, the Bank recorded a net credit to the Provision of $75,000 during the first quarter of 2021 compared to a net charge of $246,000 during the first quarter of 2020. The credit during 2021 and the charge during 2020 were both driven by changes in PD and LGD assumptions from period to period, as the economy improved during 2021 from its pandemic-driven lows duringSeptember 30, 2020.

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was ~~1.35%~~1.42% as of ~~March 31,~~September 30, 2021 compared to 1.34% as of December 31, 2020 and ~~1.15%~~1.26% as of ~~March 31,~~September 30, 2020. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of ~~March 31,~~September 30, 2021.

Warehouse Lending segment

Warehouse recorded a net credit to the Provision of ~~$242,000~~$530,000 for the first ~~quarter~~nine months of 2021 compared to a net charge of ~~$332,000~~$778,000 for the same period in 2020. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased ~~$97~~$212 million during the first ~~quarter~~nine months of 2021 compared to an increase of ~~$133~~$311 million during the first ~~quarter~~nine months of 2020.

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

Tax Refund Solutions segment

Discontinued Operations

TRS recorded a net charge to the Provision from discontinued operations of ~~$15.9~~$7.9 million during the first ~~quarter~~nine months of 2021 compared to a net charge of ~~$15.1~~$15.2 million for the same period in 2020. Substantially all TRS Provision in both periods was related to its EA product.

TRS’s Provision for EA loan losses was ~~$16.0~~$8.0 million, or ~~6.4%~~3.19% of its $250 million in EAs originated during the first ~~quarter~~nine months of 2021, compared to a Provision of $15.2 million, or ~~3.9%~~3.93% of its $388 million in EAs originated during the first ~~quarter~~nine months of 2020. The ~~increased~~lower Provision ~~for~~during the first ~~quarter~~nine months of 2021 ~~was due to a significantly lower amount of refund payments received~~resulted from repayment rates on EA loans from the U.S. Treasury ~~as a percentage of total EAs originated for~~that exceeded those during the first ~~quarter of 2021 as compared to the first quarter~~nine months of 2020. ~~While~~Management believes the ~~Company is uncertain how much the COVID-19 pandemic and~~slower repayment rates from the U.S. ~~government’s stimulus program may have contributed to the~~Treasury during

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~~slower refund payments~~the first nine months of 2020 was directly related to the impact of the COVID-19 pandemic and the resulting delay in tax-return processing by the IRS for ~~2021, management believes it has adequately adjusted its expected loss rate to absorb EA losses based on information known through the date~~certain types of ~~this release.~~tax returns that required further taxpayer communication and verification.

EAs are only originated during the first two months of each year, with all uncollected EAs charged off by June 30th of each year. EAs collected during the second half of each year are recorded as recoveries of previously charged-off loans. ~~TRS’s EA loss rate as of June 30, 2020 was 5.04% of total 2020 EA originations and it finished 2020 with an EA loss rate of 3.36% of total EAs originated.~~

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

Republic Credit Solutions segment

As illustrated in Table 310 below, RCS recorded a ~~credit~~net charge to the Provision of ~~$375,000~~$5.0 million during the first ~~quarter~~nine months of 2021 compared to a net charge to the Provision of ~~$1.7 million~~$251,000 for the same period in 2020. The ~~decrease~~increase in the Provision was driven by ~~a reduction~~an increase in ~~both net charge-offs and~~ outstanding balances for RCS’s ~~LOC I product, as~~lines of credit during the first nine months of 2021 compared to a decrease in similar balances during the same period in 2020. The Company reduced marketing for ~~this~~its LOC I product ~~in response to~~during the ~~COVID-19 pandemic. RCS~~second and third quarters of 2020, then began incrementally increasing such marketing during the fourth quarter of 2020. The Company began offering its ~~marketing for its line-of-credit~~LOC II product during the ~~third~~first quarter of 2021.

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was ~~7.16%~~9.99% as of ~~March 31,~~September 30, 2021, 7.94% as of December 31, 2020, and ~~12.18%~~7.82% as of ~~March 31,~~September 30, 2020. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of ~~March 31,~~September 30, 2021.

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

Table 310 — RCS Provision by Product


	Three Months Ended Mar. 31,								Nine Months Ended Sep. 30,
(in thousands)	2021			2020	$ Change		% Change		2021			2020	$ Change		% Change
Product:
Lines of credit	$	(374)	$	1,707	$	(2,081)	(122)	%	$	5,036	$	214	$	4,822	NM	%
Hospital receivables		(1)		(1)		—	—			1		37		(36)	(97)
Total	$	(375)	$	1,706	$	(2,081)	(122)	%	$	5,037	$	251	$	4,786	NM	%

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Table 411 — Summary of Loan and Lease Loss Experience


	Three Months Ended						Nine Months Ended
	March 31,						September 30,
(dollars in thousands)	2021			2020			2021			2020

ACLL at beginning of period	$	61,067		$	43,351		$	61,067		$	43,351

Adoption of ASC 326		—			6,734			—			6,734

Charge-offs:

Traditional Banking:
Residential real estate		—			(27)			—			(40)
Commercial real estate		(428)			—			(428)			(270)
Commercial & industrial								(35)			(447)
Home equity								—			(14)
Consumer		(209)			(495)			(649)			(960)
Total Traditional Banking		(637)			(522)			(1,112)			(1,731)
Warehouse lines of credit		—			—			—			—
Total Core Banking		(637)			(522)			(1,112)			(1,731)

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—			(10,256)			(19,575)
Commercial & industrial		(22)			(44)
Other TRS loans								(51)			(94)
Republic Credit Solutions		(766)			(2,709)			(2,427)			(5,401)
Total Republic Processing Group		(788)			(2,753)			(12,734)			(25,070)
Total charge-offs		(1,425)			(3,275)			(13,846)			(26,801)

Recoveries:

Traditional Banking:
Residential real estate		27			41			376			116
Commercial real estate		68			471			82			472
Commercial & industrial		7			3			27			124
Home equity		7			75			46			108
Consumer		146			204			371			399
Total Traditional Banking		255			794			902			1,219
Warehouse lines of credit		—			—			—			—
Total Core Banking		255			794			902			1,219

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			42			2,272			4,336
Commercial & industrial		9			—
Other TRS loans								27			1
Republic Credit Solutions		93			271			247			553
Total Republic Processing Group		102			313			2,546			4,890
Total recoveries		357			1,107			3,448			6,109

Net loan charge-offs		(1,068)			(2,168)			(10,398)			(20,692)

Provision - Core Banking		(172)			5,675
Provision - RPG		15,509			16,839
Provision from continuing operations- Core Banking								(532)			15,008
Provision from continuing operations - RPG								5,037			251
Provision from discontinued operations - RPG								7,850			15,239
Total Provision		15,337			22,514			12,355			30,498
ACLL at end of period	$	75,336		$	70,431		$	63,024		$	59,891

Credit Quality Ratios - Total Company:

ACLL to total loans		1.61	%		1.56	%		1.45	%		1.20	%
ACLL to nonperforming loans		335			338			301			284
Net loan charge-offs to average loans		0.09			0.19			0.30			0.58
Net loan charge-offs from continuing operations to average loans								0.07			0.15

Credit Quality Ratios - Core Banking:

ACLL to total loans		1.14	%		0.97	%		1.22	%		1.05	%
ACLL to nonperforming loans		234			210			254			245
Net loan charge-offs to average loans		0.03			(0.03)			0.01			0.01

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Noninterest Income

Total Company noninterest income ~~decreased $1.5 million, or 5%,~~from continuing operations increased $236,000 during the first ~~quarter~~nine months of 2021 compared to the same period in 2020. Total Company noninterest income from discontinued operations increased $76,000 during the first nine months of 2021 compared to the same period in 2020.

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

Traditional Banking segment

Traditional Banking’s noninterest income ~~decreased $451,000~~,increased $2.4 million, or 6%12%, for the first ~~quarter~~nine months of 2021 compared to the same period in 2020. Interchange Fee Income increased ~~$476,000~~$1.4 million from the first ~~quarter~~nine months of 2020 to the same period in 2021, while Service Charges on Deposit Accounts ~~decreased $273,000~~increased $612,000 comparing the same periods. Service Charges on Deposit Accounts ~~remained~~were below normal levels during the first nine months of 2020, as a pandemic-driven rise in the consumer savings ~~rates rose meaningfully over the last year, resulting in~~rate drove a reduction in the Bank’s overdraft-related fees. ~~Management believes that two rounds of government stimulus payments~~Both Interchange Fee Income and ~~a reduction in pandemic-related economic restrictions~~Service Charges on Deposits began to trend upward toward more normal levels during the first quarter of 2021 ~~were~~following the ~~significant drivers~~removal of ~~the increase in the Traditional Bank’s debit card interchange income.~~pandemic-related restrictions.

The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020 were ~~$1.2~~$4.0 million and ~~$1.9~~$4.1 million. The total daily overdraft charges, net of refunds, included in interest income for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020 were ~~$249,000~~$810,000 and ~~$426,000.~~$517,000. The Bank suspended its daily overdraft charges during the first ~~quarter~~nine months of 2020 to soften the economic hardship of the COVID-19 pandemic on its clients. The Bank reinstituted the charging of its daily overdraft fee on September 1, 2020.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income ~~increased $2.4~~decreased $7.3 million, or ~~50%~~31%, during the first ~~quarter~~nine months of 2021 compared to the same period in 2020. For the first ~~quarter~~nine months of 2021, the Core Bank originated ~~$214~~$525 million in secondary market loans and achieved an average gain-as-a-percent-of-loans-sold during the period of ~~3.95%~~3.11%, with comparable originations of ~~$125~~$548 million and comparable gains of ~~2.80%~~4.57% during the first ~~quarter~~nine months of 2020. Favorable market conditions drove a higher gain percentage for the Core Bank and the mortgage industry, in general, during the last nine months of 2020 and for a portion of the first ~~quarter~~nine months of ~~2021, with these~~2021. These favorable conditions ~~normalizing moderately~~began to normalize during February 2021 ~~and through~~causing the ~~end of the quarter.~~Core Bank’s gain-as-a-percentage-of-loans-sold to trend toward more normal historical levels at or near 2.50%. Management believes ~~these favorable conditions could~~this trend will likely continue ~~to normalize~~ during the remainder of ~~2021 potentially bringing the Core Bank’s gain-as-a-percent-of-loans-sold closer to normal historical levels near 2.50%.~~2021.

~~Tax Refund Solutions segment~~

TRS’s noninterest income decreased $2.5 million during the first quarter of 2021 compared to the same period in 2020. This decrease reflected a $3.1 million decrease in net RT fees partially offset by a $584,000 increase in program fees. RTs processed decreased 20% from 2020 to 2021 due to a two-week delay to the start of the current tax season and pandemic-related restrictions that have decreased foot traffic for brick-and-mortar tax preparers. The increase in program fees resulted from the Company’s May 1, 2020 acquisition of $250 million in prepaid card balances.

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Republic Credit Solutions segment

RCS’s noninterest income ~~decreased $983,000,~~increased $4.3 million, or ~~43%~~116%, during the first ~~quarter~~nine months of 2021 compared to the same period in 2020, with program fees representing the entirety of RCS’s noninterest income. ~~Management believes the reduced fee income was directly related to~~ ~~economic impact (stimulus) payments made~~Pandemic-driven restrictions negatively impacted RCS program fees during the first ~~quarter~~nine months of 2020, with those program fees beginning to normalize during 2021 ~~which reduced demand for its line-of-credit products during~~following the ~~period.~~removal of restrictions.

The following table presents RCS program fees by product:

Table 512 — RCS Program Fees by Product


	Three Months Ended Mar. 31,								Nine Months Ended Sep. 30,
(in thousands)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Product:
Lines of credit	$	768	$	919	$	(151)	(16)	%	$	4,168	$	2,199	$	1,969	90	%
Hospital receivables		48		18		30	167			173		53		120	226
Installment loans*		513		1,375		(862)	NM			3,589		1,424		2,165	NM
Total	$	1,329	$	2,312	$	(983)	(43)	%	$	7,930	$	3,676	$	4,254	116	%

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

Noninterest Expense

Total Company noninterest expense from continuing operations increased ~~$842,000,~~$905,000, or 2%1%, during the first ~~quarter~~nine months of 2021 compared to the same period in 2020. Total Company noninterest expense from discontinued operations decreased $503,000 during the first nine months of 2021 compared to the same period in 2020.

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

Traditional Banking segment

Traditional Banking noninterest expense increased ~~$681,000~~$442,000 for the first ~~quarter~~nine months of 2021 compared to the same period in 2020. The following primarily drove the change in noninterest expense:

●

Salaries and benefits expense increased approximately ~~$855,000,~~$2.4 million, or 4%, primarily driven by annual merit increases and increases in contract labor, equity compensation, payroll taxes, and health benefits from period to period.

●

~~Occupancy~~Technology, Equipment, and Communication expense increased ~~$411,000, or 14%, driven primarily by increases in snow removal and janitorial costs from period~~$683,000, as the Traditional Bank strategically added 24 Interactive Teller Machines over the previous 12 months, bringing its ITM fleet to ~~period.~~over 70 ITMs as of September 30, 2021.

●

~~FDIC insurance~~Interchange-related expense increased ~~$279,000. The prior period was unusually low because the Traditional Bank applied credits against its insurance premiums~~$430,000, or 13%, as transaction volume began rising to normal levels during the first quarter of ~~2020.~~ 2021 following the removal of pandemic-related restrictions.

●

Partially offsetting the increases above, Bank Franchise Tax expense decreased ~~$432,000.~~$1.6 million. As previously reported, Kentucky enacted HB354 in March 2019 and as a result, the Bank transitioned from a capital-based bank franchise tax to the Kentucky corporate income tax on January 1, 2021.

●

Other expenses decreased $1.9 million. Within this decrease, Provision for credit losses on off-balance sheet credit exposures decreased $518,000, driven by lower expected usage rates on the Bank’s committed credit lines coupled with a generally improving economic outlook. Additionally, ~~meals, entertainment, mileage,~~within the other expenses line item, the following expenses experienced decreases: fraud-related expenses, supplies, freight, and ~~travel costs decreased $332,000, in total, resulting from pandemic-related restrictions on~~ATM promotions, with most of these ~~activities.~~decreases generally driven by the impact of the ongoing pandemic.

Mortgage Banking segment

Noninterest expense at the Mortgage Banking segment increased ~~$1.1~~$1.9 million, or ~~56%~~25%, during the first ~~quarter~~nine months of 2021 compared to the same period in 2020, primarily due to higher mortgage commissions recorded during 2021.

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COMPARISON OF FINANCIAL CONDITION AS OF ~~MARCH 31,~~SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

Cash and Cash Equivalents

Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Republic had ~~$985 million~~$1.0 billion in cash and cash equivalents as of ~~March 31,~~September 30, 2021 compared to $486 million as of December 31, 2020. The ~~Company continues to maintain a relatively high~~growth in cash ~~balance on its balance sheet as~~balances was driven by continued growth in deposit balances along with a continued general decline in loans. Given the near-term risk of inflation and rising market interest rates, combined with the requirement that the term of the investments would have ~~continued~~ to ~~grow and loan balances have continued~~be extended in order to ~~generally decline.~~pick up a meaningful increase in the overall yield, management chose to not redeploy significant excess cash into the investment portfolio through September 30, 2021. During the fourth quarter of 2021, however, management began evaluating potential changes to its existing strategy for redeploying excess cash as a result of a recent steepening of the yield curve.

For cash held at the FRB, the Bank earns a yield on amounts more than required reserves. This yield was ~~0.10%~~a weighted-average 0.13% for the first ~~quarter~~nine months of 2021. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.

Table 613 — Loan Portfolio Composition


(in thousands)	March 31, 2021		December 31, 2020		$ Change		% Change		September 30, 2021		December 31, 2020		$ Change		% Change

Traditional Banking:
Residential real estate:
Owner occupied	$	851,869	$	879,800	$	(27,931)	(3)	%	$	827,898	$	879,800	$	(51,902)	(6)	%
Nonowner occupied		271,829		264,780		7,049	3			294,818		264,780		30,038	11
Commercial real estate		1,344,394		1,349,085		(4,691)	(0)			1,393,241		1,349,085		44,156	3
Construction & land development		102,113		98,674		3,439	3			105,968		98,674		7,294	7
Commercial & industrial		312,537		325,596		(13,059)	(4)			333,795		325,596		8,199	3
Paycheck Protection Program		383,311		392,319		(9,008)	(2)			126,271		392,319		(266,048)	(68)
Lease financing receivables		9,930		10,130		(200)	(2)			9,427		10,130		(703)	(7)
Aircraft		106,081		101,375		4,706	5			130,398		101,375		29,023	29
Home equity		226,280		240,640		(14,360)	(6)			215,282		240,640		(25,358)	(11)
Consumer:
Credit cards		14,200		14,196		4	0			14,781		14,196		585	4
Overdrafts		474		587		(113)	(19)			753		587		166	28
Automobile loans		25,624		30,300		(4,676)	(15)			17,533		30,300		(12,767)	(42)
Other consumer		7,325		8,167		(842)	(10)			6,223		8,167		(1,944)	(24)
Total Traditional Banking		3,655,967		3,715,649		(59,682)	(2)			3,476,388		3,715,649		(239,261)	(6)
Warehouse lines of credit*		865,844		962,796		(96,952)	(10)			750,682		962,796		(212,114)	(22)
Total Core Banking		4,521,811		4,678,445		(156,634)	(3)			4,227,070		4,678,445		(451,375)	(10)

*Republic Processing Group:**
Tax Refund Solutions:
Easy Advances		30,703		—		30,703	NA			—		—		—	NA
Other TRS loans		5,770		23,765		(17,995)	(76)			1		—		1	NA
Republic Credit Solutions		108,309		110,893		(2,584)	(2)			116,711		110,893		5,818	5
Total Republic Processing Group		144,782		134,658		10,124	8			116,712		110,893		5,819	5

Total loans**		4,666,593		4,813,103		(146,510)	(3)			4,343,782		4,789,338		(445,556)	(9)
Allowance for credit losses		(75,336)		(61,067)		(14,269)	23			(63,024)		(61,067)		(1,957)	3

Total loans, net	$	4,591,257	$	4,752,036	$	(160,779)	(3)	%	$	4,280,758	$	4,728,271	$	(447,513)	(9)	%

*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.

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Gross loans decreased by ~~$147~~$446 million, or 3%9%, during the first ~~quarter~~nine months of 2021 to ~~$4.7~~$4.3 billion as of ~~March 31,~~September 30, 2021. The most significant components comprising the change in loans by reportable segment follow:

~~Table of Contents~~

Traditional Banking segment

Period-end balances for Traditional Banking loans decreased ~~$60~~$239 million, or 2%6%, from December 31, 2020 to ~~March 31,~~September 30, 2021. The following primarily drove the change in loan balances during the first ~~quarter~~nine months of 2021:

●

The owner-occupied residential real estate and home equity categories decreased $28 million and $14 million. These decreases largely reflect a sharp drop in long-term market interest rates during the previous 12 months that drove an increase in refinance volume for residential mortgages, with much of the refinance activity going into fixed-rate products sold on the secondary market.

●

The C&I category decreased $13 million during the first quarter of 2021, reflecting paydowns and payoffs of C&I loans during the period. C&I loan production to offset these paydowns has been negatively impacted by pandemic driven credit conditions.

●

During the first ~~quarter~~nine months of 2021, the Core Bank’s PPP portfolio decreased $9$266 million, primarily reflecting the forgiveness and payoff of ~~$182~~$382 million of 2020 PPP originations and the ~~origination~~net increase of ~~$176~~$111 million of 2021 PPP loans during the first ~~quarter~~nine months of ~~2021, and the net increase in unaccreted PPP loan fees of $3 million.~~2021.

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

●

The owner-occupied residential real estate and home equity categories decreased $52 million and $25 million during the first nine months of 2021. These decreases largely reflect the impact of a sharp drop in long-term market interest rates during the previous 12 months that drove an increase in refinance volume for residential mortgages, with much of the refinance activity going into fixed-rate products sold on the secondary market.

●

Offsetting the decreases above, the CRE category increased $44 million and the Aircraft category increased $29 million, as lending activity began normalizing following the removal of pandemic-driven restrictions during the first nine months of 2021.

Warehouse Lending segment

Outstanding Warehouse period end balances decreased ~~$97~~$212 million from December 31, 2020 to ~~March 31,~~September 30, 2021. Due to the volatility and seasonality of the mortgage market, it is difficult to project future outstanding balances of Warehouse lines of credit. The growth of the Bank’s Warehouse Lending business greatly depends on the overall mortgage market and typically follows industry trends. Since its entrance into this business during 2011, the Bank has experienced volatility in the Warehouse portfolio consistent with overall demand for mortgage products. Weighted average quarterly usage rates on the Bank’s Warehouse lines have ranged from a low of 31% during the fourth quarter of 2013 to a high of 71% during the fourth quarter of 2019. On an annual basis, weighted average usage rates on the Bank’s Warehouse lines have ranged from a low of 40% during 2013 to a high of 66% during 2020.

~~Tax Refund Solutions segment~~

Outstanding TRS loans increased $13 million from December 31, 2020 to March 31, 2021 primarily reflecting $31 million of unpaid EAs partially offset by a $18 million reduction in other TRS loans. EAs are only made during the first two months of each year, with all unpaid EAs charged off by June 30^th of each year. Other TRS loans as of December 31, 2020 were primarily commercial loans to Tax Providers. These loans are typically made in the fourth quarter of each year and fully repaid by the end of the first quarter of the following year.

~~Table of Contents~~

~~Republic Credit Solutions segment~~

Outstanding RCS loans decreased $3 million from December 31, 2020 to March 31, 2021 primarily reflecting a $2 million decrease in outstanding balances for RCS’s LOC I product. As previously mentioned, the decrease in balances for RCS’s LOC I product during the first quarter of 2021 was attributable to economic impact (stimulus) payments during the period which further reduced demand for its line-of-credit products.

Allowance for Credit Losses

As of ~~March 31,~~September 30, 2021, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. The Bank also maintained an ACLS and an ACLC for expected losses in its securities portfolio and its off-balance sheet credit exposures, respectively. Management evaluates the adequacy of the ACLL monthly, and the adequacy of the ACLS and ACLC quarterly. All ACLs are presented and discussed with the Audit Committee and the Board of Directors quarterly.

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The Company’s ACLL increased ~~$14~~$2 million from $61 million as of December 31, 2020 to ~~$75~~$63 million as of ~~March 31,~~September 30, 2021. As a percent of total loans, the total Company’s ACLL increased to ~~1.61%~~1.45% as of ~~March 31,~~September 30, 2021 compared to 1.27% as of December 31, 2020. An analysis of the ACL by reportable segment follows:

Traditional Banking segment

●

The Traditional Banking ACLL decreased approximately ~~$312,000~~$212,000 to $49 million as of ~~March 31,~~September 30, 2021 driven primarily by net charge-offs during the first ~~quarter~~nine months of ~~2021 and a $51 million decrease in non-PPP loan balances.~~2021.

●

The Traditional Bank decreased its ACLS ~~$75,000~~$124,000 during the first ~~quarter~~nine months of 2021 to ~~$103,000~~$54,000 based on improved PD and LGD expectations on its corporate bond portfolios.

●

The Traditional Bank decreased its ACLC $52,000 during the first nine months of 2021 to $937,000 based on an improving economic outlook.

Warehouse Lending segment

The Warehouse ACLL decreased to approximately ~~$2.2~~$1.9 million, and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparing ~~March 31,~~September 30, 2021 to December 31, 2020. As of ~~March 31,~~September 30, 2021, the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for the first ~~quarter~~nine months of 2021.

~~Tax Refund Solutions segment~~

The TRS ACLL increased to $16 million as of March 31, 2021 from $158,000 as of December 31, 2020, driven primarily by estimated losses on TRS’s EA product. Due to the seasonal nature of the EA, estimated reserves are generally made during the first two months of the year when the product is offered, with losses charged against those reserves in the second quarter of each year. Based on the timing of EA reserves versus charge-offs, the ACLL for EAs to total remaining outstanding EAs is relatively substantial at the end of the first quarter, or 52% and 58% as of March 31, 2021 and March 31, 2020. The Company provided an ACLL for expected losses equal to 6.4% of total originations during the first quarter of 2021 as compared to 3.9% during the first quarter of 2020 because a higher percentage of EAs remained outstanding as of March 31, 2021 compared to March 31, 2020. Management believes it has adequately adjusted its expected loss rate to absorb EA losses based on information known through the date of this filing.

Republic Credit Solutions segment

The RCS ACLL ~~decreased $1~~increased $3 million ~~to $8 million as of March 31, 2021~~ from $9 million as of December 31, ~~2020. The decrease in ACLL was~~2020 to $12 million as of September 30, 2021, with this increase driven by ~~a $2 million decrease~~growth in ~~outstanding~~ balances ~~for~~on RCS’s ~~LOC I product.~~line-of-credit products.

RCS maintained an ACLL for two distinct credit products offered as of ~~March 31,~~September 30, 2021, including its line-of-credit products and its healthcare-receivables products. As of ~~March 31,~~September 30, 2021, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables products to as high as 49% for its line-of-credit products. The lower reserve percentage of 0.25% was provided for RCS’s healthcare receivables, as such receivables have recourse back to the third-party providers.

~~Table of Contents~~

Asset Quality

COVID-19 Loan Accommodations

As of ~~March 31,~~September 30, 2021, ~~$33~~$3 million, or less than 1% of the Company’s Traditional Bank portfolio remained under a COVID-19 hardship accommodation.

The ultimate long-term impact of the above accommodated loan balances on the Company’s Classified, Special Mention, nonperforming, and delinquent loans is currently uncertain. When evaluating its borrowers for further accommodation, the Bank considers prudent options based on the borrower’s credit risk; applicable federal and state laws and regulations, including COVID-related accommodations provided by applicable federal, state, and local laws; and the Bank’s ability to ease cash flow pressures on the affected borrowers while improving the Bank’s likelihood of collection on its loans. If enough borrowers were unable to meet their loan payment obligations at the end of their accommodation periods and were also unable to further extend their accommodation arrangements with the Bank, the Bank’s Classified, Special Mention, nonperforming, and delinquent loans would increase and negatively impact the Company’s overall operating performance.

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Classified and Special Mention Loans

The Bank applies credit quality indicators, or ~~“ratings,”~~ratings, to individual loans based on internal Bank policies. Such internal policies are informed by regulatory standards. Loans rated “Loss,” “Doubtful,” “Substandard,” and ~~PCI/~~PCD-Substandard are considered “Classified.” Loans rated “Special Mention” or ~~PCI/~~PCD-Special Mention are considered Special Mention. The Bank’s Classified and Special Mention loans increased approximately ~~$21~~$12 million during the first ~~quarter~~nine months of 2021, driven primarily by commercial-purpose loans within the hospitality and leisure industry downgraded to Special Mention during the first ~~quarter~~nine months of 2021. As previously mentioned, the ultimate long-term impact of loans accommodated due to COVID-19 on the Company’s Classified and Special Mention loans is currently uncertain.

See Footnote 4 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding Classified and Special Mention loans.

Table 714 — Classified and Special Mention Loans


(in thousands)	March 31, 2021		December 31, 2020		$ Change		% Change		September 30, 2021		December 31, 2020		$ Change		% Change

Loss	$	—	$	—	$	—	—		$	—	$	—	$	—	—
Doubtful		—		—		—	—			—		—		—	—
Substandard		27,540		30,193		(2,653)	(9)	%		24,501		30,193		(5,692)	(19)	%
PCD - Substandard		1,835		1,887		(52)	(3)			1,739		1,887		(148)	(8)
Total Classified Loans		29,375		32,080		(2,705)	(8)			26,240		32,080		(5,840)	(18)

Special Mention		112,685		89,206		23,479	26			107,227		89,206		18,021	20
PCD - Special Mention		874		895		(21)	(2)			831		895		(64)	(7)
Total Special Mention Loans		113,559		90,101		23,458	26			108,058		90,101		17,957	20

Total Classified and Special Mention Loans	$	142,934	$	122,181	$	20,753	17		$	134,298	$	122,181	$	12,117	10

~~Table of Contents~~

Nonperforming Loans

Nonperforming loans include loans on nonaccrual status and loans past due 90-days-or-more and still accruing. The nonperforming loan category includes TDRs totaling approximately $7$6 million and $7 million as of ~~March 31,~~September 30, 2021 and December 31, 2020.

Nonperforming loans to total loans ~~decreased to~~remained at 0.48% ~~as of March 31, 2021~~ from ~~0.49% as of~~ December 31, 2020 ~~as the total balance of nonperforming loans decreased by $1 million, or 5%, while total loans decreased $147 million, or 3%, during the first quarter of~~to September 30, 2021. As previously mentioned, the ultimate long-term impact of loans accommodated due to COVID-19 on the Company’s nonperforming loans is currently uncertain.

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Table 815 — Nonperforming Loans and Nonperforming Assets Summary


(in thousands)	March 31, 2021			December 31, 2020			September 30, 2021			December 31, 2020

Loans on nonaccrual status*	$	22,004		$	23,548		$	20,252		$	23,548
Loans past due 90-days-or-more and still on accrual**		517			47			691			47
Total nonperforming loans		22,521			23,595			20,943			23,595
Other real estate owned		2,015			2,499			1,845			2,499
Total nonperforming assets	$	24,536		$	26,094		$	22,788		$	26,094

Credit Quality Ratios - Total Company:
Nonperforming loans to total loans		0.48	%		0.49	%		0.48	%		0.49	%
Nonperforming assets to total loans (including OREO)		0.53			0.54			0.52			0.54
Nonperforming assets to total assets		0.38			0.42			0.37			0.42

Credit Quality Ratios - Core Bank:
Nonperforming loans to total loans		0.49	%		0.50	%		0.48	%		0.50	%
Nonperforming assets to total loans (including OREO)		0.53			0.56			0.52			0.56
Nonperforming assets to total assets		0.42			0.45			0.39			0.45

*	Loans on nonaccrual status include collateral-dependent loans. See Footnote 4 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding collateral-dependent loans.

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

Table 16 — Nonperforming Loan Composition


	September 30, 2021					December 31, 2020
				Percent of					Percent of
				Total					Total
(in thousands)	Balance			Loan Class		Balance			Loan Class

Traditional Banking:
Residential real estate:
Owner occupied		$	11,708	1.41	%		$	14,328	1.63	%
Nonowner occupied			99	0.03				81	0.03
Commercial real estate			6,607	0.47				6,762	0.50
Construction & land development			—	—				—	—
Commercial & industrial			93	0.03				55	0.02
Paycheck Protection Program			—	—				—	—
Lease financing receivables			—	—				—	—
Aircraft			—	—				—	—
Home equity			1,657	0.77				2,141	0.89
Consumer:
Credit cards			—	—				5	0.04
Overdrafts			—	—				—	—
Automobile loans			84	0.48				170	0.56
Other consumer			4	0.06				11	0.13
Total Traditional Banking			20,252	0.58				23,553	0.63
Warehouse lines of credit			—	—				—	—
Total Core Banking			20,252	0.48				23,553	0.50

Republic Processing Group:
Tax Refund Solutions:
Easy Advances			—	—				—	—
Other TRS loans			—	—				—	—
Republic Credit Solutions			691	0.59				42	0.04
Total Republic Processing Group			691	0.59				42	0.04

Total nonperforming loans		$	20,943	0.48	%		$	23,595	0.49	%

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Table 917 — Stratification of Nonperforming ~~Loan Composition~~Loans


	March 31, 2021					December 31, 2020					Number of Nonperforming Loans and Recorded Investment
				Percent of					Percent of						Balance
				Total					Total
(in thousands)	Balance			Loan Class		Balance			Loan Class
September 30, 2021												Balance			> $100 &			Balance			Total
(dollars in thousands)											No.	<= $100		No.	<= $500		No.	> $500		No.	Balance

Traditional Banking:
Residential real estate:
Owner occupied		$	13,194	1.55	%		$	14,328	1.63	%	143	$	5,002	25	$	4,511	2	$	2,195	170	$	11,708
Nonowner occupied			106	0.04				81	0.03		3		99	—		—	—		—	3		99
Commercial real estate			6,669	0.50				6,762	0.50		—		—	4		895	3		5,712	7		6,607
Construction & land development			—	—				—	—		—		—	—		—	—		—	—		—
Commercial & industrial			40	0.01				55	0.02		4		93	—		—	—		—	4		93
Paycheck Protection Program			—	—				—	—		—		—	—		—	—		—	—		—
Lease financing receivables			—	—				—	—		—		—	—		—	—		—	—		—
Aircraft			—	—				—	—		—		—	—		—	—		—	—		—
Home equity			1,855	0.82				2,141	0.89		27		741	4		916	—		—	31		1,657
Consumer:
Credit cards			—	—				5	0.04		—		—	—		—	—		—	NM		—
Overdrafts			—	—				—	—		—		—	—		—	—		—	—		—
Automobile loans			132	0.52				170	0.56		10		84	—		—	—		—	10		84
Other consumer			8	0.11				11	0.13		4		4	—		—	—		—	4		4
Total Traditional Banking			22,004	0.60				23,553	0.63		191		6,023	33		6,322	5		7,907	229		20,252
Warehouse lines of credit			—	—				—	—		—		—	—		—	—		—	—		—
Total Core Banking			22,004	0.49				23,553	0.50		191		6,023	33		6,322	5		7,907	229		20,252

Republic Processing Group:
Tax Refund Solutions:
Easy Advances			—	—				—	—		—		—	—		—	—		—	—		—
Other TRS loans			—	—				—	—		—		—	—		—	—		—	—		—
Republic Credit Solutions			517	0.48				42	0.04		NM		691	—		—	—		—	NM		691
Total Republic Processing Group			517	0.36				42	0.03		NM		691	—		—	—		—	NM		691

Total nonperforming loans		$	22,521	0.48	%		$	23,595	0.49	%
Total											191	$	6,714	33	$	6,322	5	$	7,907	229	$	20,943


	Number of Nonperforming Loans and Recorded Investment
					Balance
December 31, 2020		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance

Traditional Banking:
Residential real estate:
Owner occupied	146	$	5,110	27	$	4,966	5	$	4,252	178	$	14,328
Nonowner occupied	3		81	—		—	—		—	3		81
Commercial real estate	2		45	3		925	3		5,792	8		6,762
Construction & land development	—		—	—		—	—		—	—		—
Commercial & industrial	2		55	—		—	—		—	2		55
Paycheck Protection Program	—		—	—		—	—		—	—		—
Lease financing receivables	—		—	—		—	—		—	—		—
Aircraft	—		—	—		—	—		—	—		—
Home equity	26		867	6		1,274	—		—	32		2,141
Consumer:
Credit cards	NM		5	—		—	—		—	NM		5
Overdrafts	—		—	—		—	—		—	—		—
Automobile loans	14		170	—		—	—		—	14		170
Other consumer	7		11	—		—	—		—	7		11
Total Traditional Banking	200		6,344	36		7,165	8		10,044	244		23,553
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	200		6,344	36		7,165	8		10,044	244		23,553

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

Total	200	$	6,386	36	$	7,165	8	$	10,044	244	$	23,595

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Table ~~10 — Stratification of Nonperforming Loans~~

Number of Nonperforming Loans and Recorded Investment








Balance








March 31, 2021

Balance

> $100 &

Balance

Total

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

Traditional Banking:

Residential real estate:

Owner occupied

147

$
4,905

27

$
4,648

4

$
3,641

178

$
13,194

Nonowner occupied

3

106

—

—

—

—

3

106

Commercial real estate

—

—

3

903

3

5,766

6

6,669

Construction & land development

—

—

—

—

—

—

—

—

Commercial & industrial

1

40

—

—

—

—

1

40

Paycheck Protection Program

—

—

—

—

—

—

—

—

Lease financing receivables

—

—

—

—

—

—

—

—

Aircraft

—

—

—

—

—

—

—

—

Home equity

28

739

5

1,116

—

—

33

1,855

Consumer:

Credit cards

—

—

—

—

—

—

NM

—

Overdrafts

—

—

—

—

—

—

—

—

Automobile loans

12

132

—

—

—

—

12

132

Other consumer

9

8

—

—

—

—

9

8

Total Traditional Banking

200

5,930

35

6,667

7

9,407

242

22,004

Warehouse lines of credit

—

—

—

—

—

—

—

—

Total Core Banking

200

5,930

35

6,667

7

9,407

242

22,004

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

—

—

Other TRS loans

—

—

—

—

—

—

NM

—

Republic Credit Solutions

—

—

—

—

NM

517

NM

517

Total Republic Processing Group

NM

—

—

—

—

517

NM

517

Total

200

$
5,930

35

$
6,667

7

$
9,924

242

$
22,521

Number of Nonperforming Loans and Recorded Investment








Balance








December 31, 2020

Balance

> $100 &

Balance

Total

(dollars in thousands)

No.

<= $100

No.

<= $500

No.

> $500

No.

Balance

Traditional Banking:

Residential real estate:

Owner occupied

146

$
5,110

27

$
4,966

5

$
4,252

178

$
14,328

Nonowner occupied

3

81

—

—

—

—

3

81

Commercial real estate

2

45

3

925

3

5,792

8

6,762

Construction & land development

—

—

—

—

—

—

—

—

Commercial & industrial

2

55

—

—

—

—

2

55

—

—

—

—

—

—

Lease financing receivables

—

—

—

—

—

—

—

—

Aircraft

—

—

—

—

—

—

—

—

Home equity

26

867

6

1,274

—

—

32

2,141

Consumer:

Credit cards

NM

5

—

—

—

—

NM

5

Overdrafts

—

—

—

—

—

—

—

—

Automobile loans

14

170

—

—

—

—

14

170

Other consumer

7

11

—

—

—

—

7

11

Total Traditional Banking

200

6,344

36

7,165

8

10,044

244

23,553

Warehouse lines of credit

—

—

—

—

—

—

—

—

Total Core Banking

200

6,344

36

7,165

8

10,044

244

23,553

Republic Processing Group:

Tax Refund Solutions:

Easy Advances

—

—

—

—

—

—

—

—

Other TRS loans

NM

—

—

—

—

—

NM

—

Republic Credit Solutions

NM

42

—

—

—

—

NM

42

Total Republic Processing Group

NM

42

—

—

—

—

NM

42

Total

200

$
6,386

36

$
7,165

8

$
10,044

244

$
23,595

~~Table of Contents~~

~~Table 11~~18 — Rollforward of Nonperforming Loans


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Nonperforming loans at the beginning of the period	$	23,595	$	23,489	$	22,344	$	20,419	$	23,595	$	23,489
Loans added to nonperforming status during the period that remained nonperforming at the end of the period		846		2,629		1,248		3,721		2,641		8,169
Loans removed from nonperforming status during the period that were nonperforming at the beginning of the period (see table below)		(1,891)		(4,975)		(2,233)		(2,251)		(4,839)		(5,932)
Principal balance paydowns of loans nonperforming at both period ends		(499)		(628)		(384)		(360)		(1,098)		(4,660)
Net change in principal balance of other loans nonperforming at both period ends*		470		338		(32)		(444)		644		19

Nonperforming loans at the end of the period	$	22,521	$	20,853	$	20,943	$	21,085	$	20,943	$	21,085

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

Table 1219 — Detail of Loans Removed from Nonperforming Status


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Loans charged off	$	—	$	(43)	$	—	$	—	$	—	$	(2)
Loans transferred to OREO		—		—		—		—		—		(2,109)
Loans refinanced at other institutions		(1,891)		(4,907)		(2,150)		(1,917)		(4,559)		(2,870)
Loans returned to accrual status		—		(25)		(83)		(334)		(280)		(951)

Total loans removed from nonperforming status during the period that were nonperforming at the beginning of the period	$	(1,891)	$	(4,975)	$	(2,233)	$	(2,251)	$	(4,839)	$	(5,932)

Based on the Bank’s review as of ~~March 31,~~September 30, 2021, management believes that its reserves are adequate to absorb expected losses on all nonperforming loans.

Delinquent Loans

Total Company delinquent loans to total loans decreased to ~~0.32%~~0.40% as of ~~March 31,~~September 30, 2021 from ~~0.41%~~0.42% as of December 31, ~~2020, primarily due to a $5 million, or 25%, decrease in delinquent loans and a $147 million, or 3%, decrease in total loans during the first quarter of 2021.~~

2020. Core Bank delinquent loans to total Core Bank loans decreased to ~~0.19%~~0.18% as of ~~March 31,~~September 30, 2021 from 0.21% as of December 31, 2020. With the exception of small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of ~~March 31,~~September 30, 2021 and December 31, 2020 were on nonaccrual status. As previously mentioned, the ultimate long-term impact of loans accommodated due to COVID-19 on the Company’s delinquent loans is currently uncertain.

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Table 1320 — Delinquent Loan Composition*


	March 31, 2021					December 31, 2020					September 30, 2021					December 31, 2020
				Percent of					Percent of					Percent of					Percent of
				Total					Total					Total					Total
(in thousands)	Balance			Loan Class		Balance			Loan Class		Balance			Loan Class		Balance			Loan Class

Traditional Banking:
Residential real estate:
Owner occupied		$	2,526	0.30	%		$	3,260	0.37	%		$	2,128	0.26	%		$	3,260	0.37	%
Nonowner occupied			—	—				—	—				—	—				—	—
Commercial real estate			5,402	0.40				5,457	0.40				5,037	0.36				5,457	0.40
Construction & land development			—	—				—	—				—	—				—	—
Commercial & industrial			—	—				12	0.00				66	0.02				12	0.00
Paycheck Protection Program			—	—				—	—				—	—				—	—
Lease financing receivables			—	—				—	—				—	—				—	—
Aircraft			—	—				—	—				—	—				—	—
Home equity			484	0.21				702	0.29				259	0.12				702	0.29
Consumer:
Credit cards			27	0.19				73	0.51				45	0.30				73	0.51
Overdrafts			94	19.83				147	25.04				145	19.26				147	25.04
Automobile loans			25	0.10				56	0.18				11	0.06				56	0.18
Other consumer			2	0.03				6	0.07				1	0.02				6	0.07
Total Traditional Banking			8,560	0.23				9,713	0.26				7,692	0.22				9,713	0.26
Warehouse lines of credit			—	—				—	—				—	—				—	—
Total Core Banking			8,560	0.19				9,713	0.21				7,692	0.18				9,713	0.21

Republic Processing Group:
Tax Refund Solutions:
Easy Advances			—	—				—	—				—	—				—	—
Other TRS loans			104	1.80				—	—				—	—				—	—
Republic Credit Solutions			6,322	5.84				10,234	9.23				9,701	8.31				10,234	9.23
Total Republic Processing Group			6,426	4.44				10,234	7.60				9,701	8.31				10,234	9.23

Total delinquent loans		$	14,986	0.32	%		$	19,947	0.41	%		$	17,393	0.40	%		$	19,947	0.42	%

* Represents total loans 30-days-or-more past due. Delinquent status may be determined by either the number of days past due or number of payments past due. EAs do not have a contractual due date but during 2021 the Company considered an EA delinquent if it remained unpaid 35 days after the taxpayer’s tax return is submitted to the applicable taxing authority.

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Table 1421 — Rollforward of Delinquent Loans


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Delinquent loans at the beginning of the period	$	19,947	$	20,804	$	18,718	$	14,046	$	19,947	$	20,804
Loans that became delinquent during the period - Easy Advances*		—		23,467
Loans added to delinquency status during the period and remained in delinquency status at the end of the period		992		3,950		945		6,093		1,268		7,817
Loans removed from delinquency status during the period that were in delinquency status at the beginning of the period (see table below)		(2,017)		(4,702)		(3,109)		(2,205)		(3,179)		(8,488)
Principal balance paydowns of loans delinquent at both period ends		(29)		(95)		(34)		(788)		(81)		(2,977)
Net change in principal balance of other loans delinquent at both period ends*		(3,907)		(797)		873		(93)		(562)		(103)
Delinquent loans at the end of period	$	14,986	$	42,627	$	17,393	$	17,053	$	17,393	$	17,053

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

Table 1522 — Detail of Loans Removed from Delinquent Status


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
(in thousands)	2021		2020		2021		2020		2021		2020

Loans charged off	$	—	$	—	$	—	$	—	$	(1)	$	(3)
Easy Advances paid-off or charged-off		—		—
Easy Advances paid off or charged off						—		—		—		—
Loans transferred to OREO		—		—		—		—		—		(2,109)
Loans refinanced at other institutions		(1,270)		(2,442)		(1,652)		(1,189)		(1,938)		(3,856)
Loans paid current		(747)		(2,260)		(1,457)		(1,016)		(1,240)		(2,520)

Total loans removed from delinquency status during the period that were in delinquency status at the beginning of the period	$	(2,017)	$	(4,702)	$	(3,109)	$	(2,205)	$	(3,179)	$	(8,488)

~~Collateral Dependent~~Collateral-Dependent Loans and Troubled Debt Restructurings

When management determines that a loan is collateral dependent and foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs if appropriate. The Bank’s policy is to charge-off all or that portion of its recorded investment in collateral-dependent loans upon a determination that it expects the full amount of contractual principal and interest will not be collected.

A TDR is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. The majority of the Bank’s TDRs involve a restructuring of loan terms such as a temporary reduction in the payment amount to require only interest and escrow (if required), reducing the loan’s interest rate, and/or extending the maturity date of the debt. Nonaccrual loans modified as TDRs remain on nonaccrual status and continue to be reported as nonperforming loans. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt.

Table 1623 — Collateral-Dependent Loans and Troubled Debt Restructurings


(in thousands)	March 31, 2021		December 31, 2020		$ Change		% Change		September 30, 2021		December 31, 2020		$ Change		% Change

Cashflow-dependent TDRs	$	10,754	$	10,938	$	(184)	(2)	%	$	6,227	$	10,938	$	(4,711)	(43)	%
Collateral-dependent TDRs		9,521		9,840		(319)	(3)			10,224		9,840		384	4
Total TDRs		20,275		20,778		(503)	(2)			16,451		20,778		(4,327)	(21)
Collateral dependent loans (which are not TDRs)		20,701		20,806		(105)	(1)
Collateral-dependent loans (which are not TDRs)										14,781		20,806		(6,025)	(29)
Total recorded investment in TDRs and collateral-dependent loans	$	40,976	$	41,584	$	(608)	(1)	%	$	31,232	$	41,584	$	(10,352)	(25)	%

See Footnote 4 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding collateral-dependent loans and TDRs.

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Deposits

Table 1724 — Deposit Composition


(in thousands)	March 31, 2021		December 31, 2020		$ Change		% Change		September 30, 2021		December 31, 2020		$ Change		% Change

Core Bank:
Demand	$	1,312,103	$	1,217,263	$	94,840	8	%	$	1,342,395	$	1,217,263	$	125,132	10	%
Money market accounts		742,823		712,824		29,999	4			793,236		712,824		80,412	11
Savings		273,117		236,335		36,782	16			295,663		236,335		59,328	25
Individual retirement accounts (1)		47,113		47,889		(776)	(2)			46,196		47,889		(1,693)	(4)
Time deposits, $250 and over (1)		77,014		83,448		(6,434)	(8)			84,340		83,448		892	1
Other certificates of deposit (1)		182,333		199,214		(16,881)	(8)			163,345		199,214		(35,869)	(18)
Reciprocal money market and time deposits (1)		317,173		314,109		3,064	1			101,109		314,109		(213,000)	(68)
Brokered deposits (1)		40,504		25,010		15,494	62			30,001		25,010		4,991	20
Total Core Bank interest-bearing deposits		2,992,180		2,836,092		156,088	6			2,856,285		2,836,092		20,193	1
Total Core Bank noninterest-bearing deposits		1,588,647		1,503,662		84,985	6			1,691,413		1,503,662		187,751	12
Total Core Bank deposits		4,580,827		4,339,754		241,073	6			4,547,698		4,339,754		207,944	5

Republic Processing Group:
Money market accounts		2,964		6,673		(3,709)	(56)			5,114		6,673		(1,559)	(23)
Total RPG interest-bearing deposits		2,964		6,673		(3,709)	(56)			5,114		6,673		(1,559)	(23)

Brokered prepaid card deposits		504,224		257,856		246,368	96			323,250		257,856		65,394	25
Other noninterest-bearing deposits		183,477		128,898		54,579	42			38,822		110,021		(71,199)	(65)
Total RPG noninterest-bearing deposits		687,701		386,754		300,947	78			362,072		367,877		(5,805)	(2)
Total RPG deposits		690,665		393,427		297,238	76			367,186		374,550		(7,364)	(2)

Deposits of discontinued operations (2)										33,063		18,877		14,186	75

Total deposits	$	5,271,492	$	4,733,181	$	538,311	11	%	$	4,947,947	$	4,733,181	$	214,766	5	%

(1)	Includes time ~~deposits.~~deposit

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

Total Company deposits increased ~~$538~~$215 million, or ~~11%~~5%, from December 31, 2020 to ~~$5.3~~$4.9 billion as of ~~March 31,~~September 30, 2021.

Total Core Bank deposits increased ~~$241~~$208 million, or 6%5%, with the following primarily driving growth:

●

Management believes its deposit balances continue to be the beneficiary of Federal government stimulus brought about by the COVID-19 pandemic. During the first ~~quarter~~nine months of 2021, the Federal government issued two rounds of economic stimulus payments. At this time, management is uncertain how long these stimulus funds may remain at the Bank.

●

The Core Bank originated ~~$176~~$210 million of PPP loans during the first ~~quarter~~nine months of 2021, with PPP borrowers generally retaining their loan proceeds within a deposit account at the Bank.

●

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

●

Offsetting the positive growth mentioned above, deposit balances were negatively impacted by a shift of approximately $140 million in balances from interest-bearing reciprocal money market accounts to SSUARs. This shift occurred as the Bank lowered its reciprocal money market account pricing to its clients due to the high cost of the additional fees associated with participation in the money market network, which allows clients to fully insure their deposits through FDIC insurance by spreading their funds across multiple banks.

Total RPG deposits ~~increased $297~~from continuing operations decreased $7 million, or ~~76%~~2%, for the first ~~quarter~~nine months of 2021, with the following primarily driving growth:

●

RPG noninterest-bearing deposits growth was primarily driven by the following:

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●

~~TRS deposits increased $87 million due to seasonal short-term RT deposits. These deposits are expected to exit the Bank during the next quarter.~~

●

~~TRS~~RPG prepaid card balances within its RPS division increased ~~$246~~$65 million, driven by government stimulus funds applied to prepaid card deposit balances. At this time, management is uncertain how long these stimulus funds may remain at the Bank.

●

RPG other noninterest-bearing deposits decreased $71 million, driven by an outflow of commercial settlement deposits associated with the RCS segment’s line-of-credit products.

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

~~Table~~

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 increased $50 million during the first nine months of ~~Contents~~2021 to $261 million as of September 30, 2021 compared to $211 million as of December 31, 2020. As mentioned above, Bank clients shifted approximately $140 million in balances from interest-bearing reciprocal money market accounts to SSUARs after the Bank lowered its reciprocal money market account pricing due to the high cost to the Bank of participating in the money market network. The increase driven by this shift was partially offset by a $94 million decrease in SSUARs during the first nine months of 2021, driven by the exit of one corporate client following the acquisition of this client by another company. The substantial majority of SSUARs are indexed to immediately repricing indices such as the FFTR.

Federal Home Loan Bank Advances

FHLB advances declined by $210 million from December 31, 2020 to ~~March 31,~~September 30, 2021, as the Bank continued to maintain sufficient deposit balances to meet its current liquidity needs. The Bank held $25 million in overnight advances at a rate of 0.14% as of ~~March 31,~~September 30, 2021, compared to $225 million in overnight advances at a rate of 0.16% as of December 31, 2020. Given the overall amount of liquidity on the Company’s balance sheet as of ~~March 31,~~September 30, 2021, management does not anticipate that FHLB term or overnight advances will likely be utilized to any material extent over the near term.

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

Interest Rate Swaps

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

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

Liquidity

The Company had a loan to deposit ratio (excluding brokered deposits) of ~~99%~~95% as of ~~March 31,~~September 30, 2021 and 108% as of December 31, 2020. As of ~~March 31,~~September 30, 2021 and December 31, 2020, the Company had cash and cash equivalents on-hand of ~~$985 million~~$1.0 billion and $486 million. The Bank also had available borrowing capacity of ~~$871~~$898 million and $683 million from the FHLB as of ~~March 31,~~September 30, 2021 and December 31, 2020. In addition, the Bank’s liquidity resources included unencumbered debt securities of ~~$257~~$187 million and $274 million as of ~~March 31,~~September 30, 2021 and December 31, 2020 and unsecured lines of credit of $125 million available through various other financial institutions as of the same period-ends.

The Bank maintains sufficient liquidity to fund routine loan demand and routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets in the form of investment securities. Funding and cash flows can also be realized by the sale of AFS debt securities, principal paydowns on loans and mortgage-backed securities, and proceeds realized from loans held for sale. The Bank’s liquidity is impacted by its ability to sell certain investment securities, which is limited due to the level of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings, and for other purposes, as required by law. As of ~~March 31,~~September 30, 2021 and December 31, 2020, these pledged investment securities had a fair value of ~~$273~~ $354

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million and $304 million. Republic’s banking centers and its website, www.republicbank.com, provide access to retail deposit markets. These retail deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were canceled, or if the Bank cannot obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.

As of ~~March 31,~~September 30, 2021, the Bank had approximately $1.6 billion in deposits from ~~239~~245 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded $2 million. The 20 largest non-sweep deposit relationships represented approximately ~~$666~~$609 million, or ~~13%~~12%, of the Company’s total deposit balances as of ~~March 31,~~September 30, 2021. These accounts do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances were moved from the Bank, the Bank would likely utilize overnight borrowing lines in the short-term to replace the balances. On a longer-term basis, the Bank would likely utilize wholesale-brokered deposits to replace withdrawn balances, or alternatively, higher-cost internet-sourced deposits. Based on past experience utilizing brokered deposits and internet-sourced deposits, the Bank believes it can quickly obtain these types of deposits if needed. The overall cost of gathering these types of deposits, however, could be substantially higher than the Traditional Bank deposits they replace, potentially decreasing the Bank’s earnings.

Due to its historical success of growing loans and its overall use of non-core funding sources, the Bank has approached and, periodically during each quarter, has fallen short of its Board-approved minimum internal policy limits for liquidity management. Most recently, the Bank has experienced a significant increase in its outstanding Warehouse line-of-credit balances. Because management deems this increase in Warehouse balances to not be long-term in nature and the Bank is asset sensitive for its interest rate risk position, it has elected to utilize overnight sources in order to fund these outstanding balances.

~~Table of Contents~~

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

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

Capital

Total stockholders’ equity increased from $823 million as of December 31, 2020 to ~~$838~~$839 million as of ~~March 31,~~September 30, 2021. The increase in stockholders’ equity was primarily attributable to net income earned during 2021 reduced primarily by cash dividends declared and Class A common stock repurchased.

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

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

Dividend Restrictions — The Parent Company’s principal source of funds for dividend payments are dividends received from RB&T. Banking regulations limit the amount of dividends that may be paid to the Parent Company by the Bank without prior approval of the respective states’ banking regulators. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. As of ~~March 31,~~September 30, 2021, RB&T could, without prior approval, declare dividends of approximately ~~$146~~$176 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.~~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~~Risk-Based Capital, Common Equity Tier I ~~Risk Based~~Risk-Based Capital, Tier I Risk ~~Based Capital~~Based-Capital and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or

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exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer. Republic’s average stockholders’ equity to average assets ratio was ~~13.27%~~13.33% as of ~~March 31,~~September 30, 2021 compared to 13.35% as of December 31, 2020. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.

~~Table of Contents~~

In 2005, ~~RBCT,~~Republic Bancorp Capital Trust, an unconsolidated trust subsidiary of Republic, was formed and issued $40 million in TPS. ~~The sole asset~~On September 30, 2021, as permitted under the terms of ~~RBCT represents~~RBCT’s governing documents, Republic redeemed these securities at the ~~proceeds~~par amount of approximately $40 million, without penalty. Republic’s capital ratios remained well above “well capitalized” levels following the redemption of the ~~offering loaned to Republic in exchange for a subordinated note with similar terms to the TPS. The RBCT~~ TPS, ~~are~~which were treated as part of Republic’s Tier I ~~Capital.~~Capital while outstanding.

The subordinated note and related interest expense are included in Republic’s consolidated financial statements. The subordinated note paid a fixed interest rate of 6.015% through September 30, 2015 and adjusted to 3-month LIBOR plus 1.42% on a quarterly basis thereafter. The subordinated note matures on December 31, 2035 and is redeemable at the Company’s option on a quarterly basis. The Company chose not to redeem the subordinated note on April 1, 2021 and is currently carrying the note at a cost of LIBOR plus 1.42%.

Table 1825 — Capital Ratios (1)


	As of March 31, 2021				As of December 31, 2020				As of September 30, 2021				As of December 31, 2020
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio

Total capital to risk-weighted assets
Republic Bancorp, Inc.	$	924,665	19.15	%	$	896,053	18.52	%	$	877,936	18.25	%	$	896,053	18.52	%
Republic Bank & Trust Company		827,393	17.16			796,114	16.46			849,951	17.67			796,114	16.46

Common equity tier 1 capital to risk-weighted assets
Republic Bancorp, Inc.	$	824,280	17.07	%	$	803,682	16.61	%	$	824,203	17.13	%	$	803,682	16.61	%
Republic Bank & Trust Company		767,079	15.91			743,743	15.38			796,218	16.56			743,743	15.38

Tier 1 (core) capital to risk-weighted assets
Republic Bancorp, Inc.	$	864,280	17.90	%	$	843,682	17.43	%	$	824,203	17.13	%	$	843,682	17.43	%
Republic Bank & Trust Company		767,079	15.91			743,743	15.38			796,218	16.56			743,743	15.38

Tier 1 leverage capital to average assets
Republic Bancorp, Inc.	$	864,280	13.73	%	$	843,682	13.70	%	$	824,203	13.13	%	$	843,682	13.70	%
Republic Bank & Trust Company		767,079	12.20			743,743	12.11			796,218	12.72			743,743	12.11

(1)

The Company and the Bank elected in 2020 to defer the impact of CECL on regulatory capital. The deferral period is five years, with the total estimated CECL impact 100% deferred for the first two years, then phased in over the next three years. If not for this election, the Company’s regulatory capital ratios would have been approximately 2014 basis points lower than those presented in the table above as of ~~March 31,~~September 30, 2021.

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Asset/Liability Management and Market Risk

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

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

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

As of ~~March 31,~~September 30, 2021, a dynamic simulation model was run for interest rate changes from “Down 100” basis points to “Up 400” basis points. The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning ~~April~~October 1, 2021 and ending ~~March 31,~~September 30, 2022 based on instantaneous movements in interest rates from Down 100 to Up 400 basis points equally across all points on the yield curve. The Bank’s dynamic earnings simulation model includes secondary market loan fees and excludes Traditional Bank loan fees.

Table 1926 — Bank Interest Rate Sensitivity (Continuing Operations)


	Change in Rates															Change in Rates
	-100			+100			+200			+300			+400			-100			+100			+200			+300			+400
	Basis Points			Basis Points			Basis Points			Basis Points			Basis Points			Basis Points			Basis Points			Basis Points			Basis Points			Basis Points

% Change from base net interest income as of March 31, 2021		(1.1)	%		(2.0)	%		(0.6)	%		3.6	%		8.4	%
% Change from base net interest income as of September 30, 2021																	—	%		(1.8)	%		(1.7)	%		2.8	%		7.3	%
% Change from base net interest income as of December 31, 2020		0.4	%		(4.5)	%		(7.0)	%		(5.7)	%		(4.2)	%		0.4	%		(4.5)	%		(7.0)	%		(5.7)	%		(4.2)	%

The Bank’s dynamic simulation model run for ~~March~~September 2021 projected ~~a decrease~~no change in the Bank’s net interest income plus secondary market loan fees for the “Down-100”, scenario, a decrease in the “Up-100” and “Up-200” scenarios, ~~while~~and an increase in the “Up-300” and “Up-400” rate ~~scenarios projected increases.~~scenarios. The projections as of December 2020 reflected a modest increase in the Down-100 scenario and decreases in all Up-rate scenarios.

As compared to December 2020, the deterioration in the Down-100 rate scenario for ~~March~~September 2021 was generally because the Bank had less ability in ~~March~~September 2021 than December 2020 to reprice its liabilities downward. The improvement in the UpUp-rate scenarios was primarily due ~~partially~~ to ~~growth in interest-earning assets and partially to a smaller projected falloff in secondary market fees for~~ the ~~March~~following:

●

Growth in interest-earning cash balances from December 2020 to September 2021; and

●

A smaller projected falloff in secondary market fees for the September 2021 simulation than previously projected for the December 2020 simulation.

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LIBOR Exposure

In July 2017, the Financial Conduct Authority (the “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. Bank regulators have instructed banks to discontinue new originations referencing LIBOR as soon as possible, but no later than December 2021. To facilitate the transition process, management has instituted an enterprise-wide program to identify, assess, and monitor risks associated with the expected discontinuance or unavailability of LIBOR.

Management focuses on operational readiness, as well as instituting processes and systems to validate that contract risk is clearly identified and understood. New originations and any modifications or renewals of LIBOR-based contracts contain fallback language to assist in an orderly transition to an alternative reference rate. For Bank contracts that have a duration beyond December 31, 2021, and that reference LIBOR, all fallback provisions and variations are currently being identified and sorted into classifications based upon those provisions. Upon classification, the contracts are monitored and possibly remediated if fallback provisions are not deemed sufficiently robust. The Bank realizes that remediating certain contracts indexed to LIBOR may require consent from the counterparties, which could be difficult and costly to obtain in certain limited circumstances.

As of September 30, 2021, the Company had approximately $1.3 billion of assets that reference LIBOR, with short-term Warehouse balances representing $751 million of these assets and commercial and mortgage loans primarily making up the remainder. These amounts exclude derivative assets and liabilities on the Company’s consolidated balance sheet. As of September 30, 2021, the notional amount of the Company’s LIBOR-referenced interest rate derivative contracts was more than $250 million. Each of the LIBOR-referenced amounts discussed above will vary in future periods as current contracts expire with potential replacement contracts using either LIBOR or an alternative reference rate. The Company, and other industry participants, continue to review alternative reference rates that could be utilized as a replacement for LIBOR.

For additional discussion regarding the Bank’s net interest income, see the sections titled “Net Interest Income” in this section of the filing under “RESULTS OF OPERATIONS (Three Months Ended ~~March 31,~~September 30, 2021 Compared to Three Months Ended ~~March 31,~~September 30, 2020). and “RESULTS OF OPERATIONS (Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020.”

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Item 3.Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4.Controls and Procedures.

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

PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

See Footnote 1 “Basis of Presentation and Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements” for discussion regarding the Bank’s lawsuit against Green Dot.

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

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Item 1A.Risk Factors.

FACTORS THAT MAY AFFECT FUTURE RESULTS

There have been no material changes in the Company’s risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of its Annual Report on Form 10-K for the fiscal year ended December 31, 2020. You should carefully consider the risk factors discussed in Republic’s 2020 Form 10-K, which could materially affect its business, financial condition or future results.

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

Details of Republic’s Class A Common Stock purchases during the ~~first~~third quarter of 2021 are included in the following table:


				Total Number of	Maximum Number				Total Number of	Maximum Number
				Shares Purchased	of Shares that May				Shares Purchased	of Shares that May
				as Part of Publicly	Yet Be Purchased				as Part of Publicly	Yet Be Purchased
	Total Number of	Average Price		Announced Plans	Under the Plan	Total Number of	Average Price		Announced Plans	Under the Plan
Period	Shares Purchased	Paid Per Share		or Programs	or Programs	Shares Purchased	Paid Per Share		or Programs	or Programs

January 1 - January 31	—	$	—	—	1,000,000
February 1 - February 28	96,860		41.84	96,860	903,140
March 1 - March 31	9,800		42.77	9,800	893,340
July 1 - July 31						198,409	$	46.89	198,409	439,871
August 1 - August 31						82,529		49.75	82,529	357,342
September 1 - September 30						106,094		49.29	106,094	251,248
Total	106,660	$	41.92	106,660	893,340	387,032	$	48.16	387,032	251,248

The Company repurchased ~~106,660~~387,032 shares during the ~~first~~third quarter of 2021. ~~In connection with employee stock awards, there were 28,874 shares withheld upon exercise of stock options to cover withholding taxes and the exercise price.~~ On January 27, 2021, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase shares of its Class A Common Stock to 1,000,000 shares, an increase of 941,577 shares from the buyback program that was previously in place. The repurchase program will remain effective until the total number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of ~~March 31,~~September 30, 2021, the Company had ~~893,340~~251,248 remaining shares that could be repurchased under its current share repurchase program.

During the ~~first~~third quarter of 2021, there were approximately 1,000 shares of Class A Common Stock issued upon conversion of shares of Class B Common Stock by stockholders of Republic in accordance with the share-for-share conversion option of the Class B Common Stock. The exemption from registration of newly issued Class A Common Stock relies upon Section (3)(a)(9) of the Securities Act of 1933.

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

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Item 6.Exhibits.

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


Exhibit Number		Description of Exhibit

~~3.1~~10.1		~~Amended~~Seventh Amendment to Office Lease dated as of September 1, 2021 to the Office Lease dated August 1, 1999, as amended, by and ~~Restated Bylaws~~between Jaytee-Springhurst, LLC and Republic Bank & Trust Company

10.2		Termination of Employment Agreement dated September 15, 2021 between Republic Bank & Trust Company and Logan M. Pichel (Incorporated by reference to Exhibit ~~3.1~~10.1 of Registrant’s Form 8-K filed ~~April 26,~~September 15, 2021 (Commission File Number: 0-24649))

31.1		Certification of Principal Executive Officer pursuant to the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002

32*		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following financial statements from the Company’s quarterly report on Form 10-Q were formatted in iXBRL(Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of ~~March 31,~~September 30, 2021 and December 31, 2020, (ii) Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020, (iii) Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020, (iv) Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020 and (v) Notes to Consolidated Financial Statements

104		Cover Page Interactive Data File formatted in iXBRL and contained in Exhibit 101.

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		REPUBLIC BANCORP, INC.
	��	(Registrant)

		Principal Executive Officer:


Date: ~~May 6,~~November 5, 2021		/s/ Steven E. Trager
		By: Steven E. Trager
		~~Chair~~Chairman and Chief Executive Officer


		Principal Financial Officer:


Date: ~~May 6,~~November 5, 2021		/s/ Kevin Sipes
		By: Kevin Sipes
		Executive Vice President, Chief Financial
		Officer and Chief Accounting Officer

~~100~~117



PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements.	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	6370

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	96114

Item 4.	Controls and Procedures.	96114

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	96114

Item 1A.	Risk Factors.	97115

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	98115

Item 6.	Exhibits.	99116

	SIGNATURES	~~100~~117